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General Editor: G. A. KOZLOV, 
Corr. Mem. USSR Acad. Sc. 


Translated from the Russian by Jane Sayet 
Translation edited by H. G. Creighton 

Contributors: N. S. Andreyev, A. F. ' rn\\e9 e 

lov, D. G. Kuzmenko T ' romm^^uV 

I. M. Mrachkovskaya - - 1( tford L \BRA R ^ 3l 

M. P. Vorobyova 


Tel- ® ra< 


/ juiiiSQ 


• " v-iiriitow v 


Ha ansAuucKOM R3UKe 


First printing 1977 

© H3.ztaTe.ibCT bo «riporpecc», 1977, c H3MeHeinmtH 

© Translation into English from revised Russian 
edition. Progress Publishers 1977 

Printed in the Union ol Soviet Socialist Republics 

n 014(01)— 77 

; 9G — 77 




1. The Beginnings of Political Economy and Its Develop- 
ment into an Independent Science 12 

2. Aspects of the Relations of Production. Mode of Produc- 
tion 17 

3. Critique of Distortions and Erroneous Interpretations 

of the Subject-Matter of Political Economy 23 

4. The Objective Laws of Economic Development. ... 26 


1. The Primitive-Communal Mode of Production .... 36 

2. The Slave Mode of Production 40 

3. The Feudal Mode of Production 46 



1. The Stages of Development of Capitalism ./ 59 

2. Commodity Production, the Starting Point and Most 

General Feature of Capitalism 

3. A Commodity and the Labour Embodied in it 67 

The Development of the Forms of Value, The Origin and 
Essence of Money 

5. The Functions of Money . 85 

The Law of Value-an Economic Law of Commodity 

Production. Commodity Fetishism 100 

7. The Significance of the Marxist-Leninist Theory of Com- 
modity Production ' 106 




1. The Transformation of Money into Capital and of Labour 

Power into a Commodity 118 

2. The Essence of Capitalist Exploitation \l23 

3. Two Ways of Increasing the Degree of Exploitation of 1 

the Working Class 132 

4. The Three Stages of the Development of Capitalism in 

Industry ,139 

5. Wages under Capitalism 149 



1. Simple and Extended Reproduction 161 

2. The Organic Composition of Capital and Its Growth as 

Capitalism Develops 167 

3. The Capitalist Process of Accumulation and the Forma- 
tion of an Industrial Reserve Army 171 

4. The General Law of Capitalist Accumulation. Relative 

and Absolute Deterioration of the Position of the Work- 
ing People 178 

5. The Historical Trend of Capitalist Accumulation .... 186 


1. The Circuit of Capital. Functional Forms of Industrial 

Capital 189 

2. Capital Turnover. Fixed and Circulating Capital .... 193 

3. The Aggregate Turnover of Advanced Capital .... 197 

4. Production and Circulation Time 199 

P Th e Turnover of Variable Capital. Its Effect on the Mass 

and Annual Rate of Surplus Value 201 


1. Average Profit and Price of Production 205 

2. Commercial Capital and Commercial Profit 217 

3. Loan Capital and Credit 227 




1. The Emergence of Capitalist Relations in Agriculture. 

Capitalist Rent and How It Differs from Feudal Rent. . 242 

2. Differential Rent 246 

3. Absolute Rent. Other Forms of Rent . . . ’ 2 53 

4. The Price of Land 258 

0. The General Laws and Specific Features of the Develop- 
ment of Capitalism in Agriculture 260 



' * * ' ■ * • * • ■ 273 

1. Special Features of the Reproduction of Social Capital . 273 

2. The Conditions of Realisation under Simple and Extended 

Reproduction of Social Capital 277 

3. The National Income of Capitalist Society i 283 

4. The Contradictions of Capitalist Reproduction 'and the' ~ 

Inevitability of Crises of Overproduction 289 

o. The Periodic Nature of Economic Crises. The Cyclical 
Character of Capitalist Reproduction .... 295 

6. Lenin's Development of the Marxist Theory of’ the Re- 
production of Social Capital 







1. The Origin, Nature and Forms of Monopoly 31r 

2. Monopoly and Competition mi 

3. The Formation of Banking Monopolies. The New Role of ^ 

Banks under Imperialism 

4. Finance Capital and the Financial Oligarchy. The Finan- 326 
cial Oligarchy's Methods of Dominance •-....* 330 




1. Export of Capital as a Characteristic of Imperialism . . 337 

2. The Economic Consequences of the Export of Capital . 340 

3. New Features in the Export of Capital 342 

4. The Economic Division of the World by International 

Monopolies 349 

5. The Struggle between Monopolist Alliances for Economic 

Rcdivision of the World 351 

6. Territorial Division of the World between Imperialist 

States and the Struggle for Its Redivision 356 


1. Imperialism as a Special Stage of Capitalism .... 362 

2. Imperialism as Monopoly Capitalism 364 

3. Imperialism as Parasitic or Decaying Capitalism . . . 366 

4. Imperialism as Moribund Capitalism and the Eve of the 

Socialist Revolution 370 


THEM 375 

1. The Emergence and Essence of the General Crisis of 

Capitalism 375 

2. The Stages of the General Crisis of Capitalism .... 381 

3. The Struggle between the Two Opposing Socio-Economic 

Systems and the Deepening of the General Crisis of Capi- 
talism 389 


1. Further Growth of the Productive Forces and of the 

Social Nature of Production 395 

2. The Rise and Essence of State-Monopoly Capitalism . . 398 

3. The Forms of State-Monopoly Capitalism 402 




1. The Disintegration of Imperialism's Colonial System . . 421 

2. Neocolonialism and Its Methods 427 

3. The Two Paths of Development of Young National 

States. Social and Economic Changes in Developing 


Vs — — 1. The Essence of Monopoly Profit 447 

2. Methods of Deriving Monopoly Profit 450 

3. The Ratio between Monopoly and Average Profits under 

Imperialism 4^2 


1. Changes in the Conditions of Capitalist Reproduction 

Since World War II ^ Q 

2. A Brief Survey of the Post-War Capitalist Cycle .... 478 


1. The Emergence and Development of the Crisis of the 

- — — *■ • lilt 

World Capitalist Economy ^ 

2. The Increasing Unevenness of Capitalist Economic De- 

3. Changes in Economic Structure, the Objective Basis In- 
creasing Uneven Development 4g4 

4. Imperialist Integration ’ 4gg 

5. The Intensification of Inter-Imperialist Contradictions i 499 




1. Alterations in the Structure of the Working Class and 

Intensification of Its Exploitation 5;)7 

2. Intensification of Monopoly Oppression in Agriculture 

and Mass Ruin of the Peasantry and Farmers 511 

3. Monopolies and the Urban Middle Strata 513 

4. The Sharpening of Class Contradictions and Class Strug- 

9 le 516 


1. The Ideological Source of Contempoi'ary Bourgeois 

Political Economy 52Q 

2. The Theory of "Regulated Capitalism" ^523 

3. The Neoclassical School (or the "Free Enterprise" Thco- 

ries ) • • ' 530 

4. Bourgeois Theories of the "Transformation of Capitalism'* i 531 

5. Present-Day Reformist and Revisionist Economic Theories 537 



Chapter 1 


Economic relations are the basis of all social life This 
truth, revealed by Marx and Engels, has found confirmation 
throughout the history of society and has penetrated the 
consciousness of a significant part of humanity. Anyone who 
wishes to understand correctly the essence of the phenomena 
taking place in society and to assess its real development 
prospects or the fate of any particular social system, turns 

Stn° f f J° * e tl ?® ri ® s and ^elusions of economic 
S Study ° f P°, lltlcal ec onomy provides a rigorous 
scientific answer to what are the roads of further develop- 
ment ot human society. * 

Marxist-Leninist political economy is one of the most 
important scientific foundations of the programme of the 
working class m its struggle against capitalism. Once the 

ar°nwf g cla ^ com f. s to *e role of economic science 

grows, acquiring direct, daily, practical significance in the 
building of the new society. Political economy not only 
investigates the general laws and perspectives nf a i " 
ment of the socialist system. buTX mS « dearth 

actual mechanism must be set in motion in order to lolve 
pressing practical problems. solve 

In the documents of the Communist Party of the Soviet 
Onion and the other Marxist-Leninist parties, it is often 
emphasised that the theses and conclusions of economic 
theory must be taken into account in practical matters T bn 
economic policies of these parties are\orfced out on ft 

re i°i f u kn , OW ed9e a ” d . ^Plication of the objective laws 
revealed by Marxist-Leninist political economy. 



The documents of the CPSU and the decisions of its 
congresses have a deep, theoretical foundation, as is clearly 
confirmed by those of the 25th Congress of the CPSU. 




The Beginnings of Political Economy 

The rudiments of economic science had already developed 
in antiquity, but the thinkers of those times had not yet 
singled out economic phenomena from the sum total of 
social phenomena. Political economy became an indepen- 
dent science in the seventeenth century during the bourgeoi- 
sie's struggle against feudalism. Its pioneers were bourgeois 
economists; only later did it acquire its true scientific de- 
velopment as the political economy of the working class. 

The term "political economy" as such was first used by 
the French economist Antoine de Montchrestien (1575-1621) 
in a work entitled Traite de Yeponomie politique. The true 
scientific definition of the subject-matter of political economy 
was the result of long development. At first bourgeois econo- 
mists saw the main field of their research as the processes 
ot commodity and money circulation, believing that it was 
from just this sphere of economic life that the wealth of 
society came. 

Soon, however, the experience of the bourgeoisie and their 
struggle with the feudals for economic and political suprema- 
cy suggested to their ideologists that the decisive sphere 
ot economics was production. The bourgeoisie became con- 
vinced that complete victory over feudal elements could only 
be ensured through development and mastery of production. 
Bourgeois ideologists more and more abandoned treating 
circulation as the main source of wealth and began to see it 
in production. This opened the way to the development of 
scientific political economy. 

The founders of bourgeois political economy, Adam Smith 
and David Ricardo, the direct predecessors of Karl Marx in 
political economy, took the production of material wealth as 


their subject. In so doing they made an immense step for- 
ward in the development of political economy, but it was 
still far from a true science. The classical writers of bour- 
geois political economy were unable to disclose the essence 
of production as a social phenomenon or to analyse the 
economic laws of the capitalist system with sufficient con- 
sistency. They tried to deduce economic laws from the nature 
and characters of people. Linked with this was their favourite 
Robinson Crusoe method (so called after Defoe's famous 
character) by which the business or household of an isolated 
individual is taken as the starting point of historical 

Production, however, presupposes the combined inter- 
connected activity of people. The classical bourgeois econ- 
omists were compelled to recognise the decisive role of co- 
operation between people in- the creation and growth of 
society's wealth, as is to be seen, for example, in their 
attaching exceptionally great significance to the division 
of labour. 

Being unable consistently to approach production as a 
social phenomenon, the classical bourgeois economists were 
also unable to reveal the historical character of the produc- 
tion process. They considered capitalist production an eter- 
nal and natural form of production. In fact, production devel- 
ops, its technology alters, people's capabilities improve, and 
the social forms of the interrelationship between them 
change. Science had to answer what were the laws governing 
these changes. 

Not understanding the social and historical character of 
production, the classical bourgeois political economists con- 
fused social phenomena that reflected the economic relations 
between people with the relationships between things that 
operate in the process of production. For example, by capital 
they understood not the relations between people in the 
. process of production, but the tools or implements used in 
this process. Any implements of production at any stage in 
the development of society they considered as capital. Capi- 
tal was consequently treated as a thing and transformed into 
an eternal category. This confusion of social relations with 
things introduced vagueness into the question of the very 
subject-matter of political economy, because the study of 



things as factors in the production process is the field of the 
technical and natural sciences. 

The Revolution in Political Economy 
Brought About by Marx and Engels 

Thus, the bourgeois economists' understanding of the 
need to analyse production was not enough in itself for a 
scientific definition of the field of political economy. This 
definition was given by Karl Marx and Frederick Engels, 
the founders of truly scientific political economy, who 
brought about a revolution in economic science. 

A precondition of this change was a revolution in philoso- 
phy and in understanding of the whole historical process. 
Application of the method of dialectical and historical mate- 
rialism, ability to penetrate to the essence of every phenome- 
non and to reveal the unity and struggle of opposites as 
the source of self-motion and development, and a historical 
approach to the analysis of phenomena made it possible to 
define the true subject-matter of political economy and to 
reveal the laws of economic life. 

Marx and Engels showed that the process of production 
is a contradictory unity of two aspects, one the relationship 
between man and nature and his action on it aimed at adapt- 
ing it to human needs, and the other, relations that people 
enter into when they act on nature. But to reach this con- 
clusion it was necessary to make a detailed analysis of the 
labour process and all its elements. 

The labour process consists in the conscious, purposeful 
activity of people, directed to modifying and adapting natu- 
ral objects to their needs. In it they employ means of pro- 
duction. These means of production include the following: 

a) objects ot labour, i.e. the natural substances on which 
man acts. An object of labour that has already been subject- 
ed to human action and is intended for further processing is 
a raw material; 

b) instruments ot labour, i.e. the things that people place 
between themselves and the objects of labour and with the 
help of which they exert a direct effect on the objects of 
labour. The most important of these are the instruments of 



labour. In a broader sense, all material conditions of work, 
such as land, production buildings, roads, canals and so on, 
are also instruments of labour. 

The objects and instruments of labour together form the 
means of production. The means of production and the la- 
bour power of people setting them in motion compose the 
productive forces of society. The main productive force is 
the labourer or working man. In the labour process, people 
make conscious use of means of production and human 
activity is its decisive element. The productive forces reflect 
the relationship between man and nature. The level of their 
development characterises the degree of his mastery of the 
forces of nature. 

In the production process people also inevitably enter into 
certain relations with one another, i.e. enter into relations 
of production. In order to produce, they must have means of 
production, which may belong to individuals, or to groups of 
people, or to society as a whole. Whomever the means of 
production belong to, he also owns what is produced, the 

Thus, the relations between people in the production pro- 
cess are determined primarily by who owns the means of 
production. Ownership of the means of production, i.e. the 
mode ot uniting the worker with the means ot production 
underlies the social relations between people at all staqes of 
social development. 

Without property or ownership, production is impossible 
since production presupposes a specific mode of appropriat- 
ing its means and its results. Without such appropriation 
there is no sense in production itself as well as no possi- 
bility of it. Therefore, regardless of whether or not there is 
legal protection of property at a given stage of social develop- 
ment, there are always property relations as real economic 
relations. A society without ownership of the means of pro- 
duction has never existed and will never exist. The forms of 
ownership, however, alter with development of the produc- 
tive forces. 

In the early stages of the evolution of human society the 
productive forces were extremely primitive and property was 
correspondingly that of the primitive community. In the 
struggle with nature, people could only use means of 



production collectively. Later, when it became possible to use 
means of production on an individual basis, by a single per- 
son, private property in the means of production emerged. 

Later still, the means of production reached such a level 
of development that the whole production process took on a 
social character. In these conditions, the need arose to estab- 
lish social ownership of the means of production. 

Thus, it is the development of the means of production 
that necessitates changes in property relations and the sum 
total of social relations. 

Property relations, in turn, affect the development of the 
means of production. When the form of ownership corre- 
sponds to the given level of development of the productive 
forces, it facilitates their progress. If property relations are 
obsolete, they act as a brake on the development of the pro- 
ductive forces. 

Marx and Engels were the first in the history of science to 
demonstrate that there are specific social relations directly 
connected with the production process. In the sum total of 
human relationships they distinguished relations of produc- 
tion and it is these relations that constitute the subject-matter 
oi a specific science, political economy. 

The productive forces, and the relations between people 
apart from those of production, are studied by many sciences, 
natural, technical and social, but relations of production are 
studied exclusively by political economy. 

Since development of the productive forces plays a deci- 
sive role in altering relations of production and since the 
latter determine the opportunities for making use of produc- 
tive forces, political economy studies production relations 
in terms of their interconnection with the development of 
the productive forces. 

People s relations in the production process can take the 
form of exploitation of some people by others, or of rela- 
tions of comradely co-operation, or be a transition from the 
one form to the other. When ownership of the means of pro- 
duction is employed in the interests of appropriating the 
product of another's labour, then relations of exploitation 
exist. When the means of production belong to society as a 
whole and are used in the interests of the whole of society, 
then there are relations of comradely co-operation and mu- 



tual assistance between all working people as the joint owners 
and co-proprietors of social wealth. 

Political economy, in considering production relations in 
the course of their development, substantiates the inevita- 
bility, dictated by history, of the complete victory of the sys- 
tem based on social ownership and relations of comradely 
co-operation, as those corresponding to the contemporary 
level of development of productive forces. 



The relations of production are not confined solely to the 
relationships between people directly in the production pro- 
cess itself. People produce goods and then distribute, ex- 
change and consume them. All these aspects of social life 
represent different spheres of the economy, between which 
there are definite interconnections. 

Correlation of Production, Distribution, 

Exchange and Consumption 

Karl Marx showed that relations in the production process 
are definitive for all other spheres of the economy. In fact, 
how do the relations between production and consumption] 
for example, take shape? Consumption of the end-product 
is not limited simply to personal consumption; production 
is, at the same time, consumption, namely consumption of 
the means of production. Consequently, productive consump- 
tion is also production. 

In the production process, each worker develops his own 
capabilities. This is the main significance of production for 
the development of the personality. At the same time, labour 
power is expended, that is consumed, in the production pro- 
cess. Personal consumption is a necessary element in the 
reproduction of labour power as a productive force, althouqh 
it should not be viewed from this aspect alone. Thus there 
are not only differences between production and consump- 
tion, but also something in common. 




Production always plays the determining role in social 
reproduction. Without production there is nothing to con- 
sume. Until the product has been created, it cannot be con- 
sumed. Production creates the mode of consumption as well 
as the things consumed. Until the useful properties of fire 
were discovered, men used the food they obtained in its raw 
form. The development of production gives rise to new 
needs and demands. For example, the building of new houses 
means that various new items of household equipment are 

Production, consequently, (1) makes consumption possible, 
(2) determines the mode of consumption, and (3) gives rise 
to new needs. 

At the same time, consumption alone makes production 
necessary. Without it there would be no sense in producing. 
Consumption is the stimulus for the growth of production. 
The forms of ownership of the means of production may 
promote or hinder the growth of consumption. The develop- 
ment of production in the interests of growth of profits 
under capitalism, for example, inevitably leads to popular 
consumption lagging behind production, to crises of over- 
production and to the development of a form of production 
that cannot be called either productive or personal con- 
sumption, i.e. military production. It is intended for destruc- 
tive purposes and is solely a means for the imperialist bour- 
geoisie to extract enormous profits. 

The ascendancy of socialist property inevitably leads to 
steady growth of the consumption of all members of society, 
since the fullest satisfaction of the material and cultural 
needs of people is the highest goal of social production un- 
der socialism. The propositions in the documents of the 25th 
Congress of the Communist Party of the Soviet Union in 
1976 on accelerating growth of the people's welfare, and the 
targets for the period of the Tenth Five-Year Plan and the 
more distant future, reflect the essence of socialist relations 
and, at the same time, bring out the interdependence 
of growth of consumption and development of socialist 

The extent to which the production process provides for 
the consumption of the masses of the people depends on the 
social system and on what mode of distribution results from 



the given relations of production. Distribution depends 
completely on the social relations under which production 
takes place. When the means of production belong to capital- 
ists, distribution of the product takes place in the interests 
of the capitalists and of growth of their wealth. When the 
means of production belong to society as a whole, the main 
task is to distribute the product in such a way as to ensure 
the welfare and all-round development of all the people. The 
social forms of production also directly determine the forms 
of distribution. 

Capitalist ownership makes the existence of capitalist 
profit, capitalist interest and capitalist rent both possible and 
inevitable. These forms of unearned income are not engen- 
dered by capital and land in themselves. Only labour is the 
true source of profit, interest and rent. Under the conditions of 
private capitalist property, the means of production, land and 
labour acquire such historically determined forms as make 
it possible for the exploiting classes to appropriate the labour 
of others in the form of profit, interest and rent. 

Distribution exerts a reverse effect on production and in 
some aspects is a direct component of the production pro- 
cess. The distribution both of the instruments of production 
and of labour by branch of production in essence signifies 
the beginning of the production process, but the distribution 
itself depends on the relations in the production process and 
on who owns the means of production. 

The distribution of articles of personal consumption is 
also an important factor directly affecting production and 
acting either as a stimulus or as a brake on its development. 
The experience of building socialism/ for example, convinc- 
ingly confirms that the quantity of material wealth distribut- 
ed for personal consumption and the way it is distributed 
play an essential role in raising productivity of labour. Here, 
too, however, the degree and nature of the effect of the distri- 
bution of material wealth on production is connected with 
specific forms of ownership. 

The free workers of socialist society are the collective 
owners of the means of production. The amount of material 
wealth distributed for personal consumption depends directly 
on the level of development of production. Improvement of 
living conditions is at the same time part both of the pro- 
2 * 



cess of wiping out any substantial distinctions between men- 
tal and physical labour and between town and country, and 
of the all-round development of the individual. 

An important link in the process of social reproduction is 
exchange. Any social division of labour presumes many- 
sided activity and a corresponding need for exchange. Ex- 
change of activity and capabilities belongs to the production 
process itself. When labour is divided, each member of 
society gives society his labour in a concrete form (for 
example, as a turner, a tractor driver, a specific kind of 
engineer, and so on) and, at the same time, co-operates with 
other people who are giving their labour in some other con- 
crete form. Without this, there would also be no production 
process. This type of exchange of activity is determined 
exclusively by production. Only in the final stage, when the 
article for personal consumption has already been produced, 
does exchange to some extent become independent and in- 
different as regards production. For example, whether one 
consumer buys a radio and another a tape-recorder, or vice 
versa, cannot affect the course of production. 

Under definite historical conditions, the exchange of 
products acquires the character of exchange of commodities. 
Commodity production arises in the early stages of the social 
division of labour even in the primitive-communal system and 
attains its highest level of development on the basis of 
private ownership under capitalism when commodity rela- 
tions acquire a universal character, even labour power be- 
coming a commodity in bourgeois society. 

Commodity-money relations are also preserved in the first 
phase of communism, in which they are developed in a 
planned manner on the basis of social ownership of the 
means of production; but commodity relations under social- 
ism differ in principle from those under private ownership. 

Exchange exerts a reverse influence on production. When 
the market is expanding, new stimuli are created for the 
development of production. However, inadequate develop- 
ment of the sphere of circulation and low purchasing 
power of the population act as a serious brake on growth of 

Thus, production, distribution, exchange and consumption 
are parts of a single process of social reproduction. Between 



them there is a close interconnection, but production plays 
the dominant and determining role in it. 

All aspects of the relations of production are only a 
manifestation of property relations. Taken together, they 
give the fullest manifestation of the essence of a given form 
of ownership. And property relations, as we have seen, 
depend on the level of development of the productive forces. 

Mode of Production. 

The Class Structure of Society 

Unity of the productive forces and of the relations of pro- 
duction defines a mode of production. During the develop- 
ment of society, one mode of production gives way to another. 
History has known the following modes of production: 
primitive-communal, slave-owning, feudal, capitalist and com- 
munist (the first phase of which is socialism). Each mode of 
production predetermines the whole structure of society. With 
private ownership of the means of production, society has a 
certain class structure, resulting from the existence of given 
forms of property. 

Classes are large groups of people, differing from each 
other according to their place in the historically determined 
system of social production, according to their relation to 
the means of production, according to their role in the social 
labour and, consequently, according to the mode by which 
they acquire their share of social wealth and to the size of 
that share. The difference in the place occupied by classes in 
social production enables one class to appropriate the labour 
of another. For example, feudal lords appropriated the labour 
of serfs, capitalists appropriate the labour of wage workers 
(here we would draw attention to the common basis of this 
process of appropriation, although, of course, there are im- 
portant differences in its forms). 

Thus, here there is conflict of interests between the dif- 
ferent classes. The appropriation of the labour of one class 
by another gives rise to antagonism and leads to class 

Since the mode of production develops as a result of the 
changes that take place in the productive forces, a lack of 



correspondence inevitably arises in a system of exploitation 
between the productive forces that have developed and 
changed and the existing production relations or the given 
class structure of society. The necessity arises for a transition 
to new property relations, to a new social system. The classes 
interested in maintaining the old forms of property, how- 
ever, resist this transition to a new social system. Hence the 
inevitability of revolutionary struggle by the classes interest- 
ed in changing forms of ownership against the reactionary 
classes upholding the old forms. 

In the course of socialist revolution, the exploiting classes 
are overthrown and abolished. The radical changes effected 
in class relations by the socialist revolution lead to class 
antagonisms being overcome and to all society becoming 
interested in the elimination of vestiges of class distinctions. 

The Categories of Political Economy 

The concepts expressing relations of production are the 
categories ot political economy and characterise not things, 
but relations between people. Such categories as, for example, 
commodity, money, capital, profit, rent, cost, express the 
different relations existing between people under certain social 

The categories of political economy are not arbitrary ideas, 
but reflect real, living relations. They therefore cannot be 
established or substituted at will. Changes in them must 
reflect changes that occur in reality, in the mode of 

The categories of political economy, like production rela- 
tions themselves, have a historical character. In science, one 
and the same name or term is retained by tradition for dif- 
ferent relationships, but this simply means that the names of 
phenomena must be distinguished from their essence. Wages 
can serve as an example. Under capitalism, they mean the 
value of labour power as a commodity. Under socialism, 
labour power is not a commodity and wages now characterise 
different social relations, are the value of that part of the 
necessary product which the working people receive from 
society for their personal consumption. With the emergence 


of new relations of production, new categories also appear. 
The science has to try and operate with concepts that bring 
it as close as possible to understanding of the essence of 


The Failure of Attempts to Substitute Legal, 
Technical and Other Relations 
for Production Relations 

The immense revolutionary significance of Marxism's dis- 
covery of the true basis of the class structure of society has 
called forth many attempts by the enemies of the working 
class to refute and distort its doctrine of production rela- 
tions. Bourgeois scholars began to avoid analysing the sphere 
of production in every way, shifting their centre of attention 
to the psychology of "economic man" and reviving the 
Robinson Crusoe method of analysis. 

In order to avoid the fundamental problem, that of owner- 
ship of the means of production, they try in every way to 
substitute other types of relations for production relations. 
They often, for example, interpret them as legal relations. 
but the law is only a part of the superstructure built on 
economic relations and reflecting their state. 

The substitution of legal relations for relations of produc- 
tion is used for every kind of unscientific conclusion, mis- 
interpreting the actual course of development. Bourgeois 
authors assert, for example, that radical changes in social 
relations allegedly can be realised not through revolutionary 
struggle, but rather be effected by means of a series of 
legislative acts promulgated by the organs of the bourgeois 
state itself. It is clear, however, that the bourgeois state, 
being the instrument of capitalist domination, is not capable 
of abolishing private property. 

Another bourgeois distortion of the relations of production 
is to substitute the technical relations between workers in 

v n 


the production process (or various other organisational forms) 
for them. This kind of interpretation is used to try to identify 
capitalism with socialism. 

Technical relations of production are those connected only 
with the technological aspect of production, for example, the 
relationship between two workers, one of whom delivers the 
objects of labour while the other processes them. That type 
of relationship exists in production of any type, be it capital- 
ist or socialist, but it tells nothing about' the actual social 
relations of production, i.e. about the ownership of the means 
of production. 

Bourgeois economics also deliberately confuses the ques- 
tion of the organisational forms of management. If the 
direct head of an enterprise is the managing director, they 
conclude that there is no real difference between capitalist 
and socialist production, although the managing director of 
a capitalist enterprise is the appointee of its private owners 
(and often himself also a major shareholder or partner), 
while under socialism we have a person appointed by society 
to run an enterprise in its interests. 

Distortion of Scientific Understanding 

of the Role of Technology in the Life of Society 

The new world historical situation, in which competition 
between the two world systems takes place mainly in the 
sphere of production, has compelled contemporary bourgeois 
economics to approach production more realistically. Its 
significance can no longer be ignored. But in order to refute 
Marx s theory, bourgeois economics has begun to consider 
production solely from the angle ot the technology or tech- 
nique at production, which alone, allegedly, directly deter- 
mines the whole social system. 

Scientific political economy attaches much importance to 
technology as a major factor in production. Technology 
characterises the ability of society to make use of the forces 
of nature and put them to its service. This ability is em- 
bodied in the instruments of labour and the ways they are 
employed m the production process. But technology' does 
not of itself reveal the essence of the social system. Without 



change in the ownership of the means of production, techni- 
cal development cannot alter social relations cither between 
people or between classes, and cannot change the social 

In transitional periods quite different social conditions 
can exist with the same machinery and equipment. It is these 
social conditions that determine society's actual opportuni- 
ties for development. When capitalism emerged, handicraft 
technology, which had developed under feudalism, was still 
in existence. Socialism arises on the basis of productive 
forces developed under capitalism. Under socialism, too, the 
perfecting of technology cannot itself lead to further develop- 
ment of the social system and to the building of communism. 
For socialism to develop, more than the development of 
technology is needed. It is also essential to ensure the con- 
solidation and development of socialist relations of produc- 
tion, which is the most important condition for technical 

Separation of the Relations of Production 
from the Productive Forces 

Some economists, when defining the subject-matter of 
political economy, consider the relations of production sepa- 
rately from the productive forces. With this approach pro- 
duction relations become a bare, empty form and one aspect 
of production is separated from the other. 

It should not be forgotten that relations of production are 
only one aspect of the mode of production, and that they 
depend on the state of the productive forces and, in turn 
affect the development of the latter. The relations of pro- 
duction therefore should not be separated from the produc- 
tive forces, nor should the determining significance of the 
productive forces in the development of social production be 

The productive forces are not an independent element in 
the subject-matter of political economy; they are studied by 
various other sciences. But their state and use is a question 
of the greatest significance for political economy. The practi- 
cal problems of building socialism necessitate study of 
production relations in their interconnection with the produc- 



tive forces and the finding of ways of ensuring the most 
effective use of the productive forces through the develop- 
ment of socialist relations of production. 

The need to resolve practical problems under socialism 
calls for more concrete and detailed study of the whole 
social mechanism using the productive forces and of actual 
forms and methods of management, and for the fullest reali- 
sation of the advantages furnished by socialist production 

The fact that the subject-matter of political economy is 
production relations between people does not mean that it 
can afford to ignore other social phenomena. Political econo- 
my looks at the system of production relations and the eco- 
nomic basis of society in its close interaction with the super- 
structure, i.e. with political, legal, ideological and other phe- 
nomena, since they exert an active influence on the actual 
course of the society's economic development. 


The Objective Character of Economic Laws 

The relations of production must be studied in their 
development. This is dictated by practical requirements; in 
order to know how to act, it is necessary to know the direc- 
tion in which the economy is developing. This development 
is not a matter of man's will. Independently of his will and 
consciousness, it obeys definite laws of an objective charac- 
ter. The constantly repeating chain of cause and effect 
expressing the essential aspects of objective processes 
represents laws of nature or of the development of society, 
operating independently of man's will and consciousness. 

Economic relations develop in correspondence with their 
own objective laws. Economic laws express the essential 
aspects ot the relations of production and their intercon- 
nection with the productive forces. The whole history of the 
development of human society indicates this. In the course 
of centuries, one socio-economic formation has been regu- 


larly replaced by another. Very different countries, with 
different geographical, climatic and other natural conditions, 
in the last analysis, develop in the same direction when they 
have the same production relations. Certain social conditions 
bring about one and the same trends and consequences of 
development. There were feudal economies, for example, in 
England, Germany, Spain, Russia and many other countries 
that differed sharply from one another in geographical condi- 
tions, national traditions, the character of the people and 
many other features. Everywhere feudalism, having followed 
a certain course of development, broke down and was replaced 
by capitalist relations. This cannot be put down to chance. 
It is clear that certain conditions of society's material life 
engender an objective necessity for its development in a 
definite direction. 

The objective character ot economic laws, and the fact 
that they operate independently of man's will and con- 
sciousness, is a most important methodological problem of 
political economy. The existence of objective laws provides 
the basis for science; and the task of science is to reveal how 
they operate. If there were no such laws, there would be no 
need for economic science, and what happened in practice 
would depend entirely on man's will. To deny the objective 
character of economic laws is to prepare the soil for subjec- 
tivism and adventurism in economic policy. 

The day-to-day experience of the working class's revolu- 
tionary struggle and of the building of socialism and com- 
munism shows clearly the immense practical significance of 
scientific knowledge of the laws of society's development. 

Marxist-Leninist economic science, having revealed the 
inevitability of the contradictions between the productive 
forces and the relations of production becoming increasingly 
acute under capitalism, and having shown the historically 
transitory character of capitalism and the inevitability of its 
being replaced by socialism, equips people with knowledge 
of enormous significance for their practical activity. The 
deeper the need to struggle against capitalism penetrates the 
consciousness of people, the more rapidly the laws leading 
capitalism to its downfall take effect. 

Knowledge of the objective economic laws acquires special 
significance under socialism, when they are employed by 



society in a conscious and planned way. In order to organise 
the economy, we have to know the laws of development of 
socialist and communist society and their essence and specific 
features at any given stage. 

The programmes of Marxist-Leninist Communist and 
Workers' parties are based on knowledge of objective eco- 
nomic laws; and in their policies and practical activities these 
parties are guided by genuinely scientific knowledge 
and set out from the real conditions of society's devel- 

The Historical Character of Economic Laws 

Economic laws have a historical character. Some are com- 
mon to all stages of the development of human society, and 
in them appear the interrelations between the general 
phenomena inherent in all modes of production. For that 
very reason, however, general laws themselves tell us noth- 
ing about how or where a particular social formation will 
develop at a given stage of its evolution. 

The general economic laws, inherent in different modes 
of production, are the following.- the law of correspondence 
of the relations of production and the character of the pro- 
ductive forces, the law of the growth of labour productivity, 
and certain others. Their operation depends on the specific 
conditions of the given socio-economic formation. The law of 
the growth of labour productivity, for example, operates in 
all social formations. Under capitalism, however, as Marx 
showed, this law does not have absolute significance, because 
the main stimulus of the development of production, its 
determining aim is the provision of maximum profits for 
capitalists, which can also be achieved without an increase 
of labour productivity, for example, by intensifying labour 
or by reducing wages. It is a different matter under social- 
ism. Under socialism, society is interested in maximum 
economy of human labour with the aim of all-round develop- 
ment of production and of ensuring the most favourable 
conditions for growth of the people's well-being. Under 
socialism, the law of the steady growth of productivity 



Thus, under different historical conditions, the general 
economic laws operate in far from the same way. In every 
social formation, they take their own specific form. There 
are, however, few general laws. 

Apart from general laws, specific economic laws operate in 
every formation, expressing the essence of the production 
relations of the given mode of production. 

In every formation, its own law of motion operates, the 
basic economic law that expresses its most important fea- 
tures and determines its general trend of development. To 
capitalist property, for example, there corresponds the law 
of surplus value as the basic law of capitalism. With social 
ownership of the means of production, another basic law 
operates. Social ownership subordinates production to the 
fullest satisfaction of society's needs and to all-round develop- 
ment of its members. 

In addition to the basic economic law of a given socio- 
economic formation several other specific laws operate in it, 
characterising different aspects of economic relations. Under 
capitalism, for example, the law of the price of production, 
the law of capitalist rent, and others operate. Under social- 
ism, specific laws arc the law of the planned, proportionate 
development of production, the law of distribution according 
to work done, and others. 

There are also economic laws that operate only in several 
formations. Thus, the law of value operates wherever there 
arc commodity relations, but its sphere and specific features 
depend on the given historical conditions and on the prevail- 
ing relations of production. Under socialism, in contrast to 
capitalism, the law of value is no longer the regulator of 
the economy as a whole. The forms in which it operates and 
its lole are different than under capitalism. The economy is 
regulated by the law of the planned, proportionate develop- 
ment, in accordance with the requirements of the basic eco- 
nomic law of socialism. 

The laws operating in each given formation of society are 
a specific system in which they are all interconnected and 
interact. This is a fact of great practical significance In tak- 
ing the operation of the basic economic law of socialism into 
account, for example, neither must the law of the steady 
growth of labour productivity be ignored. L. I. Brezhnev 



said: "In order to carry out successfully the diverse eco- 
nomic and social tasks facing the country, there is no other 
way than that of promoting the rapid growth ot labour pro- 

a steep rise ° l elficicncy in an ™ as 

Critique of Subjectivist and Fetishist Views 
ot Economic Laws 

In socialist society, economic laws are applied delib- 
eiatcly since it directs its development consciously and in a 
planned manner. For this reason, some economists have 
denied the objective character of economic laws. The objec- 
tive character of economic laws, however, does not depend 
on how they are manifested. The form in which economic 

laws manifest themselves must not be confused with their 
objective essence. 

.1 j| Under capitalism, the objective economic laws operate 

spontaneously, since private property prevails. With a social- 
ist economy based on social ownership, society has the possi- 

Tw y a° f dlrCCtmg lts dcvel opment in a conscious manner, 
that does not mean, however, that objective laws do not 
operate in it. People are unable to cancel the effect of any 
particular objective law, just as they cannot jump above the 
material level of development of the society in which they 
find themselves. One cannot, for example, "decree" the 
second phase of communism at will. 

; °bject ive economic laws must not be confused with laws 

adopted by the state. A socialist state can. of course, issue 
obligatory directives of one kind or another in the sphere of 
economic life. It can legislate the proportions (balance) 

downThe Vari °, US lHe eC ° n0m ^ S 

down the principles for the distribution of products and so 

, ut even so its acts will only have a positive result if 
1 they correspond to objective necessity and objective econom- 

ic laws. 

Some eco nomists maintain that the objective character of 

't 1 ®^Jin e v, Report of the CPSU Central Committee and 
the Immediate Tasks of the Party in Home and Foreign Pohcy 
2oth Congiess of the CPSU, Moscow, 1976, p. 52. 



the operation of economic laws means that they are sponta- 
neous. Where there is no spontaneity, they say, objective laws 
cannot operate either It has now been demonstrated, how- 
ever, not only in theory but also in practice, that the 

disappearance 1Catl ° n ° f ’ aWS d ° eS n0t mcan their 

While recognising the objective character of laws, Marxist- 
Lenimsts do not, however, make a fetish of them and do 
b 9 u Cat , r0le ° f thc subjective factor. Once they 

order to t'h °° ° b *?™ IaWS ' P eo P le ca ” use them in 

conditions P rach cable goals determined by objective 

The operation of the law of universal gravitation certainlv 

tZ T I.? £act that P e °P le «annot tSMS 
th u Ear J h ; Havin 9 cognised the law of gravitation and 
i physical laws, they fly in aircraft and make fliahts into 


tancous th * S P°° 

destructively or incompletely ' ^ WI “ ° perate either 

Rul ^ under -"ft - 

understanding of social ronrlv P°^ci of scientific 

Marxist-Leninist science has discovered The that 

economic development and has tWof H 1G actual laws of 
an active role i/abolLhtng obsott retook ? p]a * 
and building socialist society. Nations of production 


is character. The fact 

economy, which objectively 



development, can be reduced, in the final count, to this, that 
capitalism has already outlived itself and is being replaced, 
in accordance with laws independent of the will of people, 
by socialist society, which will inevitably be victorious all 
over the world. These scientifically substantiated propositions 
fully accord with the interests of the world working class, 
which is waging a struggle against exploitation and for the 
building of society on new foundations. Scientific objectivity 
serves the cause of revolutionary struggle. 

In the struggle against feudalism, the classical bourgeois 
economists to a certain extent truthfully depicted the rela- 
tions of the capitalist system, but they did not understand 
capitalism's limitations, considered it eternal and natural, 
and skated around the class antagonism between the 
bourgeoisie and the proletariat. But from the moment the 
working class entered the arena of its own class struggle 
against capitalism, the ideologists of the bourgeoisie began 
consciously to avoid scientific analysis of the realities of 
capitalism. The creation of a whole series of pseudo-scientific 
theories to confirm the eternal nature of capitalism, extol 
it in every way and abuse socialism, rather than objective 
research, was the task bourgeois political economy set itself. 
As Marx said, the death knell of scientific bourgeois political 
economy had sounded. 

Bourgeois economists can gather much valuable factual 
material in the world today, can propose practical prescrip- 
tions enabling the bourgeoisie to increase its profits, can 
improve the organisation of production and management of 
a particular capitalist firm, and can advise imperialist 
states. Their prescriptions, if one discards their exploitative 
aspects, can to some extent prove useful to the working 
class when it becomes the owner of the means of production. 
But all their theoretical generalisations have nothing in com- 
mon with genuine science, since they do not start from the 
objective course of development of society, but are dictated 
solely by the desire to preserve capitalism, come what may. 
Only the working class and its revolutionary parties can 
ensure further development of the science, since the course 
of history fully coincides with its interests. 


Definition of the Subject-Matter 
of Political Economy 

In summing up what we have said, we can conclude that 
the subject-matter of political economy is the relations of 
production and the laws of their development or, in other 
words, the laws of the production, exchange, distribution and 
consumption of material wealth at the various stages of 
development of human society. 

Bourgeois economics does not give a scientific definition of 
its subject-matter. Usually it defines political economy as 
the science of the economy. The fact is, however, that the 
concept of the economy includes both the people who use 
technology, the objects of labour and the output produced, 
and the relations between people in the production process. 
Which of these political economy actually studies is not 

Bourgeois economists often say that it studies the relations 
between man and nature. But that is where the subject- 
matter proper of political economy disappears, because man's 
relations with nature are characterised by the state of the 
productive forces and these arc studied by a number of other 

Political economy is also defined as the science of scarce 
things. This definition is incorrect if only because it is com- 
pletely divorced from concrete reality. It is not a scarcity of 
goods that is characteristic of contemporary capitalism, of 
course, but rather relative overproduction, which leads to 
enormous unproductive consumption that slows down growth 
of production, and to militarisation of the economy. A consid- 
erable proportion of the resources of capitalist society is used 
not for production or increasing the people's consumption, 
but for purposes of destruction. Wealth is only scarce for 
those who, through the operation of the laws of capitalist 
economy, are not in a position to acquire it. 

The whole history of human society shows that, with the 
development of social production, one good or another, 
previously scarce, becomes easily reproducible, which leads 
to progressive growth of the wealth of society. The main 
brake on the process is obsolete production relations. 

The lack of a correct definition of the subject-matter of 



political economy among bourgeois theoreticians is a direct 
result of modern bourgeois economic theory's devoting all 
its analysis to defence of the capitalist system, and to its 
trying to ignore such undesirable categories for it as produc- 
tion relations, classes and class struggle. Without an exact 
definition of the field of research, however, it is also impos- 
sible to draw genuinely scientific conclusions. 

The political economy of the working class, created by 
Karl Marx and Frederick Engels, was developed by V. I. Lenin 
and raised to a new level corresponding to the conditions 
of a new historical epoch. The needs of the working class's 
struggle and of the building of socialism and communism 
necessitated further development of Marxist-Leninist econom- 
ic theory, a task creatively met by the Communist Party of the 
Soviet Union and the other Marxist-Leninist parties. 

At the present time, as L. I. Brezhnev stated in the Report 
to the 25th Congress of the CPSU, "the importance has been 
steadily growing of scientific research into the cardinal prob- 
lems of world development and international relations, the 
revolutionary process, the interaction and unity of its 
various streams, the relationship between the struggle for 
democracy and the struggle for socialism, and the contest 
of forces on the main issue of our day, the issue of war and 
peace''. 1 

’ y L Brezhnev, Report of the CPSU Central Committee and 
o, e , I ^ imediate Tasks of the Party in Home and Foreiqn Policy 
25th Congress of the CPSU, p. 87. 

Chapter 2 


sodolonomk formaHonsIh 


from feudalism To caplaUsm t0 feudalism, 

to communism. capitallsm - and finally from capitalism 

consists^rf^regardin^sociefv^as^a^fi S ° Ci0l ° 9y ' Lenin wrota , 

of constant development. . . The scientific'va? 15 "’ 3 St3le 
inquiry lies in disclosing the special /h cf U n SUch an 
regulate the origin, existence, development °anrf ^ 

given social organism and its replacement h?* ^ ° f 3 
higher organism." 1 P acement by another and 

The conclusions of the founders « f 
* e «*** development of society ha^^^* I ^ inism ° n 
the whole course of social development in confirmed % 

s^t£ of the 

th n e u Pred °“ inant «- 

f^Pr-capitalist relations. Capitalist expl^tL^rking 



people is often intertwined with vestiges of feudal and 
even slave exploitation. Study of pre-capitalist modes of pro- 
duction is therefore of great significance for understanding 
the realities of contemporary capitalism and helps revolu- 
tionary parties to develop their strategy and tactics. 


The Emergence of Primitive-Communal Society 
and the Development of Its Productive Forces 

Human society had its beginnings in deep antiquity, about 
three million years ago. 1 Thousands and thousands of years 
passed before man finally evolved from the animal world 
and human society emerged. Underlying this extended pro- 
cess was labour. As Engels wrote in "The Part Played by 
Labour in the Transition from Ape to Man", labour is "the 
prime basic condition for all human existence, and this to 
such an extent that, in a sense, we have to say that labour 
created man himself”. 2 * The main thing that sets man apart 
from the animal world is his ability to fashion tools. 

Primitive man was extremely dependent on his natural 
surroundings. Initially, his tools were very primitive, a 
roughly worked stone or stick. People lived in small groups 
of a few dozen individuals. Death from hunger, natural disas- 
ters or attack by wild animals was common. In such condi- 
tions, a communal life was the only possible and absolutely 
necessary form of existence. 

For a long time, primitive man lived mainly by gathering 
the ready products of nature and by hunting, which was car- 
ried out collectively, using the simplest implements. Hunting 
provided skins for clothing, bone for tools, and meat which 
had a great effect on the development of the human orga- 
nism, especially on the development of the brain. 

1 As the recent discovery (between 1959 and • 1972) of the so- 
called Olduvai culture in East Africa shows. 

2 Karl Marx and Frederick Engels, Selected Works, in three 

volumes, Vol. 3, Moscow, 1973, p. 66. 



Of enormous significance in the life of primitive man and 
in his struggle with nature was discovery of the uses of fire 
and its application. Fire was used as a defence against cold 
and predatory animals, and to prepare food and to make 
tools. Thanks to fire, it became possible for man to spread 
over a wider area. 

As man developed physically and mentally, tools were 
constantly improved. The epoch of the use of predominantly 
stone tools lasted for hundreds of thousands of years, and 
is known as the Stone Age. Later man learned how to fashion 
tools from metal, initially from copper, then from bronze (an 
alloy of copper and tin), and later from iron. 

An important stage in the development of tools was the 
invention of the bow and arrow. Hunting with a bow made 
it possible to obtain more means of subsistence. The develop- 
ment of hunting led to the emergence of primitive stock 
raising. A further major step in the development of the pro- 
ductive forces of society was the rise of primitive agriculture. 

Production Relations 

in the Primitive-Communal System 

The basis of production relations in the primitive-communal 
system was communal ownership of the means of pro- 
duction. Marx and Engels, the founders of scientific commu- 
nism demonstrated scientifically that the history of human 

anpmf b ^ an Wltb communal ownership and that only subse- 
quently did private property develop from it. Their' conclu- 
sions have been confirmed by the discoveries of the natural 
sciences. Communal ownership corresponded to U i l 
develop^ and character of P lhe F ha 

penod. Tools were so primitive that thev exchiH^ n ■ 

bility of primitive mans battling a E ZST* 

nature and predatory animals. "This primitive type of C o 
operative or collective production," Marx wrote"was of 
course, the result of the weakness of the sinale icnl*t i 
individual and not of socialisation of 9 1 ( 
production." 1 the means of 

1 Marx/Engels, Werke. Bd. 19 , Berlin, 1962, S. 388. 



1. | ijj 

The labour of primitive man created no surplus over and 
above the bare necessities of life, i.e. it created no surplus 
product, and so the possibility of private property, classes 
and exploitation of man by man was excluded. 

The labour activity of men in primitive society was based 
on simple co-operation. Co-operation was necessary in group 
hunting of large animals, in the collective working of fields 
and in other work. A certain development of a natural divi- 
sion of labour took place, i.e. a division of labour depending 
on sex and age. The specialisation of men in hunting and of 
women in the gathering of plant foods and in domestic chores 
led to a certain increase in the productivity of labour. 

With the extremely low level of development of the pro- 
ductive forces and the scarcity of the means of subsistence, 
distribution of the products of labour was on the basis of 
equal shares for all. Everything gathered or produced was 
divided equally. 

Two periods must be distinguished in the development of 
primitive-communal society, (a) pre-clan and (b) clan. 

The pre-clan period is the epoch when man became dif- 
ferentiated from the world of animals, the period when he lived 
in hordes. The main forms of productive activity were the 
gathering of natural produce, hunting and fishing. 

The clan period is the epoch during which people lived 
in large families. The clan was a group of people, in early 
times consisting of a few dozen individuals, united by blood 
ties. Several clans constituted a tribe. The main forms of pro- 
ductive activity in this period were primitive stock raising and 

In the first stage of the clan system, the head of the clan 
was a woman, which stemmed from the material conditions 
of society at the time. Women played the main role in labour 
activity. They gathered plant foods, kept the fire and car- 
ried on hoe cultivation, thereby providing a more reliable 
source of existence for the clan commune than the men's 
hunting, which was of only subsidiary significance. Kinship 
was reckoned in the maternal, female line. This was the 
matriarchal clan or matriarchy. As agriculture and stock 
raising developed further, men's labour began to play a 
decisive role in the primitive commune. As a result, the 
matriarchal clan was replaced by the patriarchal clan or 



patriarchy. The predominant position passed to a man, who 
became the head of the clan community. 

The basic economic law ol the primitive-communal system 
was that of providing the members of the primitive com- 
mune with the necessary means of subsistence through col- 
lective labour, using primitive tools on the basis of joint 
(communal) ownership of the means of production. The ab- 
sence of private property, of the division of society into 
classes and of exploitation of man by man excluded any 
need for a state. 

The Origin of the Social Division of Labour, 
and of Exchange, Private Property and Classes. 
The Disintegration and Collapse 
of the Primitive-Communal System 

At a certain stage in the development of the primitive- 
communal system, particularly with the development of stock 
raising and agriculture, social division of labour emerged. 
At first different communities, and then individual members 
within the commune began to carry out different types of 
production activity, thereby considerably promoting growth 
of the productivity of labour. In his The Origin of the Family, 
Private Property and the State, Frederick Engels pointed out 
that, with the separation of pastoral tribes from the general 
mass of primitive tribes, the first major social division of 
labour occurred. As a result of it, favourable conditions 
emerged for increasing output of produce and for the evolu- 
tion of regular exchange between cattle-raising and farming 

Together with agriculture and cattle raising, handicraft 
production began to develop. Pottery, weaving, and the pro- 
duction of metal tools (wooden ploughs with metal shares, iron 
axes) and weapons developed. The craft wares of the smith 
the armourer, the potter and so on were exchanged with 
increasing frequency, and the sphere of exchange expanded 
. With the appearance of new and better tools, the produc- 
tion relations of the primitive-communal society began not 
to correspond to the new productive forces. Whereas the 


collective labour of dozens of people had previously been 
needed to work the fields, with the development of tools and 
the growth of labour productivity, a single family was now 
in a position to till a piece of land and provide itself with 
the necessary means of subsistence. While collective labour 
required common ownership of the means of production, 
individual labour gave rise to private property. 

The origin of private property led to disintegration of 
the clan system. Persons occupying the position of elder, 
war chief, or priest in the clan community used their posi- 
tions for personal gain, taking a significant share of the 
communal property and becoming ever richer. The mass of 
the clansmen became impoverished and economically depen- 
dent on the rich and noble chiefs. 

As the productive forces grew, man began to produce more 
means of subsistence by his own labour than were needed 
to maintain him. Surplus labour and surplus product emerged 
and, consequently, the possibility of their being appro- 
priated by other people. In such conditions, it became ad- 
vantageous not to kill captives, as had been the practice, but 
to put them to work, to turn them into slaves. 

As property inequality increased, the rich enslaved mem- 
bers of their own community who had fallen into their debt, 
as well as captives. Thus, the first division of society into 
classes originated-into slave-owners and slaves, and the 
exploitation of man by man began. The production relations 
of the primitive-communal system began to disintegrate. 
Joint labour was replaced by individual labour, common 
property by private property, and the clan system by class 
society and the state. 


Further Development of the Productive Forces 
and the Origin of the Slave Mode of Production 

Slavery is the first and crudest form of exploitation of 
man by man. Underlying the transition of society to the 
slave-owning system was further growth of productive forces 
and the development of the social division of labour and 
of exchange. The transition from stone tools to metal led to 



a significant expansion of production and to growth of labour 
productivity. Agriculture developed, its main branches being 
land cultivation and stock raising. The crafts grew and became 
perfected, and as handicraft production developed, each 
craft was gradually converted from a subsidiary activity to 
an independent branch of production; groups of people 
became differentiated in society whose main occupation be- 
came crafts. The second major social division ot labour took 
place, handicrafts becoming an independent branch of pro- 
duction. Unlike tillers of the soil, craftsmen produced the 
bulk of their wares not for personal consumption but for 
exchange. The separation of the crafts from agriculture was 
therefore a decisive step in the origin of commodity pro- 
duction, i.e. production specifically designed for exchange. 
And the development of exchange led to the origin of money. 
The economy in the slave-owning society had a basically 
subsistence character; the produce of labour was intended 
mainly for personal consumption rather than the market, but, 
at the same time, commodity and money relations developed. 
As a result of growth of internal and external trade, the third 
major social division of labour came about, i.e. the rise of a 
class of merchants. Crafts and trade became more and more 
separated from agriculture, and concentrated in special com- 
munities situated mainly at the intersections of roads and 
waterways. So began the formation of towns, the separation 
of town from country, and the emergence of a state of oppo- 
sition between them. 

On the basis of the expansion of production and exchanqe 
property inequality increased significantly. Money drauaht 
cattle, tools and masses of slaves were concentrated in S, 
hands of the rich. The wealthy became b a Vbf, H 

oo h or e er th Th Sma11 P “ and craftsmen’ 

poorer. The poor were compelled to turn to the rich fj 

and fell into debt. Usury developed, 
money or goods at high rates of interest. The poor, being^n 
able to repay their debts, were forced to sell their children 
mto slavery and to become slaves themselves Ac nr ;,, Qf 
Property in land originated, it began to b 1 nf ? 
gaged. Land became increasingly concentrated in th" h n J ° 3 K 
the rich slave-owners. Initially/ slaver J was o 3 n r ^ °/ 
domestic nature, and was "stili S X 



production. The slave was a member, as it were, of a patriar- 
chal family. Later, slave labour became the basis or the exist- 
ence of society, which was split into two main antagonistic 
classes, slaves and slave-owners. The slave mode of production 
took shape. The members of slave-owning society were divid- 
ed into freemen and slaves. Freemen, in turn, were divided 
into a class of big landowners, a class of small producers. 

The origin of private property and the splitting of society 
into classes created the need for a state. The organs of state 
power promoted the development and consolidation ot the 
production relations of the slave-owning society. The state 
served the interests of the ruling class, the slave-owners. In 
their hands, it was an instrument of exploitation, oppression 
and suppression of the resistance of the broad labouring 
masses, the slaves and the poor. 

Production Relations in the Slave-Owning System 

The basis of production relations in the slave-owning sys- 
tem was the slave-owners' complete ownership of the means 
of production and of slaves. Slaves were forced to work by 
means of crude physical violence. Slave-owners subdivided 
the instruments of labour into those gifted with speech (slaves), 
neighing and lowing (horses and cattle), and inanimate. 
Non-economic compulsion to work was the sole means ot 
combining slaves and means of production. Slaves were not 
counted as people. Not only were they exploited, but they 
were also sold like cattle and killed with impunity. Slaves 
were forbidden to marry or have families, since the low pro- 
ductivity of slave labour made the natural breeding of slaves 
unprofitable. The product of slave labour was appropriated 
by the slave-owner and the slave was allotted only the paltry 
means of subsistence needed to maintain his vitality. 

The development of the slave mode of production increased 
the demand for slaves, while their rapacious exploitation 
led to their rapid physical exhaustion and death. It was 
necessary all the time to make up their numbers. Wars were 
an important source of supply of new slaves. Not only were 
prisoners of war driven into slavery, but also a significant 


part of the population of the lands, provinces and colonies 

In comparison with the primitive-communal system, the 
slave mode of production opened up broader possibilities for 
growth of productive forces. Possessing large numbers of 
slaves, the slave-owning states and individual slave-owners 
enjoyed the advantages of large-scale production based on 
simple co-operation of labour, which increased productivity 
considerably. In Greece, for example, there were large work- 
shops ( ergasterii ). Slave labour was widely used in building 
and in mining iron, silver and gold. In ancient Rome, slave- 
owners possessed extensive estates or latiiundia, where hun- 
dreds and thousands of slaves worked. 

The use of mass slave labour made it possible to build 
structures that were beyond the powers of the clan or the 

Slavery existed for three or four thousand years. On the 
basis of slave labour, the ancient world achieved significant 
economic and cultural development. Its main achievements 
were the development of new branches of agriculture (vegeta- 
ble and fruit growing) ; the invention and use of new tools 
(the plough, the scythe, the wheelbarrow, the loom and the 
smith's bellows); the mastery of large-scale construction 
(dams, irrigation systems, roads, ships and whole towns) ; 
the improvement of production skills and the development 
of new trades; the development of science, architecture and 
the arts. 

At the same time, the slave system was unable to create 
the necessary conditions for any significant technical progress 
Slave labour was distinguished by very low productivity The 
slaves hated the heavy forced labour and expressed their 
protest and rebellion by destroying their tools The tech- 
niques of production remained very low. The main tractive 
force was the physical strength of men and cattle 

The slave system engendered the contradiction between 
physical and mental labour. Slave-owners disdained work 
that created material values and led a parasitic way of life 
Only a small stratum of the top slave-owners were 'involved 
m state affairs, science and art. 

dll 2f ^ ul , k of ,_ sl T lab0Ur and its P roduct spent unpro- 
ouctivcly by the slave-owners on satisfying personal fancies. 



building luxurious palaces, temples and other edifices. Only 
an insignificant part was spent on expanding production, 
which therefore developed extremely slowly. . 

From the essence of its production relations, the basic 
economic law ot the slave-owning system must be defined 
as the production of surplus product for the slave-owners by 
means of rapacious exploitation of masses of slaves belong- 
ing completely to them. 

The Sharpening of Contradictions 

in the Slave-Owning System and Its Collapse 

Marxist-Leninist science considers _ the slave-owning sys- 
tem as a necessary stage through which a considerable part 
of humanity has passed in the development of society Undei 
it the culture that underlay the further development of civili- 
sation grew up. But the system contained insuperable con- 
tradictions within itself. 

At a certain stage in the development of slave-owning 
society, production relations became shackles on development 
of the productive forces. A period of decline and tall ot the 

system set in. „ . ,, , « 

What were the causes of the collapse of the slave mode 

First, production relations ceased to correspond to the 
character of the productive forces. The rapacious exploita- 
tion of slaves undermined the basic productive force ot 
society. Slave-owners with vast numbers of slaves were not 
interested in improving tools, and the slaves lacked any 
interest in labour. They frequently destroyed the instru- 
ments of production, which hindered the development ot 
technology and the use of improved tools. Physical labour 
was considered a disgraceful occupation beneath the dignity 
of a free man. The great masses of the free urban population 
(plebs) did not, therefore, engage in productive labour and 

lived at the expense of society. 

Second, the basis of the military power ot the slave-owning 
states was the small producers-the peasants and artisan 
craftsmen- from whom the army was recruited. They were 
also the main payers of taxes. Hit by the competition of 



large-scale production based on slave labour and by the 
ever increasing burden of taxes, however, the free peasants 
and artisans were being ruined and becoming slaves or 
lumpen-proletarians. A contributing factor to this was the 
constant military campaigns, which enriched the slave-owners 
but impoverished the poor. As a result, the contradictions 
between free peasants and artisans, on the one hand, and the 
big landowners, on the other hand, became increasingly 
sharper and the economic and military power of the slave- 
owning states was undermined. As their military power 
weakened, the main source of new slaves-predatory wars 
and colonial plunder-dried up. The numbers of slaves 
dropped sharply and their price rose. Deprived of such impor- 
tant economic advantages as large numbers of slaves and 
cheap slave labour, the slave-owners' latiiundia and ergas - 
terii fell into decline. Under these conditions, the slave- 
owners began to search for new ways of running their 
estates; they divided the land into plots and let them to free 
peasants to till, and later also to slaves, in return for a share 
of the harvest and the fulfilment of various obligations. So- 
called colonates developed, which served as the embryos of 
new, feudal relations within slave-owning society. 

Third, the cruel exploitation of slaves and ruthless op- 
pression of peoples sharpened the basic class contradiction 
of slave-owning society, that is to say, the contradiction 
between slaves and slave-owners. Mass uprisings of slaves 
undermined the economic and political power of the state 
and thus created the conditions for its conquest by foreign 

All this was evidence that the slave-owning system had 
outlived itself. During the last two centuries of the Roman 
Empire, a general decline of production and trade, and of 
the towns, set in. Slave revolts became intertwined with the 
struggle of the exploited small peasants against the big land- 
owners. Invasions by foreign tribes finally undermined the 
slave-owning system. The internal and external contradic- 
tions sharpened to the limit and led to the collapse of the 
system based on slavery in ancient Rome. In its place came 

Vestiges of clan and slave relations, however, still exist 
in the capitalist world to this day, especially in certain 



developing countries. In 1962, it was officially announced 
that slavery had been abolished in Saudi Arabia; but in Octo- 
ber 1963, the Aden newspaper Fatat Ul-Jezirah reported that 
the Saudi Arabian Government had issued a decree establish- 
ing new prices for slaves, according to which slave-traders 
could sell male slaves at a price not exceeding 250 pounds 
sterling each, and female slaves for 350 pounds sterling. The 
government committed itself to compensate the slave-traders 
for the difference between the old and the new prices for 
slaves. The imperialist states strive to use the survivals of clan 
and tribal relations (so-called tribalism) that still exist in 
places in order to inflame tribal discord so as to retain and 
strengthen their power in the countries of Africa, Asia, 
Oceania, and Latin America that have freed themselves from 
colonial dependence. 


The Origins of Feudalism 

Feudalism is the second socio-economic formation based 
on the exploitation of man by man. This mode of production 
existed in many countries and lasted for several centuries. 
In Western Europe, the feudal system emerged as a result 
of the interaction of two processes: (1) the fall of Roman 
slave-owning society, and (2) the disintegration of the clan 
system among the conquering tribes. 

As mentioned above, the elements of feudalism had 
already been born in the form of colonates within the womb 
of slave-owning society. The dependent peasants or eoloni, 
allotted land, were obliged to till the land of their lord, to 
hand over to him a considerable share of the harvest or to 
pay a definite cash sum, and to fulfil various compulsory 
obligations. These people having their own husbandries were 
more interested in their work than were slaves. Consequently, 
new production relations were engendered owing to the decay 
of slave-owning society and developed fully under feudalism. 

Relations of feudal exploitation also took shape as a result 
of the disintegration of the clan system among the conquering 
tribes living in various parts of Europe. The tribes that con- 
quered the Roman Empire took possession of a large part of 


its lands. The forests, meadows and pastures remained in the 
common use of the communities, while the arable land was 
divided into individual holdings. A broad social stratum of 
independent small peasants was formed, but they could not 
maintain their independence for long. With private property 
in land and other means of production, property inequality 
between the individual members of the rural commune 
became more acute. The enriched members of the commune 
took increasing control of it and seized the lands of the 
poor. Land became concentrated in the hands of the tribal 
nobles. Thus, the disintegration of the tribal system gave 
rise to a class of big landowners, who subordinated the 
peasant masses to their domain. Military chiefs (who were 
the biggest landowners) concentrated political power in 
their own hands and became kings and monarchs. The kings 
generously granted the lands they had seized to their favour- 
ites, obliging them to do military service in return. The lands 
distributed on these terms were called fiefs and the people 
who received them-feudal lords. Hence the name of this new 
social system-feudalism. Much land was received by the 
Church, which served as a major support of royal power. 

The lands granted to feudal lords were worked by the 
peasants, who were now obliged to fulfil a number of services 
for their new masters. The process by which peasant lands 
became the property of feudal lords and by which the peas- 
ant masses became serfs took a different course in different 
countries, but its essence was everywhere the same: the once 
free peasants had fallen into personal dependence on feudal 
lords, who seized their lands by force. 

Feudalism was a necessary stage in the development of 
society. Once slavery had outlived itself, further develop- 
ment of the productive forces could only take place on the 
basis of the labour of a large number of bound peasants, 
who had a certain independence and interest in their work. 

The Relations of Production in Feudal Society 

The basis of relations of production in the feudal system 
was large-scale feudal property in land and the personal 
dependence of peasants on feudal lords. Unlike a slave, the 



serf had his own domestic economy, based on his own labour. 
All land was the property of the feudal lord; one part he 
kept as his own estate, or demesne, while the rest he grant' 
ed to peasants for use, on conditions of bondage. The peas- 
ants became tied to the land by law. While enjoying use of 
the piece of land allotted to him, the peasant was obliged to 
work for the lord and had no right to quit his holding. Such 
an economic system inevitably presupposed the personal 
dependence of the peasant on the landowner, i.e. non- 
economic coercion. "If the landlord," Lenin wrote, "had not 
possessed direct power over the person of the peasant, he 
could not have compelled a man who had a plot of land and 
ran his own farm to work for him ." 1 

The working time of the peasant serf was divided into 
the necessary and the surplus. During the necessary time, 
the peasant produced what was needed for his own subsis- 
tence and that of his family. During the surplus time, he 
created surplus product, which was appropriated by the feu- 
dal lord. This surplus labour, and often also part of the 
necessary labour of the peasant serf, was appropriated 
by the lord in the form of rent oi land. Three forms 
of feudal rent existed: labour rent, rent in kind and 
money rent. 

Labour rent predominated in the early stages of the develop- 
ment of feudalism. It took the form of corvee or feudal 
labour services, by which the peasant worked part of the 
week, three days, for example, for the lord and the rest of 
the time worked on his holding. When working on the lord's 
demesne, the peasant had no interest in increasing the pro- 
ductivity of his labour. The lords therefore employed bailiffs 
or overseers, who compelled the peasants to work by physi- 
cal coercion. 

As feudal system developed further, labour rent gave way 
to rent in kind or quit rent. With this, the peasant holding 
land was obliged regularly to deliver agreed quantities of 
grain, cattle, poultry and other farm produce, and domestic 
craft articles to the lord of the manor. The serf expended all 

1 V. I. Lenin, "The Development of Capitalism in Russia", Col- 
lected Works, Vol. 3, p. 193. 



his labour at his own discretion and was more independent, 
which stimulated, to a certain extent, raising of labour 

In later stages of feudalism, when commodity-money rela- 
tions became widely developed, feudal money rent arose. 
With this form of rent the peasant gave the lord of the manor 
not the product itself, but its value realised on the market, 
in the form of a definite sum of money. Money rent greatly 
accelerated property differentiation of the peasantry and the 
emergence of capitalist relations. In many countries, including 
tsarist Russia, different forms of feudal rent existed simul- 
taneously. In addition to rent of land, the peasants paid the 
feudal lord fees for the use of mills, smithies and watering 
places, fees for passage on roads, court fees, market fees 
and so on. On top of that they paid taxes to the state, local 
tolls and, in some countries, tithes, or a tenth of the harvest, 
to the Church. 

The lord of the manor's economy was basically one of 
subsistence, especially in the early stages of the development 
of feudalism. The needs of the lord and of his family and 
numerous servants at first were satisfied by what was pro- 
duced by his demesne and delivered by his quit-rent 
peasants. The peasant economy was also mainly of a natural 
or subsistence character. 

This combination, over a long period of time, of tillage 
as the main branch of the economy with domestic crafts, 
which were of subsidiary importance, was a specific feature 
of feudalism. Later, with the growth of craft industry in 
the towns, exchange between town and country gradually 

The feudal system had its own particular features in dif- 
ferent countries, but the development of the feudal mode of 
production everywhere followed a general pattern. The basic 
economic law of feudalism consists in the production of sur- 
plus product for feudal lords in the form of feudal 
rent through the exploitation of peasants dependent upon 

With growth of commodity relations, craft production 
developed further, became increasingly separated from agri- 
cultural production, and concentrated in towns. The urban 
population consisted mainly of craftsmen and merchants. In 




order to protect themselves from exploitation by feudal lords 
and against their oppression, and also against the com- 
petition of rural craftsmen running away to the towns, the 
urban craftsmen combined in craft guilds. As a rule, a guild 
consisted of craftsmen of one and the same speciality. Only 
master craftsmen who had a small number of journeymen 
and apprentices working for them were full members of a 

The guilds strictly regulated all the conditions of produc- 
tion and sale of goods, fixing the length of the working day, 
determining the number of apprentices and journeymen, the 
quantity and quality of the wares produced, market 
prices, and so on. Besides, guilds fulfilled the functions 
of religious, social and military organisations. The trading 
population of the towns also had their own associations, the 
merchants' guilds. 

In their early period, guilds played a positive role, en- 
couraging the development of urban crafts and improvement 
of the quality of articles. But, as commodity production and 
exchange expanded, they became a brake on the develop- 
ment of the productive forces. 

The basic class contradiction of feudal society was that 
between feudal lords and peasants. The feudal lords of the 
manor were the ruling class. They headed the state and 
composed a single estate, the nobility. Nobles enjoyed wide 
political and economic privileges. The clergy were also very 
big landowners and occupied a dominant position alongside 
the nobility. The peasants, who constituted the main mass 
of the population under feudalism, were politically an estate 
without rights. They were completely subordinate to the 
lords of the manor, who could sell their serfs, subject them 
to corporal punishment and send them for military ser- 
vice. Lenin noted that in practice "serfdom, especially in 
Russia where it survived longest of all and assumed the 
crudest forms, in no way differed from slavery ". 1 The 
peasants waged a relentless struggle against the feudal 

1 V. I. Lenin, "The State", Collected Works, Vol. 29, p. 476. 



Development of the Productive Forces 
of Feudal Society 

Under feudalism, significant progress was achieved in 
development of the productive forces compared with the 
slave-owning system. The techniques of agriculture were 
improved. The iron plough and other metal tools became 
more common. New branches of arable farming emerged, 
and viticulture, horticulture and market gardening made 
significant advances. Stock raising, especially horse breeding, 
increased and developed. 

Craftsmen's tools and methods of processing raw mate- 
rials also improved. In particular, there was a great change 
in methods of smelting and working iron: blast furnaces 
appeared, iron founding emerged and developed, and means 
of forging iron from pig iron were discovered and subse- 
quently found broad application. 

The invention of the compass and of geographical maps 
produced a real revolution in shipping and navigation. Of 
no less significance in the development of culture were the 
invention and spread of paper-making and printing. 

The growth of the productive forces in feudal society 
necessitated the establishment of new production relations 
and the transition from feudalism to capitalism. 

The Emergence of Capitalist Production 
Relations and the Disintegration and Collapse 
of the Feudal Mode of Production 

During the epoch of feudalism, there was a further 
development of commodity production. Agricultural produce 
and urban craft products were increasingly exchanged. Evo- 
lution of the social division of labour and growth of produc- 
tion led to a strengthening of economic ties between the 
various regions of a country and to the formation of national 
markets. The development of navigation and foreign 
trade laid the foundations for the formation of a world 

As a result of the growth of foreign trade and expansion 
ot the world market, craft production with its guild regu- 

4 * 



I lation was no longer in a position to satisfy the growing 
demand for commodities. This greatly accelerated stratification 
of petty craft producers and the transition to large-scale 
capitalist production, based on the exploitation of hire 
labour. In his The Development oi Capitalism in Kussia, 
Lenin showed that the transition from domestic and handi- 
1 1 craft industry to capitalist production in the towns mainly 

took place in two ways. (1) As the craftsmen became di - 
ferentiated, a small number of masters grew wealthy and 
became capitalist entrepreneurs, while the bulk of the mas- 
ter craftsmen, journeymen and apprentices were deprived ot 
the means of production and became wage workers. (2) Mer- 
chant capital, in the persons of merchants, more and more 
subordinated craft industry to itself, ruined it, and converted 
itself into industrial capital. 

At first the merchant had played the role of middleman 
in the exchange of commodities between peasants and crafts- 
men. Then he became a buyer, regularly buying up the 
wares made by commodity producers and reselling them tor 
profit on more distant markets. He also lent the craftsmen 
money and materials, obliging them to sell their wares at 
previously agreed prices. Subordinating impoverished crafts- 
men to his control, the trader gave out materials to them 
and required them to make specific articles for a certain 
payment. Thus, the merchant became an entrepreneur- 
distributor, later he provided the craftsmen not only with raw 
materials, but also with tools. As a result, craftsmen finally 
became wage workers and the merchant capitalist an 

A similar process of disintegration of feudal production 
relations and development of capitalist ones took place in 
the village. As commodity production grew, the feudal lords 
increasingly substituted monetary dues for the peasants 
obligations in kind, so increasing feudal oppression. The 
development of money relations speeded up differentiation 
of the peasantry into various social groups. The ovemhelm- 
ing majority were impoverished and ruined^ But alongside 
them in the village appeared kulaks or rich peasants and 
usurers, who exploited their fellow villagers with onerous 
loans and by buying up their produce and cattle at low pri- 

The So-Called Primitive Accumulation 
of Capital 

The process by which the capitalist mode of production 
became established, a process conditioned by the spontaneous 
operation of objective economic laws, was significantly ac- 
celerated by forcible measures during the period of what 
Marx called the "primitive accumulation of capital". 

In Volume I of Capital, Marx wrote: "The so-called primi- 
tive accumulation ... is nothing else than the historical 
process of divorcing the producer from the means of produc- 
tion. It appears as primitive, because it forms the pre- 
historic stage of capital and of the mode of production corre- 
sponding with it." 1 

The process of the primitive accumulation of capital took 
place, in its classical form, in England over a long period 
from the end of the fifteenth to the middle of the nineteenth 
century. Primitive accumulation took place in various ways, 
but primarily through "enclosures", i.e. through the forcible 
eviction of peasants from the land and their conversion into 
homeless, propertyless poor. Masses of expropriated peas- 
ants flooded the towns and roads of England in search of 
work and the means of survival. To the advantage of emerg- 
ing capitalism, the state authorities issued bloody laws 
against "vagrancy", forcing tens and hundreds of thousands 
of unfortunate people to work in capitalist manufactures 
and factories for a pittance under threat of the gallows. The 
working day was lengthened by legislation, wages were limit- 
ed, and measures were introduced making it compulsory to 
work in enterprises. That is how capitalist labour discipline 
was initially inculcated. 

The second aspect of the so-called primitive accumulation 
was concentration of the large funds needed for the organi- 
sation of capitalist enterprises in the hands of a few. The 
methods of primitive accumulation of funds included, above 
all, the system of colonial plunder by invading countries, of 

1 Karl Marx, Capital, Vol. I, Moscow, 1974, p. 668. 



colonial trade and the slave trade, international credit and 
usury. One of the sources of primitive accumulation was 
state loans, which, in the final analysis, led to increased taxa- 
tion of the working people. 

The process of primitive accumulation with historical 
features of one kind and another was completed later in 
other countries. In Russia, for example, the process of divorc- 
ing the producer from the means of production proceeded 
most intensively with the abolition of serfdom. As a result 
of the 1861 reform, landowners seized two-thirds of the peas- 
ants' land. For a reduced plot of the worst land, the peasant 
had to make redemption payments and assume other obli- 
gations in the landowner's favour. The scale of the payments 
was calculated on the basis of inflated land prices and came 
to around 2,000 million gold rubles. Lenin characterised 
the 1861 "emancipation" of the serfs as mass coercion 
of the peasants in the interests of the emerging class of 

The process of so-called primitive accumulation shows the 
enormous role played by force and coercion in the birth of 
the capitalist mode of production. Coercion itself cannot, of 
course, create new relations of production, but it is an im- 
portant factor in the transition from one mode of production 
to another. 

The apologists of the bourgeoisie try in every way to 
embellish the process by which the bourgeois system 
evolved. Capitalism, they claim, arose as a result of the "natu- 
ral" division of people into the capable, hardworking and 
thrifty (from whom the capitalists arose) and the incapable, 
careless and thriftless (who became the proletarians); and 
they try to prove that the capitalists do the poor great good 
by providing them with work. The facts absolutely refute 
such "theories". The development of a mass of people 
deprived of means of production or any means of subsistence 
and the accumulation of wealth in the hands of individuals 
who later became capitalists, was brought about by ruthless 
force, the history of which, as Marx said, "is written in the 
annals of mankind in letters of blood and fire". 1 

1 Karl Marx, Capital, Vol. I, p. 669. 


Intensification of Class Antagonisms of the 
Feudal System and Its Replacement 
by Capitalism 

An important role in shaking the foundations of feudal- 
ism and speeding its end was played by peasant uprisings. 
The struggle of the serfs against the feudal lords went on 
throughout the epoch of feudalism but became particularly 
sharp towards its end. 

In the fourteenth century, France was wracked by the 
peasant war that has come down in history as the Jacquerie. 
In England, at the end of the fourteenth century, there was 
the peasant revolt headed by Wat Tyler. At the beginning 
of the sixteenth century, Germany was torn by the peasant 
war led by Thomas Miinzer which was supported by the 
urban poor. Great uprisings took place in Russia, especially 
the peasant wars led by Ivan Bolotnikov and Stepan Razin 
in the seventeenth century and by Emelyan Pugachev in the 

The significance of peasant uprisings was that they shook 
the foundations of feudalism and led to the abolition of 
serfdom. In the countries of Western Europe, the transition 
from feudalism to capitalism took place through bourgeois 
revolutions. The bourgeoisie headed the struggle of the 
peasants and urban poor against feudal oppression, but used 
the results of the revolutionary gains in its own class 
interests. Having seized political power it substituted capi- 
talist for feudal exploitation. 

In the place of feudal society came the more progressive 
society for those times, capitalism. But large landed property 
and vestiges of serf exploitation of peasants remain in many 
capitalist countries to this day. 

The Communist and Workers' parties of capitalist countries 
demand the final elimination of all forms of pre-capitalist and 
capitalist exploitation of the peasantry, and support the 
peasants' struggle for the abolition of landed property and 
for the transfer of the land to those who till it. 

The General Foundations 
of the Capitalist 
Mode of Production 

Chapter 3 




Capitalism, like the slave and feudal modes of production, 
is a social system based on private ownership of the means 
of production and the exploitation of man by man. 

The transition from feudalism to capitalism meant a 
further development of private property, its greater con- 
centration in the hands of a minority, and deprivation of the 
masses of petty producers of ownership of the means of pro- 
duction and their transformation into people compelled 
"voluntarily" to sell their labour power to the capitalists in 
order to obtain the means to live. Open forcible compulsion 
of the producers of the material wealth to toil for their 
exploiters and the exploitation of personally bound peasants 
were replaced by the exploitation of wage labour. The for- 
mal equality of capitalists and workers as buyers and sellers 
concealed the real essence of the relations between them. 
The forms of exploitation were changed but its essence, 
appropriation of the unpaid labour of others by the ex- 
ploiters, remained the same. Capitalist relations of production 
took shape over a long time in the womb of the feudal 

In the course of its establishment, capitalism passed 
through three historical stages: a) simple capitalist co- 
operation, which existed in the form of the workshop within 
which there was still no division of labour; b) large-scale 
manufacture based on the division of manual work within 
the workshop; c) capitalist machine industry, the typical 
form of which is the factory or mill. Having created its own 
material and technical basis in the form of large-scale 
machine industry, capitalism brought about an enormous 



growth in the productivity of social labour, defeated feudalism 
economically and established itself as the dominant mode 
of production. Underlying this revolution in social life was 
the industrial revolution that took place in Western Europe 
in the second half of the eighteenth century and first half of 
the nineteenth. 

Being based on private property, capitalist production 
could not develop other than in an anarchic form, with 
constant competition between capitalists for the highest 
profits. In the course of the competition more and more petty 
commodity producers and small capitalists are ruined by 
the big ones, and capital is concentrated in the hands of an 
ever smaller group of owners, the exploitation of wage labour 
increases, and all the contradictions of capitalism become 
more acute. At a certain stage of its development the con- 
centration of production leads inevitably to the situation 
where a few large enterprises begin to produce the bulk of 
output, while the role of the mass of small enterprises in 
production becomes insignificant. A monopoly position is 
created for a small number of the biggest enterprises. By 
agreement, the big capitalists form even more powerful 
corporations which, using their superiority in the manufac- 
ture and sale of the most important lines of production, sup- 
press freedom of competition and subordinate the whole 
capitalist economy to the extraction of monopoly profit. Hav- 
ing established undivided sway over all spheres of econom- 
ic, social and political life in their countries, the biggest 
monopolies began to divide the whole world into "spheres 
of influence". In their pursuit of maximum profit, they con- 
stantly strive for economic and political expansion and push 
their governments towards imperialist seizure of the territory 
of others. All these developments, taken together, meant 
that capitalism had entered a new stage, the highest stage of 
its development, that of monopoly capitalism or imperialism. 

The transition from free competition to monopoly domi- 
nation took place at the turn of the century. Under imperial- 
ism, the economic foundation of society still remains private 
capitalist property, and the same economic laws operate as 
were inherent in pre-monopoly capitalism. But in the new 
stage of development of the capitalist mode of production, 
many of its laws and categories take on important specific 



features and a number of new patterns, trends and contra- 
dictions develop that did not previously exist. Under imperial- 
ism, the contradiction between the productive forces and pro- 
duction relations becomes much sharper, which causes enor- 
mous waste of productive forces in militarisation of the econo- 
my, destructive wars and crises, mass unemployment, unbri- 
dled growth of parasitic consumption, pollution of the environ- 
ment and so on. The conflict between the modem productive 
forces and capitalist production relations, between the social 
character of production and the private capitalist form of 
appropriation of its results has led to a deepening of all the 
other antagonistic contradictions of capitalism and brought 
it to the brink of doom. The inevitability of the revolutionary 
replacement of capitalism by socialism, scientifically sub- 
stantiated by Marx and Engels in the heyday of the bour- 
geois system, has become the order of the day under 

Having made a deep analysis of the special features of 
the new stage of capitalism, Lenin came to the conclusion 
that imperialism is not only the highest stage in the develop- 
ment of the capitalist mode of production, hut also its last, the 
eve of the socialist revolution. This brilliant conclusion was 
soon fully confirmed in the course of historical development. 
The Great October Socialist Revolution in Russia opened the 
epoch of transition from capitalism to socialism. For sixty 
years, the peoples of the USSR, and later of a num- 
ber of other countries, have been building a new society, 
fundamentally different from capitalist society. A world 
socialist system has taken shape and is growing in strength. 
Since the victory of the October Revolution, capitalism itself 
has entered a period of general crisis, the historical phase 
of its decline and final fall. The basic feature of the general 
crisis of capitalism is the division of the world into two 
opposing social systems, capitalist and socialist. The crisis 
is also manifested in the disintegration of imperialism's 
colonial system, in the struggle of a number of countries 
now free from colonial dependence to take a non-capitalist 
path of development, in growing instability in the capitalist 
economy and aggravation of the uneven development of capi- 
talist countries, and in sharpening of the working people's 
class struggle against the yoke of the monopolies. 



The existence of two world economic systems is making 
a noticeable impression on the patterns of capitalism and is 
modifying them further. Monopoly capitalism today differs 
both from nineteenth-century capitalism, and from that of 
the beginning of the twentieth century. In striving to adapt 
itself to the conditions of struggle between the two systems 
and to the demands of the scientific and technical revolution, 
it is increasingly adopting the form of state-monopoly capi- 
talism and trying to programme and regulate the economy 
on a national scale, or even that of a group of countries. 
But its basis remains, as before, private property relations. 
State-monopoly regulation, therefore, in the forms and on the 
scale corresponding to the interests of monopoly capital and 
directed towards maintaining its domination, is unable to 
control the spontaneous forces of the capitalist market. 
Objectively, the development of state-monopoly capitalism 
has meant further socialisation of production, which leads 
inevitably, with private capitalist appropriation preserved, in 
however modified forms, to further deepening of the contra- 
dictions of capitalism and prepares material preconditions 
for socialism. 

The Structure of Our Book 

The economic laws and patterns of the development of 
the capitalist mode of production were discovered by Karl 
Marx, Frederick Engels, and V. I. Lenin. Marx's major work. 
Capital, was devoted to investigation of the laws and econom- 
ic categories of capitalism, while Lenin gave a scientific 
analysis of the monopoly stage of capitalism in Imperialism, 
the Highest Stage of Capitalism, which is rightfully consid- 
ered the logical sequel to Capital. The special features of 
the contemporary stage in the development of monopoly 
capitalism have been illuminated in the documents of the 
Communist Party of the Soviet Union and of other Marxist- 
Leninist parties. 

For all the changes that capitalism has undergone, the basic 
patterns of its development, determined by the essence of 
capitalist production relations, have been maintained. There- 
fore, so as to understand the most important features of the 



capitalist mode of production as a whole, and to bring out 
its irreconcilable contradictions, we must first, following 
Marx's methodology, make an all-round study of free com- 
petition capitalism, i.e. of pre-monopoly capitalism. First we 
must clarify the laws governing capitalist production and 
then pass to an analysis of those governing the circulation of 
capital and finally look at the processes of capitalist pro- 
duction, circulation, distribution and consumption in their 
unity and interaction. This will enable us to comprehend 
more deeply the essence of capital and surplus value and to 
reveal the laws and categories that express the concrete 
forms of their movement. The problems are all dealt with 
in the first part of our book, "The General Foundations of 
the Capitalist Mode of Production". In the second part, 
"Imperialism-Monopoly Capitalism, the Highest Stage of 
Capitalism”, we analyse, first, the laws of development of 
monopoly capitalism and, second, the effect of these laws in 
the period of the general crisis of world capitalism. 




Marx began his investigation of the capitalist mode of 
production in Capital with an analysis of the categories of 
commodity production, that is, defined briefly, the production 
of goods for the market, for sale. 

In an early work, "On the So-Called Market Question", 
Lenin described commodity production based on private prop- 
erty as follows: "By commodity production is meant an 
organisation of social economy in which goods are produced 
by separate, isolated producers, each specialising in the 
making of some one product, so that to satisfy the needs of 
society it is necessary to buy and sell products (which, there- 
fore, become commodities) in the market ." 1 From this it 
follows that the main causes behind the origin and develop- 
ment of commodity production are, first, the process of the 
social division of labour and, second, the separation of the 
producers of material wealth as owners. 

1 V. I. Lenin, Collected Works, Vol. 1, p. 93. 


The Historical Character 
of Commodity Production 

The production of goods for exchange had already evolved 
during the disintegration of the primitive-communal system 
and has now existed for six thousand years. It existed in the 
slave-owning system and under feudalism, and reached its 
fullest development under capitalism. 

Bourgeois economists claim that commodity production is 
as eternal as human society itself, their aim being to "prove” 
the eternity of the capitalist system as the most developed 
form of commodity production. The founders of Marxism- 
Leninism demonstrated scientifically that, although com- 
modity production has existed in several socio-economic 
formations, it is not eternal. In the early stages of the 
primitive-communal system, there was neither commodity 
production nor exchange. Then people, using tools that belon- 
ged to the whole commune, obtained the necessary means of 
subsistence by joint labour and consumed them jointly, 
without resorting to exchange. In developed communist 
society, commodity production will cease to be necessary and 
will gradually disappear. 

The specific features and significance of commodity pro- 
duction in any particular period are determined by the char- 
acter of the production relations prevailing in that given 
society. First we must distinguish simple commodity produc- 
tion from capitalist commodity production. 

By simple commodity production we mean the fashioning 
of products for the market by peasants and craftsmen, based 
on petty private property and on the personal labour of the 
commodity producer and his family. Simple commodity pro- 
duction as a form of production existed in pre-capitalist sys- 
tems, persisted under capitalism, and also exists in the transi- 
tion period from capitalism to socialism. 

Capitalist production is the highest form of commodity pro- 
duction, based on private property. 

Simple and capitalist commodity production are both based 
on an economic foundation of the same type-private property 
-and their development therefore has a spontaneous charac- 
ter. But the fact that they are of the same type does not mean 
that they are identical. They have fundamental differences. 



Whereas petty, small-scale commodity production is based 
on the personal labour of the producer himself and on means 
of production belonging to him, capitalist production is based 
on the exploitation of wage labour, the means of pro- 
duction and labour power being separated and requiring the 
purchase and sale of labour power on the market to bring 
them together. Consequently, under capitalism, not only do 
the products of labour become commodities, but also human 
labour power. "By capitalism,” Lenin wrote, "is meant that 
stage of the development of commodity production at which 
not only the products of human labour, but human labour- 
power itself becomes a commodity ." 1 

Whereas the production of commodities by peasants and 
craftsmen was only of subsidiary significance in a subsis- 
tence economy under the slave and feudal modes of produc- 
tion, in capitalist society, commodity production becomes 
the universal form of the production of material wealth, all 
or nearly all the products of labour taking a commodity form 
and being produced for sale. 

With simple commodity production, the product of labour 
belongs to the producer himself. Under capitalism, the result 
of workers' labour is completely appropriated by the capi- 
talist. The aim of simple commodity production, in the final 
analysis, is satisfaction (through exchange) of the needs of 
the commodity producer. The goal of capitalist production, 
as will be shown later, is the extraction of profit. 

Simple commodity production, consequently, has a dual 
character, it resembles capitalist commodity production and, 
at the same time, differs from it. This also determines the 
dual nature of the petty commodity producer himself, the 
peasant and craftsman; on the one hand, he is a toiler and, 
on the other, a property owner, a petty bourgeois. As a prop- 
erty owner, under capitalism, the peasant tries to "get on 
in the world”, to make money and become a member of the 
bourgeoisie. To do that, he has no objection to exploiting a 
favourable state of the market, or to gaining at the expense 
of others, including the workers. But as a toiler, just like a 
Worker, he is harshly exploited by capital and has no 

1 V. I. Lenin, "On the So-Called Market Question", Collected 
Works, Vol. 1, p. 93. 




prospects except poverty and ruin. The peasant can only free 
himself from the yoke of capitalist exploitation by revolu- 
tionary struggle. 

The fundamental interests of the masses of the labouring 
peasantry coincide with those of the working class, and that 
is the economic foundation of the alliance of workers and 
peasants in their struggle against their common enemy, 

Commodity production persists after the proletariat's 
achievement of political power and in developed socialist 
society, but it and all the economic categories connected 
with it differ fundamentally from the capitalist ones. Its 
specific features are considered in another book in this 
series -Political Economy: Socialism. 

Analysis of Commodity Relations 
as the Starting Point of the Analysis 
of Capitalism 

The fact that Karl Marx began his investigation of capi- 
talist relations with an analysis of commodity production 
is of great methodological significance. 

First, the dialectical logic of research employed by him in 
Capital calls for study of social phenomena in their develop- 
ment. Historically, capitalism grew out of the simple com- 
modity production existing as a form of production under the 
feudal system. "Small-scale production," Lenin emphasised, 
" engenders capitalism and the bourgeoisie continuously, 
daily, hourly, spontaneously, and on a mass scale." 1 

Second, capitalism, as was indicated above, is itself com- 
modity production in its most developed form. Exchange of 
commodities, Lenin said, is "the simplest, most ordinary and 
fundamental, most common and everyday relation of bour- 
geois (commodity) society". 2 A commodity, to use Lenin's 
expression, is the simplest economic "cell" from which the 
whole complex organism of the capitalist mode of produce 

1 V. I. Lenin, " 'Left-Wing' Communism-an Infantile Disorder". 
Collected Works, Vol. 31, p. 24. 

2 V. I. Lenin, "On the Question of Dialectics", Collected Works, 
Vol. 38, p. 360. 



tion is built and in which all its antagonistic contradictions 
are included in embryo. In order, therefore, to reveal the 
essence of capitalism, its laws and contradictions, it was 
necessary right from the start to show the economic essence 
of a commodity and of commodity circulation in general, 
just as, in order to study a complex organism like the devel- 
oped body, it is necessary to know the structure of its cells. 

Third, since not only the products of labour but also human 
labour power itself becomes a commodity under capitalism, 
the social relations between capitalists and workers take on 
the form of commodity relations. In order to disclose their 
character and explain the nature of capitalist exploitation, it 
was necessary, as a preliminary, to look at the most general 
form in which those relations appear on the surface of so- 
ciety, which explains the great significance of this topic for 
the political economy of capitalism. 

Now let us look at what a commodity is and what its prop- 
erties are, from the economic point of view. 



A commodity is a product of labour, produced for sale on 
the market and for exchange. Unlike a product consumed 
without being sold, a commodity not only satisfies certain 
of man's needs, but is also something that must be 
exchanged for something. 

The Use Value of a Commodity 

The usefulness of a thing, the property by which it satis- 
fies some human want, is called its use value. "The nature 
of such wants, whether . . . they spring from the stomach or 
from fancy," as Marx pointed out, "makes no difference." 1 
If it satisfies a human need, it has use value. Any use value 
is realised in the process of consumption. 

Use values can be divided into two basic types according 
to how they are consumed or used by people: 

1) consumer goods, i.e. objects satisfying people's needs 

1 Karl Marx, Capital, Vol. I, p. 43. 



directly as vital material and spiritual necessities of life, for 
example, foodstuffs, footwear, clothing, housing, domestic 
appliances and so on; 

2) means of production or objects satisfying people's needs 
indirectly that are used to produce the things people need; 
they include industrial buildings and structures, machinery 
and equipment, raw and other materials, fuel and electricity. 

Products of labour possess the property of satisfying 
people's needs independently of the socio-economic system. 
From that angle use value is an eternal category, existing in 
every society. At the same time, it is a historical category, 
its historical character being primarily determined by the 
fact that a thing's useful properties are more and more fully 
revealed during the historical development of science, tech- 
nology and production. 

From time immemorial, for example, man has used wood 
as fuel and as a building material, but only as a result of the 
scientific and technical progress of recent centuries has timber 
become one of the most universal materials. About 30,000 
different useful articles are now made from it. Something of 
the same sort happened with many minerals like common salt, 
coal, oil, gas, metals, etc. 

In themselves, however, the uses of a thing, its physical, 
chemical and other properties are studied not by political 
economy, but by the natural and technical sciences, and in par- 
ticular by the science of commodities. The property of things 
that interests political economy in analysing commodity pro- 
duction is that they serve as use values not for their producers, 
but for other people, that is, that they satisfy a social need, 
and that, in the conditions of commodity production, use value 
becomes the bearer of exchange value. 

Exchange Value 

A product of labour entering consumption via exchange 
acquires exchange value. "To become a commodity, Engels 
noted in an addition to Capital "a product must be trans- 
ferred to another, whom it will serve as a use-value, by means 
of an exchange." 1 This means that a commodity must not only 

t Karl Marx, Capital , Vol. I, p. 48. 



possess the property of satisfying a social need, but also that 
of being exchanged for another commodity. The property of 
a commodity to be exchanged in a certain ratio for other com- 
modities is called exchange value. Exchange value is primarily 
the quantitative ratio of exchanged commodities : for example, 
1 suit = 3 pairs of shoes. 

Commodities with different use values are exchanged. It 
would be pointless, of course, to exchange a quintal of wheat 
for a quintal of wheat or a watch for exactly the same kind 
of watch. But the fact that commodities are equated to each 
other and exchanged means that different commodities have 
something in common. 

What can there be in common between two quite different 
commodities? Their use values do not have common proper- 
ties; on the contrary, their use values are exactly what dis- 
tinguishes one commodity from another. The use values of 
grain and cotton, for example, cannot be compared; never- 
theless these products are exchanged, which means that they 
are also equated. 

The Value of a Commodity 

Underlying the equating of two exchanged commodities 
is the social labour expended on their production. "If," Marx 
wrote, "we leave out of consideration the use-value of com- 
modities, they have only one common property left, that of 
being products of labour." 1 The social labour embodied in a 
commodity appears as its value. 

Value is the social content, inherent in all commodities, 
that allows us to equate them. As use values commodities are 
qualitatively different, since they satisfy different human 
needs, but in terms of value they are qualitatively homoge- 
neous, because they represent the expenditure of one and the 
same general human labour. 

There are many useful things that are use values, without 
possessing value. They include objects or substances that are 
not the products of human labour, like air, spring water, 
unmade land, wild fruits, and so on. But an object can only 

1 Ibid., p. 45. 



possess value if it has use value. An unwanted thing, no mat- 
ter how much labour has been expended on producing it, will 
have no value, since the labour spent on it has proved to be 
pointless, not recognised by society. The existence or value 
without use value is impossible; under the conditions ot 
commodity production, use value is the bearer of value. Value 
is a historical category inherent solely in commodity produc- 
tion. It is a property only of products produced for exchange, 
i.e. of commodities. Thus, a commodity has a dual nature, 
being a unity oi use value and value. Exchange value is the 
form in which value appears in the market, or the form m 
which the value of a commodity is expressed. 

Concrete and Abstract Labour 

The dual nature of a commodity, its value and use value, 
are explained by the twofold character of the labour of the 
commodity producer. A commodity, as an object satisfying 
a specific' human want, can only be created by labour in a 
specific, concrete form. If we compare the labour ot two 
commodity producers, let us say, a peasant and a tailor, then 
we see that we have before us two qualitatively different sorts 
of labour. The labour of a peasant is distinguished from the 
labour of a tailor by the conditions of production, the goal 
of the labour activity, the instruments and objects of labour 
employed, the character of the operations fulfilled and most 
important, by its result: the peasant raises crops while the 
tailor sews clothes. Labour spent in a specific useful form and 
creating use values is called concrete labour. 

Concrete labour exists under any social form of produc- 
tion and, in this sense, is an eternal category, a condition of 
the existence of human society. For the production of mate- 
rial wealth man uses natural resources. For this reason use 
values as material commodities are, as pointed out by Marx, 
the result of the combination of two factors: material sub- 
stratum furnished by nature and concrete labour. 

Regardless of the various concrete forms, the labour of 
commodity producers bears something in common. This is 
the expenditure of human labour power in general. Marx 
emphasises that "productive activity, if we leave out of sight 



its special form, viz., the useful character of the labour, is 
nothing but the expenditure of human labour-power ... of 
human brains, nerves, and muscles ". 1 

The labour of the commodity producer, viewed as the 
expenditure of human labour power in general, regardless 
of its concrete form, is called abstract labour. Abstract labour, 
however, is not simply the expenditure of human energy in 
a physiological sense, which exists under every form of 
economy, but a historically determined form of social labour, 
inherent only in commodity production. 

Expenditure of human nervous and muscular energy be- 
comes abstract labour only when it is the objective basis for 
equating different labour products in the process of exchang- 
ing them, i.e. as a social means of establishing a link be- 
tween commodity producers. Abstract labour is the source 
and substance of the value of commodities, which is mani- 
fested only through exchange value. Tt is only on the market 
that it becomes clear that commodity producers worked for 
each other and that the labour of each of them presents a 
part of the sum total or aggregate social labour. Marx calls 
abstract labour a hidden form of social labour. 

Abstract labour, consequently, is a historical form of social 
labour, in which its social character is manifested only in 

Concrete labour and abstract labour are two aspects of one 
and the same labour that creates a commodity. 

The Contradiction between Private 
and Social Labour 

In commodity production based on private property there 
is a deep internal contradiction between private and social 
labour. Private ownership of the means of production di- 
vides commodity producers and gives their labour a private 
character. Each commodity producer works in economic iso- 
lation from the others and chooses a particular form of 
concrete labour, guided only by his own interests. Concrete 
labour thus takes directly the form of private labour. 

1 Karl Marx, Capital. Vol. I, p. 51. 



At the same time, the social division of labour makes all 
commodity producers closely interdependent, makes the 
labour of each of them a part of the aggregate social labour, 
and gives it a social character. While the commodity pro- 
ducer is occupied in making a commodity, the social character 
of his labour remains unobserved and hidden, but it becomes 
clear as soon as the products come onto the market. There it 
is discovered whether or not the labour of a given commodity 
producer is needed by society and whether or not it will 
receive social recognition. If the commodity does not find a 
buyer, that means that the given private labour has not been 
recognised as a part of social labour. It has proved to be 
not needed by society. 

In simple commodity production, the contradiction be- 
tween private and social labour is the basic one, determining 
the impoverishment and ruin of the masses of small com- 
modity producers and the enrichment of a small number of 
proprietors. It has an antagonistic character and is the source 
of the other contradictions of private commodity production. 
This contradiction is also inherent in capitalist production. 

Regardless of the fact that, in large-scale capitalist enter- 
prises, commodities are manufactured collectively by a large 
number of wage workers, their labour appears directly as 
private labour, since production is carried on in the interests 
of private owners, capitalists, without taking preliminary 
account of social needs. Here, too, the social character of 
labour is manifested only when the commodities are realised. 

On the surface of society the contradiction between private 
and social labour is manifested as a contradiction between 
the use value and value of commodities. It is expressed in 
the fact that there is objectively an inherent lack of corre- 
spondence between production and the needs of society in a 
commodity economy based on private property. As use values, 
commodities are not produced for personal consumption, but 
for other people, to meet the needs of society. Commodity 
producers must therefore produce use values that can be 
realised as values, i.e. can be exchanged for other useful 
objects. But each commodity producer, guided not by the 
needs of society but by his own personal interests, tries to 
produce and sell the commodity for which, at a given 
moment, there is high demand and an advantageous price. 



As a result, production hardly ever corresponds to the real 
needs of society. A surplus of use values finds no market and 
partially or completely loses its value. The contradiction 
between the use value and the value of a commodity is seen 
particularly clearly during economic crises of overproduc- 
tion, when a mass of use values is destroyed, while millions 
or people remain without food and shelter, because they do 
not have the wherewithal to buy these use values. 

The Magnitude of Value 

Since value is the abstract labour embodied in a commod- 
ity, its magnitude is determined by the quantity of labour 
expended. Different commodity producers, however, expend 
a different quantity of labour and a different amount of 
labour time on making one and the same commodity. But 
these differences have no significance for the market; the 
same use values will always be valued alike on the market. 
Value is a social property of a thing and its magnitude is 
not determined by the individual but by the socially neces- 
sary expenditure of labour and by the socially necessary 
labour time.^ " The labour-time socially necessary," Marx 
emphasised, is that required to produce an article under the 
normal conditions of production, and with the average degree 
of skill and intensity prevalent at the time." 1 Normal condi- 
tions here means the conditions under which the bulk of 
commodities of a given type are produced. 

If, let us say, the bulk of the shoes put on the market are 
produced with an expenditure of ten hours of labour per 
tw dT th ^ - iS th ? socia . n y nc cessary expenditure of labour 
commodity” 11111119 ^ S ° Clal ^ market value of this type of 

Whatever the individual producer's actual expenditure of 
labour on making a pair of shoes of the same quality-eight 
twelve or fifteen hours, the market will only recognise an 
expenditure equal to ten hours. Under such market conditions 
those producers will be at an advantage whose individual 
labour time is lower than that socially necessary since in 
expending^ for example, eight hours on making a pair' of 

1 Karl Marx, Capital. Vol. I, p. 47. 



shoes, they will receive in exchange another commodity (ot 
money) to the value of ten hours. The commodity producer 
who, on the contrary, expends 15 hours on making the same 
shoes, loses five hours of the labour embodied in each pair, 
labour that will not be recognised by society. 

The Influence of the Productivity 
and Intensity of Labour 
on the Magnitude of Value 

The socially necessary labour time of a commodity, and 
that means also the magnitude of its value, alters in accoi- 
dance with changes in the productiveness of social labour, 
or the productivity of labour. By the productivity ot laboui 
we understand the quantity of use values (number of com- 
modities) made by a worker in a unit of time. The produc- 
tive power of labour, since it is expressed in the quantity ot 
use values, is a characteristic feature of concrete labour. . 

The productivity of labour depends on many factors. This 
productiveness,” Marx said, ”is determined by various cir- 
cumstances, amongst others, by the average amount of skill 
of the workmen, the state of science, and the degree of its 
practical application, the social organisation of production, 
the extent and capabilities of the means of production, and by 
physical conditions.” 1 A change in any of these factors entails 
a change in the productive power of labour. An increase in 
the productivity of labour means a decrease in the labour 
time necessary for making any particular commodity and, 
consequently, a decrease in its value. 

Let us assume that, as a result of the introduction of new 
technology, two pairs of shoes instead of one pair are pro- 
duced in ten hours of labour time. The mass of value em- 
bodied in the two pairs will be equal to ten hours of labour, as 
before, but the value of one pair will be halved and be only 

five hours of labour. . 

"The value of a commodity, therefore, varies directly as 
the quantity, and inversely as the productiveness, of the 
labour incorporated in it.” 2 

1 Karl Marx, Capital. Vol. I, p. 47. 

2 Ibid., p. 48. 



The intensity of labour must be distinguished from its 
productivity. By intensity of labour we mean the expenditure 
of labour power per unit of time. Intensification of labour, 
like an increase in its productivity, leads to the creation of 
larger quantity of use values per unit of time, but the reason 
for this increase is different in principle. With an increase 
in productivity, an increase in output is ensured thanks to 
an improvement in the conditions of production, while, with 
an increase in the intensity of labour, this result is achieved 
as a consequence of increased expenditure of human ner- 
vous and muscular energy. 

Let us return to our example of the production of shoes. 
If the intensity of labour is doubled, two pairs of shoes can 
also be made in ten hours of labour time, instead of one pair, 
but the two pairs of shoes will incorporate a value equal in 
fact to 20 hours of labour of the previous intensity. The value 
of each pair will therefore remain equal to ten hours, as before 
(20:2). More intensive labour is not only expressed in a 
greater number of products but also creates more value for 
the same time than less intensive labour. 

Thus, as a result of an increase in the productivity of 
labour, the quantity of use values produced is increased and 
the value per unit of output reduced, while the mass of value 
produced remains unchanged. With an increase in the inten- 
sity of labour, the quantity of use values is also increased, 
but the mass of value embodied in them grows, too, and as 
a result, the value per unit of output remains the same. 

Simple and Complex Labour 

The magnitude of the value of a commodity is affected not 
only by productivity and intensity of labour but also by how 
complex it is. The labour of a jeweller is more skilled than 
that of a fitter, while the labour of a fitter, in turn, is more 
skilled than that of a navvy, and so on. The more skilled or 
complex the labour, the greater is the time and labour need- 
ed to train the worker initially and for him to master his 
trade. This expenditure of labour time is taken into account 
in the creation of value. It means that workers with dif- 
ferent degrees of skill create values of different magnitude 



during the same time. An hour of a fitter's labour, for example, 
cannot be simply equated to an hour of a navvy's labour. To 
make such a comparison possible, any labour, however com- 
plex it may be, must be reduced to simple labour. 

Simple labour is unskilled labour that requires minimum 
initial training of the worker (at the given level of de- 
velopment of production). The reduction of skilled labour to 
simple takes place not as a result of the conscious activi- 
ties of people, but spontaneously, during commodity exchange 
on the market. 

Since there is only a quantitative difference between 
different sorts of labour considered as abstract labour, any 
amount of skilled labour can be expressed as a certain quan- 
tity of simple labour. In other words, any skilled labour 
counts only as simple labour intensified, or rather, as multi- 
plied simple labour. "A commodity," Marx wrote, "may be 
the product of the most skilled labour, but its value, by equat- 
ing it to the product of simple unskilled labour, represents 
a definite quantity of the latter labour alone ." 1 

Thus, a commodity represents a contradictory unity of its 
two factors, use value and value. This dual nature of a com- 
modity is a result of the twofold character of the labour 
embodied in it and of the fact that the labour of a commodity 
producer is at once both concrete and abstract. In contrast to 
use value, value is not a natural but a social property of 
things. Only commodities have it. Value itself, moreover, is 
an expression of the production relations between commodity 
producers expressed through their commodities. 


Exchange Value 

as the Form of Expression of Value 

Value, as the social relation between commodity produc- 
ers, cannot be discerned directly in the product itself. From 
whatever angle we regard a pair of shoes, for example, we 

1 Karl Marx, Capital, Vol. I, p. 51. 



would not be able to see its value. The value of goods can 
only reveal itself as the relation of one commodity to another, 
in their being equated through exchange, i.e. through their 
exchange value. If a suit, for example, is exchanged for three 
pairs of shoes, this means that they are equal in value, that 
a suit is worth three pairs of shoes. The expression of the 
value of a commodity by equating it to another commodity 
is called the form of value. 

In a developed commodity society, all commodities express 
their value in money, but this was not always the case. 
Before money appeared, the form of value passed through 
a long course of development. Explanation of the origin 
and essence of money was one of Marx's contributions to 

Bourgeois political economy was unable to resolve the 
problem of the origin and essence of money. Some of its 
representatives, citing a proposition already advanced by 
Aristotle, claimed money to be the result of agreement or 
conscious understanding between people. Others tried to prove 
that money, as an instrument for measuring the price of 
commodities, was "established" by state authority. A third 
group considered gold and silver to be money by nature, 
irrespective of the character of social relations, and others 
still saw no essential difference between money and com- 
modities, and so on. Not one of these theories, however, pro- 
vided a really scientific explanation of the nature of money 
as an economic category. 

In starting to investigate this problem, Marx wrote : "Here, 
however, a task is set us, the performance of which has never 
yet even been attempted by bourgeois economy, the task of 
tracing the genesis of this money-form, of developing the 
expression of value implied in the value-relation of commodi- 
ties, from its simplest, almost imperceptible outline, to the 
dazzling money-form. By doing this we shall, at the same 
time, solve the riddle presented by money ." 1 

Marx established that over thousands of years, in the 
course of the development of exchange, the expression of value 
took the following forms: elementary or accidental; total or 

1 Ibid., p. 54. 



expanded; general, and money. Each of these forms signifies 
a qualitatively new stage in the development of commodity 
production and its contradictions. 

The Elementary or Accidental Form of Value 

The elementary or accidental form of value existed in the 
first embryonic stages of the social division of labour, when 
exchange was accidental or random in character. It was 
expressed simply: X commodity A=Y commodity B or 
1 sheep=3 measures of grain. 

Like the other, more developed forms of value, it has two 
poles: the first commodity, which expresses its value in the 
other commodity, is in relative form of value, while the 
second commodity, the use value of which serves as the means 
of expressing the value of the first commodity, functions as 
equivalent, or appears in equivalent form. 

The relative and equivalent forms of value are in insepa- 
rable unity; they are mutually dependent, and, at the same 
time, opposing aspects of one and the same expression of 
value; the relative form of value of any commodity presup- 
poses that another commodity stands opposite it in the form 
of an equivalent. The value of commodity A is expressed in 
the ability of commodity B to be directly exchanged for it. 
“Therefore, when we say that a commodity is in the equiva- 
lent form, we express the fact that it is directly exchangeable 
with other commodities." 1 In the value equation 1 sheep— 3 
measures of grain, the sheep plays the active role, expres- 
sing its value in terms of grain, while the grain serves as a 
means of expressing the value of the sheep, affirming, as 
it were, that general abstract human labour has been expend- 
ed on the sheep, just as on the grain. The grain, how- 
ever, which figures as an equivalent, cannot at the same 
time be in the relative form of value, as it does not express 
its own value. At this stage of the development of exchange, 
the role of the equivalent of any one commodity is not yet 
fixed and the commodities can change positions. Then, in the 
equation 3 measures of grain=l sheep, grain is in the rela- 
tive form of value and the sheep takes the role of the equiva- 

1 Karl Marx, Capital, Vol. I, p. 61. 



lent. Analysing each of the poles of the expression of value 
separately, Marx showed that the relative form primarily 
expresses the qualitative homogeneity of the commodities 
exchanged. The equating of such dissimilar commodities be- 
comes possible in the exchange process thanks to their com- 
mon substance, thanks to the fact that they both represent 
value and incorporate the same abstract human labour. The 
relative form of value therefore also shows the quantitative 
comparability of the commodities exchanged; each commodity 
taking part in exchange always represents a certain quantity 
of a given object of consumption and contains a certain 
quantity of human labour. 

No one will exchange the product of a day's labour for 
the product of an hour's labour of the same qualitative 

Analysing the equivalent form of value, Marx revealed 
three peculiarities in it. 

First, the value of one commodity is expressed in terms 
of another commodity, which plays the role of an equiva- 
lent, only on condition that the latter has a different use 
value. It is impossible, for example, to express the value of 
a fabric in terms of a fabric: 20 metres of chintz=20 me- 
tres of chintz is not an expression of value. The commodity 
fulfilling the role of the equivalent figures in the value equa- 
tion only as a specific quantity of the given object, i.e. as 
use value. Marx concluded from this that "the first peculiari- 
ty that strikes us, in considering the form of the equivalent, 
is this: use-value becomes the form of manifestation, the 
phenomenal form of its opposite, value". 1 

Second, a specific amount of concrete labour is expended 
on the commodity fulfilling the role of the equivalent; but 
since, in the act of exchange, the given commodity serves as 
material for expressing the value of the other commodity, 
the concrete labour becomes the form in which its opposite, 
abstract human labour, manifests itself. This is the second 
peculiarity of the equivalent. 

Third, since the product marketed was exchanged for 
another product, this means that it proved to be useful to and 
needed by the society. The private labour spent on making 

1 Ibid., p. 62. 



it was recognised as part of social labour. The owner of the 
sheep, in essence, exchanges the product of his own private 
labour for a fraction of social labour. But that means, in turn, 
that the private labour embodied in the equivalent com- 
modity-in grain-appears as a direct embodiment of social 
labour. Hence the third peculiarity of the equivalent, namely, 
that "the labour of private individuals takes the form of its 
opposite, labour directly social in its form ''. 1 

Consequently, even with the elementary or accidental form 
of value, we are dealing with a very interesting phenome- 
non. Grain always was and always will be a thing that satis- 
fies a definite human need, but in the act of exchange, it 
fulfils a specific social function, that of an equivalent, con- 
firming the expenditure of social labour on a sheep and itself 
appearing directly as a product of social labour. 

* In considering a commodity and its properties, we spoke 
of its inherent inner contrast between use value and value. 
Here we see how this inner contrast finds external expres- 
sion, appearing through the relationship between two com- 
modities. "Hence the elementary form of value of a com- 
modity," Marx concluded, "is the elementary form in which 
the contrast contained in that commodity, between use-value 
and value, becomes apparent ." 2 

The Total or Expanded Form of Value 

As pastoral tribes became separated from the other mas- 
ses, i.e. with the first major social division of labour, exchange 
became more regular. In moving from place to place, nomad- 
ic herdsmen often came into contact with other tribes and 
had opportunities to establish exchange relations with them. 
Cattle now appeared regularly on the market and were 
exchanged for other products; some cattle, moreover, began 
to be raised specifically for exchange, as commodities. The 
bartered commodities like grain, axes, knives, metals and so 
on acted as equivalents. The higher stage of development of 

1 Karl Marx, Capital, Vol. I, p. 64. 

2 Ibid., p. 67. 



exchange gave rise to a new form of value, which we call 
the total or expanded. It is expressed in the following way: 

3 measures of grain 
2 axes 

6 yards of linen 
5 pounds of copper 
and so on. 

The General Form of Value 

When many products of labour began to be exchanged 
more or less systematically, complications arose in exchange. 
For example, the owner of an axe needed grain; the owner 
of the grain, however, did not need an axe, but wanted some 
other commodity. In this case, direct exchange could not take 
place. The greater the number of products appearing on the 
market, the more difficult their direct exchange and expres- 
sion of their value became. The very nature of value made 
it necessary for some one commodity that could act as a 
direct embodiment of social labour to be singled out as an 
equivalent. And that is what actually happened. Commodity 
producers began to exchange their goods for some third 
commodity, say, a sheep-that was met more frequently on the 
market and was accepted more readily in exchange than 
other things. Later, in a second act, the sheep was exchanged 
for the commodities required. 

So direct exchange or barter disappeared, giving place to 
commodity circulation, i.e. to exchange through a third as 
intermediary commodity. Gradually the intermediary com- 
modity became a universal equivalent, for which all other 
commodities were initially exchanged and in which their 
values were expressed. Under these conditions, the form of 
value underwent new changes and from the total or expand- 
ed form turned into the general form of value. 

3 measures of grain = 

2 axes = 

6 yards of linen = 1 sheep. 

5 pounds of copper = 
and so on 

6 — 1076 



The Money Form of Value 

The next stage in the development of exchange and of the 
forms of value was associated with the second major social 
division of labour, i.e. with the separation of handicrafts 
from agriculture. Handicraft production, in contrast to agri- 
culture and cattle raising, once separated, became predomi- 
nantly commodity production. The development of handi- 
crafts as a separate branch of the economy not only brought 
about a sharp increase in commodity exchange, but also con- 
siderably extended the territorial boundaries of the market. 
Under these new conditions, commodities like cattle, furs, 
shells and fish, which functioned as a universal equivalent on 
the earlier narrow and local markets, gradually yielded their 
role to the precious metals. 

Metals had also earlier circulated on the market. The 
development of handicrafts further expanded their mining 
and use. Metals, especially the noble ones, had a number of 
advantages for the role of a universal equivalent compared 
with other commodities, namely, divisibility, homogeneity, 
good durability and, most important of all, transportability 
(metals embody much labour in relatively small volume and 
weight). Thus, the fourth or money form of value developed, 
a form that differs from the general one in the role of the 
equivalent being firmly and universally merged with the 
substance of noble metals and, in the final analysis, 
with gold. 

The money form of value can be expressed as follows: 

1 sheep = 

3 measures of grain = 

2 axes = 

6 yards of linen = 

and so on 

Once the money form of value had been established, 
commodities acquired a price. Price is the value of a com- 
modity expressed in money or a monetary expression of 


2 grams of 



The Essence of Money 

Having explained the origin of money, Marx brought us 
close to an understanding of its essence as an economic cate- 
gory. Money did not appear either as a result of conscious 
agreement between people to introduce its currency or as a 
result of being decreed by the state. It was the spontaneous 
result of the development of the contradictions of commodi- 
ty production and exchange. The property of gold to express 
the value of all other commodities is not its natural property. 
Nature, as Marx said, did not create money, just as it did 
not create the banker. This property was conferred on gold 
by society and by the development of its economic relations. 
Gold is used by people as money solely because it is the most 
suitable material for the purpose. Consequently, money is a 
special commodity that was spontaneously singled out horn 
all other commodities to fulfil the function of the universal 

The origin of money and of price was a qualitatively new 
stage in the development of exchange, and of commodity 
production and its contradictions. Possessing the property 
of being directly exchangeable for all other commodities, 
money developed from an intermediary in exchange into a 
great economic force, the possession of which gave wealth 
and power. 

"The commodity of commodities,” Engels wrote in The 
Origin of the Family, Private Property and the State, "which 
conceals within itself all other commodities, was discovered: 
the charm that can transform itself at will into anything 
desirable and desired. Whoever possessed it ruled the world 
of production. . . ." 1 

With the rise of money, the commodity world was finally 
split into two opposing parts: on the one hand, the omnipo- 
tent equivalent commodity-money; and on the other hand, 
all other commodities. The first acts as the direct embodi- 
ment of social labour and all the others as direct products 
of private labour. The social character of the labour of the 

1 Karl Marx and Frederick Engels, Selected Works, in three 
volumes, Vol. 3, p. 323. 

6 * 



different private commodity producers is disclosed and recog- 
nised only when the products of their labour are exchanged 
for money. 

Since, in a developed commodity economy, commodities 
are primarily exchanged through the mediation of money, 
the latter becomes a unique centre in which the paths of the 
products of labour of totally different commodity producers 
cross. "The product of the individual producer," Lenin wrote, 
"destined for consumption by others, can reach the consumer 
and give the producer the right to receive another social 
product only after assuming the form of money, i.e., after 
undergoing preliminary social evaluation, both qualitatively 
and quantitatively." 1 

Two important conclusions characterising the essence of 
money follow from this. First, money is a historically deter- 
mined form of economic link between commodity producers 
inherent in a developed commodity economy; money is not 
a thing, is not gold, but is the social relations between people, 
appearing through gold. Second, money serves as a means 
for spontaneous recording of the quantity and quality of the 
social labour of commodity producers realised on the market. 
However much individual labour a producer expends on 
making a particular commodity, the market records only the 
price of this commodity, i.e. the sum of money that the com- 
modity producer will receive for it. Being a monetary 
expression of value, this sum, as a rule, does not coincide 
quantitatively either with the actual expenditure of labour 
or with value. Under the influence of the spontaneously 
altering ratio of the supply and demand the prices of com- 
modities constantly fluctuate around their values. 

In a commodity economy based on private property, money 
serves as an instrument for differentiating commodity pro- 
ducers, enriching some and impoverishing others, as an 
instrument of the oppression and exploitation of man by man. 
At a definite stage in the development of society, as will be 
explained below, it is converted into capital and is employed 
as a universal means for the exploitation of wage labour. 
The essence of money is seen most clearly in its functions. 

1 V. I. Lenin, "The Economic Content of Narodism and the Criti- 
cism of It in Mr. Struve's Book", 

Collected Works, Vol. 1, p. 407. 





In a developed commodity economy, money, as Marx 
established, functions as: (1) a measure of value, (2) a medium 
of commodity circulation, (3) a means of accumulation or 
hoarding, (4) a means of payment, and (5) world money. 
The teachings of Marx on the functions of money are a logi- 
cal extension of his scientific analysis of the development of 
the forms of value. Each stage in the development of money 
functions is a new historical stage in the development of 
commodity production and circulation. 

Money as the Measure of Value 

The first and most important function of money is that 
of a measure of value, in which its role as the universal 
equivalent is directly expressed. The essence ot this function 
is that money expresses the value of all other commodities. 
It is obvious that only a commodity possessing value itself 
can fulfil such a function. Hence it follows that ultimately 
only gold always serves as the measure of value. 

In order, however, to express the value of a commodity 
in money, it is not at all necessary to have money on hand 
as cash. Prices are fixed before commodities are sold; 
consequently, money fulfils this function ideally, as imag- 
inary gold. In this, the commodity producers are guided by 
previous experience of the production and sale of similar 

The fact that money fulfils its function of a measure of 
value ideally is of great practical significance, since this 
makes it possible to use it as a universal unit of account (mo- 
ney of account) in very different economic calculations: in 
compiling estimates and budgets, computing national income 
and wealth, evaluating the assets of enterprises and useful 
things that are not the products of labour and, consequently, 
do not have value. 

When supply and demand correspond, the price of a com- 
modity is determined by the ratio between two magnitudes: 
the value of the commodity and the value of gold. The 
smaller the value of the commodity, the lower its price is. 



and the greater its value, the higher its price. Conversely, the 
lower the value of gold, the higher are the prices of all com- 
modities, and the higher the value of gold, the lower the 
prices of all commodities. Consequently, the prices of com- 
modities in the mass vary in direct proportion to the value 
of the commodities themselves and in inverse proportion to 
the value of money. 

There have been cases in history when cheapening of gold 
has led to a sharp increase in the prices of all other products, 
and "price revolutions" have taken place. For example, the 
discovery of the rich gold fields in California and Australia 
in the middle of the last century led to a sharp drop in the 
value of gold and to a significant increase in the prices of 
commodities in all countries. 

Whereas at the beginning of the eighteenth century only 
13 to 15 tons of gold were mined per annum throughout the 
world, the average increased to 200 tons between 18ol and 
1855. At the present time, an average of around 1,300 tons 
of gold a year are mined in the capitalist world, including 
70 to 75 per cent in South Africa and 11 or 12 per cent in 

History indicates that money originally performed its 
function as a measure of value in units of weight, i. e. in 
zolotniks } ounces, pounds and grams of silver or gold. 
But this made its use in circulation difficult. Banks, 
and later state organs, began to set a definite weight of 
silver or gold as a monetary unit and divide it into 
aliquot parts. 

In the USA, for example, the dollar serves as the mone- 
tary unit and is divided into 100 cents. Until the world 
industrial crisis of 1929-33, it contained 1.5 grams of pure 
gold. As a result of the devaluation of 1934, its gold content 
was reduced to 0.889 grams. The current monetary and 
financial crisis of the world capitalist system, which has 
become more acute in recent years, brought about further 
devaluations of the dollar in 1971 and 1973. In 19/4, its 
official gold parity was 0.737 grams, but on the world gold 
markets it was quoted much lower. 

The weight of gold (or silver), accepted as the monetary 

1 Zolotnik was a Russian measure of weight of 4.27 grams. -Ed. 



unit in a country and divided into aliquot parts, we call the 
standard oi price, which must not be confused with the func- 
tion of money as the measure of value. As the measure of 
value, money expresses the quantity of socially necessary 
labour embodied in commodities. This is its social function, 
arising from the economic relations of commodity produc- 
tion. As for the standard of price, it is a technical measure, 
indicating the quantity of gold contained in the monetary 
unit and its aliquot parts, irrespective of the value of gold. 
The standard of price can be deliberately altered by the state, 
but the movement of real prices of commodities (i. e. as 
expressed in gold) is regulated by the objective economic 
law of value. 

Since price is the monetary form of the value of com- 
modities, money itself has no price, as otherwise the value 
of gold would have to be expressed in terms of its own use 
value; it is, however, expressed in the infinite number of 
commodities for which gold is exchanged. 

The function of money as a measure of value includes 
within itself the deep contradiction of commodity production 
based on private property. The constant fluctuations of com- 
modity prices around values occurring as a result of the bit- 
ter competition and anarchy of social production, bring about 
the ruin of the mass of small commodity producers, the 
enrichment of a handful of big proprietors, and deterioration 
of the position of the working people. 

In conditions of spontaneous commodity production, the 
process of price formation is based on daily experience of 
actual exchange transactions, in which money performs yet 
another function, that of means or medium of circulation. 

Money as the Medium of Circulation 

With the evolution of money, direct exchange of one com- 
modity for another (C-C) gives way to commodity circula- 
tion, i.e. to the exchange of commodities through the media- 
tion of money (C-M-C). Here money plays the role of an 
intermediary in the exchange of commodities or, in other 
words, performs the function of a medium of commodity 
circulation. To fulfil this function, the money or tokens of 


money must be present, because a real exchange of com- 
modities for money is taking place and of money for 

In commodity circulation, the process of exchange takes 
place in the form of two opposing, yet mutually complemen- 
tary metamorphoses: sale ( C-M) and purchase ( M-C ), which 
are separate, independent acts, and may not coincide either 
in space or time. Having sold his commodity, the producer 
is not compelled to buy another immediately. He can put 
purchase off for a long time and complete it on another 
market. "No one can sell," Marx wrote, "unless some one 
else purchases. But no one is forthwith bound to purchase, 
because he has just sold ." 1 

The gap between the acts of purchase and sale, which is 
connected with the functioning of money as the medium 
of circulation, embraces the iormal possibility of economic 
crises, because, if one commodity owner does not follow up 
sale with purchase, then another commodity owner will be 
unable to sell his commodity and, in turn, will not buy the 
commodity of a third owner, and so on. As a result, there 
can be overproduction of a number of commodities on the 
market. In a simple commodity economy, however, this pos- 
sibility remains formal and cannot happen, since that would 
require a number of conditions that only take shape in 
developed capitalist commodity production. 

In contrast to commodities which, when sold, are no 
longer in circulation, money as the medium of circulation 
remains constantly in this sphere, serving one act of purchase 
and sale after another. How much money then is necessary for 
commodity circulation? Since commodities are realised or 
sold at already established prices and money turns over and 
over again on the market, passing successively from hand to 
hand, the amount of money needed for circulation can be ex- 
pressed by the following formula : 

c sum total of commod ity prices 

amount of money = velocity of money circulation ' 

The quantity of money functioning as a medium of circu- 
lation is equal to the sum of the prices of commodities, di- 

1 Karl Marx, Capital Vol. I, p. 115. 



vided by the velocity of circulation of monetary units of the 
same denomination (rubles, dollars, francs and so on). With 
commodity production based on private property, the amount 
of money in circulation at any given moment is determined 
by the spontaneous interplay of three factors: a) the quan- 
tity of commodities in circulation; b) the movement of their 
prices; and c) the velocity of money circulation. 

In the times when undebased gold money functioned in 
circulation, the amount on the market always corresponded 
to requirements, due to the fact that gold, like all other com- 
modities, has value. Any influx of money into circulation was 
the result of an actual need, arising from the sale of a 

Money functioned in circulation in the form of coins. 
Coins are pieces of monetary metal of standard shape, with 
a state stamp that confirms their weight and standard. During 
circulation gold coins gradually became worn, losing part 
of their metal, but still continued to function on the market 
equally with new mint coins. So the possibility arose of 
substituting substandard or token coins for full-value ones. 
Along with gold coins token copper and bronze coins began 
to be put into circulation, coins intended as change for full- 
value gold coins and for use in minor transactions. The value 
of this small change was significantly below that of the quan- 
tity of gold for which it was a substitute. 

The possibility of replacing full-value gold coins in cur- 
rency by tokens of value arises from the character of money's 
function as the medium of circulation and, in particular, 
because it fulfils this function transiently. Being in currency 
money passes continually from hand to hand. If all commodi- 
ty producers accept token coins as full-value ones in the 
purchase and sale of commodities, then each producer can 
buy with them any commodity of the same value as that he 
himself made and sold. 

This possibility has been exploited by state authorities from 
early times to debase the coinage, i.e. to release into currency 
coins of ever decreasing weight with the same face value as 
before. In Russia, for example, under Tsar Alexei Mikhai- 
lovich (seventeenth century), silver rubles began to be mint- 
ed of half the weight of the previous ones and then, instead 
of silver rubles, copper ones of the same weight were issued. 



It was proclaimed that the copper ruble was equal to a silver 
one. A surplus of debased money flooded the market with 
media of circulation, which led to the disappearance of silver 
coins and to a steep rise in prices. Economic life was disor- 
ganised, the revolt known as the “Copper Riot” occurred, 
and the tsarist government was compelled to abolish copper 
rubles, buying them back for a kopeck a ruble. The reason 
for the failure of the tsar's “money-making” was not in the 
substitution of tokens for full-value coins in their function 
as the medium of circulation, but the fact that many more 
copper rubles were issued than were needed to fulfil the 
above-mentioned function of the silver coinage. 

Paper Money 

At the end of the seventeenth century, too, the English 
colony of Massachusetts, during the war with the French 
colonies (now Canada), put paper money into currency for 
the first time. Three decades later, in 1716 to 1720, the ex- 
periment was repeated in France on a wider scale. While the 
amount of paper money was small, it functioned in currency 
on a par with full-value metal coinage, but later, when the 
state, seduced by this easy way of covering Treasury expen- 
diture, regardless of revenue, issued a surfeit of paper money, 
it rapidly depreciated in value. 

In spite of the first unsuccessful experiments, more and 
more countries resorted to paper money (in Russia, for the 
first time in the 1760s). Today it circulates in all countries. 

What is paper money? And what are the laws governing 
its circulation? Paper money consists simply of nominal 
tokens, symbols of value, replacing full-value gold and sil- 
ver money in their functions as the medium of circulation 
and means of payment. It is put into circulation by the state 
authorities at a fixed, legal rate of exchange. Paper money 
has no value of its own and cannot, therefore, serve as a mea- 
sure of the value of commodities. This function, even with 
paper currency, is fulfilled by ideal imaginary gold. 

Since paper money develops directly from the currency of 
metal coinage, the law of its circulation is based entirely on 
that of gold currency. “A law peculiar to the circulation of 



paper money can spring up only from the proportion in which 
that paper money represents gold. Such a law exists; stated 
simply, it is as follows: the issue of paper money must not 
exceed in amount the gold (or silver as the case may be) 
which would actually circulate if not replaced by 
symbols.” 1 

When paper money is put into circulation in the quantity 
needed for it to fulfil the functions of gold, it will circulate 
according to the value of the gold coinage that it replaces. 
If, however, the issue of paper money exceeds the gold needs 
of commodity circulation, its purchasing power will begin to 
fall and the prices of commodities to rise. 

Let us assume that the prices of the commodities up for 
sale in a certain capitalist country total 50,000 million dol- 
lars (pounds, francs, marks, etc.), and that each monetary 
unit makes an average of five transactions in a given period 
of time. The amount of gold money needed for circulation 
will be 10,000 million dollars (50X10 9 : 5=TOX10 9 ). But, 
let us assume, the government, in order to cover a budget 
deficit (arising from spending on military orders, maintain- 
ing the army and police, paying the salaries of government 
officials, and so on) issues 20,000 million paper dollars in- 
stead of 10,000 million. Each gold dollar will then be repre- 
sented (or replaced) in circulation not by one paper dollar, 
but by two. 

However much paper money a government issues, a spon- 
taneous increase in market prices will forcibly equate it to 
the amount of the full-value gold coinage replaced by it. The 
process by which paper money depreciates as a consequence 
of having been issued in excess is called inflation. 

The depreciation of paper money is widely used by the 
exploiting classes for their own enrichment and for robbing 
the working people. Inflation manifests itself in a sponta- 
neous, sometimes steep rise in the prices of all commodities 
and, earliest of all, of articles of prime necessity. Wages (the 
price of the commodity labour power) as a rule rise much 
more slowly than the prices of consumer goods and services. 
As a result, the standard of living of the working people 
falls, while the profits of the capitalists grow more rapidly. 

1 Karl Marx, Capital. Vol. I, p. 128. 



Today, the imperialist states make wide use of cash emis- 
sion (i.e. the issue of paper money) to cover their budget 
deficits arising mainly from the arms race. This leads to an 
increase in the amount of paper money in circulation and to 
a fall in its purchasing power. 

Not every price rise, however, let alone wage increases, 
should be called inflation, as bourgeois economists do. Under 
modem capitalism, when only symbols of value that are not 
convertible into gold (i.e. not convertible at an established 
rate of exchange) function in circulation, prices do not only 
rise as a result of inflation, i.e. of the issue of paper money 
in excess of the gold needs of commodity circulation. Price 
rises are also brought about by a whole series of factors in- 
herent in monopoly capitalism, the main one being, as will be 
shown in Chapter 16, price increases introduced by the big- 
gest capitalist monopoly undertakings. In the pursuit of 
super-profits, monopolies screw up the prices of commodi- 
ties, housing, medical care, and other services, which leads, 
in the absence of convertibility of the paper money, to a 
spontaneous lowering of the standard of price, i.e. of the 
gold content of the national monetary units. In this case, the 
rise in commodity prices is not the result of the depreciation 
of money, as is the case with inflation, but the reason for 
this depreciation. The intertwining and interaction of these 
two factors-price rises introduced by the monopolies and 
actual inflation-bring about an increasingly rapid fall in the 
purchasing power of money in imperialist states and in the 
developing countries associated with them. Available esti- 
mates indicate that the mean annual rate of depreciation for 
25 industrially developed countries was 3.7 per cent between 
1963 and 1968, 5.7 per cent between 1969 and 1973, and 
more than 11 per cent in 1974 and 1975. In twelve countries, 
including the USA, Great Britain, Japan, Italy, and Canada, 
this rate was sometimes as high as 25-28 per cent. As a result, 
the purchasing power of the US dollar and the West German 
mark fell by half between 1950 and 1974; that of the pound 
sterling and the Italian lire by roughly two-thirds; of the 
French franc by 70 per cent and of the Japanese yen by more 
than 75 per cent. In the developing countries, the mean annual 
depreciation of money stood at 3.6 per cent in 1963-68, 6 per 
cent in 1968-73 and 18.1 per cent in 1974. 




This led to a considerable drop in real wages and salaries, 
to a fall in the incomes of petty commodity producers and 
in the profits of non-monopolised enterprises, to greater 
financial difficulties for pensioners, and so on. In turn, these 
aggravated the economic, social and political contradictions 
of the bourgeois system. Disturbance of money circulation, 
which is an organic flaw in the modern capitalist economy, 
is a characteristic sign of the increasing instability and decay 
of capitalism in the period of its general crisis. 

Money as a Means of Hoarding 

When commodity circulation is interrupted at its first 
metamorphosis, i.e. when the sale of a commodity is not fol- 
lowed by the purchase of another, money begins to operate 
as a means of hoarding. 1 The development of this function 
is determined objectively by the needs of commodity 

As a defence against the spontaneity of the market, every 
commodity producer has to have the wherewithal to purchase 
other commodities, regardless of when his own will be sold 
or under what circumstances. In order to buy without selling, 
however, he must first, as Marx stressed, sell without buying, 
i.e. he must accumulate a certain reserve of money, this 
absolute social form of wealth, that can be exchanged at any 
time for any object. 

When commodity-money relations and, consequently, the 
power of money, reached a certain stage of development, 
people appeared for whom the accumulation of a money 
hoard became, to some extent, an end in itself, the motive 
force of their lives. Cupidity, miserliness and attempts to sell 
as much as possible and to buy as little as possible, to draw 
money out of circulation and hide it in a trunk or bury it, 
were the principles of the "political economy” of hoarders. 

Under capitalism, when it becomes possible to grow rich 

1 Cash reserves, representing money intended for expenditure and 
only temporarily suspended in its currency, must be distinguished 
from money as a hoard. The wages of a worker, which he does not 
spend immediately, but over a definite period between pay days, can 
serve as an example of a cash reserve. 



through the exploitation of wage labour, this primitive means 
of accumulating treasure gives way to capitalist accumula- 
tion, the basic principle of which is to put money to work 
as often as possible, i.e. into circulation, in order to make 
more and more profit from it. Capitalists keep the money 
released from business turnover in banks. Banks become 
reservoirs in which the cash funds not only of capitalists, but 
also of other strata of society are accumulated, from which 
money is released into circulation and into which it comes 
back again. During the general crisis of capitalism, how- 
ever, there is an increasing tendency on the part of money 
capitalists to accumulate as much gold treasure as possible 
and to keep it in their own hands; and this is happening even 
though the holding of gold reserves is declared a state 
monopoly in many capitalist countries. 

In October 1965, according to American sources, 15,800 
tons of gold were already being hoarded (accumulated) as 
private treasure, which was approximately the amount of 
gold mined throughout the capitalist world in the preceding 
14 years. Not only has most of the newly-mined gold been 
finding its way into private safes in recent years, but also some 
of the centralised gold reserves of capitalist states. This trend 
also reflects the instability of the capitalist economy at its 
present stage, the attempt of the bourgeoisie to ensure them- 
selves against crises, wars and revolutions, and also a desire 
to make a fortune through speculation in gold. 

Nevertheless, the bulk of the gold hoard of capitalist 
countries is concentrated today in central banks and state 
treasuries. At the beginning of 1975, their centralised gold 
reserves were valued at around 43,700 million dollars. 

The function of money as a means of forming and accu- 
mulating hoards, unlike its other two functions, is fulfilled 
only by actual gold. There have been attempts to accumulate 
(save) paper money as well as gold; but, for the reasons 
mentioned above, paper money depreciates. The realities of 
modern capitalism thus clearly confirm Marx s proposition 
about the impossibility of replacing gold by paper money in 
its hoarding function. 

With gold currency, hoards served as a sort of reservoir, 
by which the amount of money needed for circulation was 
spontaneously regulated. As soon as the need of circulation 



for money increased, gold was withdrawn from hoards and 
began to function as the medium of circulation. When, on 
the contrary, the amount needed fell, gold coinage fell out 
of currency and passed into hoards. With paper currency, 
hoarding ceases to be a spontaneous regulator of the mass 
of token money in circulation. 

Money as a Means of Payment 

Even in the early stages of the development of commodity- 
money relations there arose a need on occasion to obtain 
commodities with deferred payment. This happened both 
because of differences in the times of production and condi- 
tions of sale of individual commodities, and in connection 
with the seasonal nature of the production expenditure or 
procurement of raw materials in certain branches of industry 
(for example, in agriculture, lumbering, businesses processing 
agricultural raw materials, and so on). When a purchaser 
finds himself unable to buy the commodity he needs for 
cash, he can buy it on credit and pay for it later, i.e. com- 
plete the second metamorphosis of commodity circulation 
( M-C ) before the first one ( C-M ). In that case, the seller 
becomes a creditor and the buyer a debtor. 

Let us take an example. Let us assume that a producer of 
agricultural equipment has made a plough and markets it 
in the spring. A farmer needs such a plough, but will only 
have the money at his disposal after the harvest has been 
gathered and sold, i.e. not before the autumn. No one will 
buy the plough for cash. In this situation, it becomes economi- 
cally expedient not only for the purchaser, but also for the 
seller, to strike a bargain to sell the plough on credit with 
payment deferred until the autumn. Having obtained the 
plough, the farmer hands over a promissory note, in which 
he commits himself to pay the seller of the plough a definite 
sum by a fixed date. He thus becomes a debtor, while the seller 
of the plough plays the role of creditor. Here, money has 
performed its function of a measure of value, but not of 
medium of circulation, since the transaction was completed 
without it. When the time comes for the debtor to pay the 



creditor for the plough, money will appear in a new role, as 
a means of payment. 

In time, money came to perform this function outside the 
sphere of commodity circulation in the payment of rent and 
taxes, i.e. where it passes from hand to hand, without pro- 
moting the movement of commodities. 

Money's function as a means of payment reaches its ful- 
lest development in the capitalist economy, when it more 
and more supplants its function as the medium of circulation. 
Money now, as a rule, serves as the medium of circulation 
only in petty retail trade, while in large-scale wholesale 
trade, and even more so in international trade, it functions 
primarily as a means of payment. This is connected above 
all with the spread of credit relations and of banking under 
capitalism and with the development of a new instrument of 
circulation, credit money, on this basis. Debtors' obligations, 
bills of exchange, or promissory notes, signed by those pur- 
chasing commodities on credit, were the first and simplest 
form of such money. 

In our example, the seller of the plough, on receiving the 
farmer's promissory note, by adding his own endorsing sig- 
nature, could use it instead of money to buy, say, metal. The 
seller of the metal, in turn, could buy fuel with it, and so 
on. Thus, bills (promissory notes of individuals) can fulfil 
the role of money in trade turnover, but their use is limited 
to the circle of commodity producers who are personally 
acquainted with each other's solvency and the period of pay- 
ment originally named on the bill (note). As commodity 
turnover expands and markets become more distant, 
promissory-note circulation becomes insufficient. On its basis 
a more developed form of credit money arises-bank notes, or 
bank bills. 

Bank notes are the promissory notes of big banks, which 
they issue as a rule in exchange for the private commercial 
papers (bills of exchange, promissory notes) of industrialists 
and merchants. With gold currency, bank notes, in contrast 
to paper money, were freely exchanged for gold in banks 
and their branches, and circulated freely on a par with gold 
coins throughout the country and even beyond. When, during 
the First World War, however, free exchange of bank notes 
for gold was suspended in most capitalist countries (and sub- 



sequently in all countries) and paper money began to be is- 
sued in large quantities to finance military and other govern- 
ment expenditure, bank notes retained only the appearance 
of credit money and became, in essence, ordinary paper 
money. They still function as such today. Other types of credit 
money under capitalism are cheques and drafts, which 
are written orders to a bank to pay cash or to transfer the 
named sums from one bank account to another on a 
clearing basis. 

With highly developed credit relations, the possibility arises 
of paying off debts by means of mutual transfers without 
using cash. When one commodity producer must pay a cer- 
tain sum to another, and he to a third, while the third is 
equally indebted to the first, it might turn out, when their 
mutual debts are compared, that no one is in debt to anyone. 
In capitalist countries, the banks have special clearing houses 
to offset mutually cancelling payments, and their turnover 
is considerable. Clearing, like credit money, reduces the need 
in circulation for actual gold money. 

In connection with the function of money as a means of 
payment, the formula for the amount of money needed for 
circulation given by us above is fundamentally altered and 
acquires the following form : 

C + PD-Cl 

where M is the amount of money needed for circulation; P 
is the sum total of commodity prices; C is the sum total of 
the prices of commodities sold on credit; PD is payments 
due; Cl is the total clearings; and MC the average number 
of money turnovers. 

At a given rate of money turnover, the total amount of 
media of circulation and means of payment functioning in a 
society will be equal to the sum total of the prices of com- 
modities to be sold, minus the sum total of the prices in 
credit sales, plus the total payments due, minus the total of 
mutually cancelling payments (clearings). 

The development of money's function as a means of 
payment reflects a further aggravation of the contradictions 
of commodity production, adding the antagonism of creditor 



and debtor to the previously existing between buyer and 
seller. Usury, or money lent at high interest rates, grew up on 
this basis. By increasing the mutual dependence of commodi- 
ty producers on each other, money as a means of payment 
creates new possibilities for crises to develop. It is sufficient 
for one or more debtors not to pay on time for a series of 
failures to pay and bankruptcies of commodity owners, inter- 
connected by debt obligations, to result. With simple com- 
modity production, however, this possibility remains formal; 
only with the capitalist mode of production does it become 

World Money 

The expansion of commodity-money relations beyond 
national boundaries leads to money functioning on the world 
market. "When money leaves the home sphere of circulation, 
it strips off the local garbs which it there assumes, of a stan- 
dard of prices, of coin, of tokens, and of a symbol of value, 
and returns to its original form of bullion." 1 

In world commodity-money turnover, money functions 
primarily as a means of payment, because transfers between 
countries arc, as a rule, not completed in cash for each com- 
mercial or financial transaction, but by transfer of bills of 
exchange or other debt obligations through banks. It only 
becomes necessary to transfer gold when indebtedness is not 
covered by mutual clearing. Money then operates as a uni- 
versal means ot payment. Only during wars, periods of 
heightened international tension, or economic upheaval of 
some sort, when normal relations between states are dis- 
turbed, does it become necessary to purchase foreign goods 
with cash. Then money begins to function as an international 
means oi purchase. 

If the transfer of gold from one country to another is not 
connected with purchases or payments, but is intended as a 
transfer of accumulated wealth, money then appears as an 
absolute social materialisation ol wealth. This is what hap- 

1 Karl Marx, Capital Vol. I, p. 141. 




pens, for example, when the ruling classes transfer accumu- 
lated gold reserves to foreign banks, when capital is 
exported in money form and profits transferred from 
foreign investments, when war indemnities are paid, and 
so on. 

In spite of the fact that the nature of money as world 
money corresponds to its form of bullion or gold ingots, the 
substitutes for gold, or token money of particular states, are 
also used in international transactions, a fact resulting from 
the broad expansion of international trade and credit rela- 
tions. The role of substitute for world money is usually per- 
formed by the currency of countries that, at the time, occupy 
the leading position in world economic relations. A national 
currency can operate as a substitute for gold only on a con- 
dition that, on the demand of a state or its central bank, it is 
freely exchanged for gold at the established rate of exchange, 
i.c. is a hard or freely convertible currency. Before the First 
World War, the role of universal currency was predominantly 
fulfilled by the British pound sterling. Then this role almost 
completely passed to the American dollar, and the pound was 
relegated to second position. Since 1971, dollars have ceased 
to be exchangeable for gold. 

At present, the world capitalist system is undergoing a 
lingering monetary and financial crisis (for its essence and 
causes see Chapter 17). Under these conditions, some coun- 
tries (France, for example) are even more persistently advo- 
cating a return to international payments based on gold. The 
policy of "demonetising" gold is being pursued by the USA 
and other countries, i.e. of its final replacement as world 
money by a kind of "collective, supranational currency", by 
what are called the special drawing rights (SDR) of members 
of the International Monetary Fund. This policy has so far 
not only failed to justify the hopes of stabilising interna- 
tional transfers, but has led to further deepening of the cur- 
rency and financial contradictions between individual capital- 
ist countries and groupings. The contemporary monetary 
crisis is thus convincing confirmation of the fact that, in the 
final analysis, only gold can fulfil the role of universal 

7 * 





The law of value is the economic law of commodity pro- 
duction in accordance with which commodities are produced 
and exchanged in correspondence with the quantity of socially 
necessary labour expended on making them. This law oper- 
ates objectively when the production relations between people 
are realised through the exchange of the products of their 
labour on the market. 

Having emerged with the birth of regular exchange of the 
products of labour, the law of value has operated throughout 
the history of commodity production, but the way it has 
operated has changed significantly, depending on the produc- 
tion relations predominant in any society. With commodity 
production based on private property, it operates spontane- 
ously as a force beyond the control of society, bringing about 
differentiation of commodity producers and exploitation of 
wage labour by capital. In a commodity economy based on 
public socialist property, the law of value is used in a bal- 
anced way to stimulate the development of production in the 
interests of all members of society. 

Since the law of value determines the proportions in which 
commodities are exchanged, and regulates their prices, it 
would seem, at first glance, to be no more than a law of com- 
modity circulation, with no direct relation to the production 
process. In actual fact, however, it is one of the economic 
laws actively influencing the production of commodities. 

The Law of Value as a Spontaneous Regulator 
of Commodity Production 

For production to be repeated regularly, definite propor- 
tions are objectively necessary between the different branches 
of material production in any society. When private property 
predominates, this balance is ensured by the spontaneous 
operation of the law of value. 

The law of value exerts a regulating influence on the dis- 
tribution of labour and the means of production through 



the spontaneous fluctuations of market prices around their 
values, resulting from changes in the balance between supply 
and demand. If the supply of a commodity exceeds the effec- 
tive demand for it, its price will drop below its value. On the 
other hand, if demand exceeds the supply of a commodity, 
its price will rise above its value. Full coincidence of price 
and value is only possible when demand corresponds to 
supply, which is only an instant in the constant fluctuation of 
prices. These fluctuations of prices around values, being the 
only possible manifestation of the law of value on the spon- 
taneous market, also call forth significant changes in produc- 
tion, since they determine the personal interest of commodity 
producers in the production of any commodity. 

If, for example, it is found on the market that the price of 
shoes is tending to fall, while the prices of haberdashery are, 
on the contrary, rising, the production of shoes will tend to 
slow down and that of haberdashery to speed up. The supply 
of haberdashery will consequently, after some time, exceed 
demand, while the demand for shoes, on the other hand, will 
cease to be satisfied. Then an opposite tendency will set in 
in the movement of market prices; those of shoes will begin 
to rise, and those of haberdashery to fall, with the result that 
the trend in the distribution of social labour between these 
industries will be reversed. 

The spontaneous fluctuations of prices on the market, by 
making production in any industry more or less profitable, 
stimulate either an influx of labour and means of produc- 
tion into it from other industries or an outflow of them into 
other industries. Without the deviation of prices from values, 
spontaneous commodity production could not exist and 

Influence of the Law of Value on Growth 
of Productive Forces 

The law of value plays a most important role in stimulat- 
ing growth of labour productivity in a commodity economy. 
Since in the production of any particular commodity, en- 
terprises with different technologies and organisation of pro- 
duction and workers with different skills are involved, 
different amounts of labour time are therefore expended per 


unit of output. In some enterprises, labour productivity is 
higher and the individual value of the product is lower 
than the social value, while in others, on the contrary, labour 
is less productive and the value is above the social value. 
On the market, however, all commodity owners sell the same 
commodities at the same market price, based on a single 
social value. The owners of enterprises producing the product 
with an expenditure lower than that socially necessary 
will receive additional income from its sale, in the form of 
the difference between its social value and its lower indi- 
vidual value. They will become richer. Commodity producers 
whose individual expenditures are higher than that socially 
necessary will suffer losses and their businesses will begin to 
decline. The position of commodity producers making the 
product under average socially necessary conditions will 
prove to be unstable, because it will be sufficient for the 
price of the commodity to drop below its value (as a result, 
say, of supply outrunning demand) for their production to 
be unprofitable. 

In order to survive in competition or to maintain an ad- 
vantageous position established on the market, each com- 
modity producer constantly strives to increase labour pro- 
ductivity, i.e. to reduce expenditure of labour per unit of 
output. He must be constantly concerned to improve the 
techniques and technology of production, its organisation, 
the skills of the workers, and so on. The overall objective 
result is development of the productive forces and an in- 
crease in the productivity of social labour. At the same time, 
private ownership engenders phenomena like commercial 
secrecy and a spontaneous disturbance of the necessary 
balance of the economy, leading to a considerable loss of 
economic resources, which retards development of the pro- 
ductive forces. 

The Law of Value and the Transformation 

of Simple Commodity Production into 

Capitalist Production 

The divergence of the individual expenditure of labour 
from social, plus the spontaneous fluctuation of prices around 



values, bring about a differentiation of commodity producers, 
enriching some and impoverishing others. Whatever the con- 
ditions for realising commodities on the market, the pro- 
ducers who are strongest in a given branch of industry, who 
have the biggest, best equipped enterprises, are invariably 
the victors in competition. Selling their commodities at prices 
above their individual values, they receive additional income, 
which they use to expand production, using wage labour. With 
time, these commodity producers become people living en- 
tirely on the exploitation of wage labour, i.e. capitalists. 
Just as inevitably, under the influence of the law of value, 
the mass of petty producers become poorer and in the end 
are ruined and become proletarians. 

Lenin made a thorough scientific analysis of the process 
of differentiation of small commodity producers and trans- 
formation of small-scale commodity production into capital- 
ist production in Russia. "The penetration of commodity 
production into the countryside,” he wrote, analysing the 
pre-revolutionary statistics on the economy of the Russian 
village in the post-reform period, "makes the wealth of the 
individual peasant household dependent on the market, thus 
creating inequality by means of market fluctuations and 
accentuating it by concentrating free money in the 
hands of some, and ruining others. This money naturally 
serves for the exploitation of the propertylcss, turns into 
capital." 1 ^ 

An even more intensive squeezing of small businesses by 
big business on the basis of spontaneous operation of the law 
of value is to be seen in capitalist commodity production. In 
the USA today, for example, according to official statistics, 
more than 100,000 farmers are ruined each year and 6,000 
to 10,000 industrial, commercial and other firms go bankrupt. 

In commodity production based on private property, 
consequently, the law of value is an economic law causing 
differentiation of small commodity producers and transfor- 
mation of small-scale commodity production into capitalist 

1 V. I. Lenin, "The Development of Capitalism in Russia", Collected 
Works, Vol. 1, pp. 482-83. 




production, and exacerbation of the antagonistic contradic- 
tions of the latter. 

The Fetishism of Commodities 

The products of labour produced for exchange by private 
commodity producers acquire special properties, which 
appear supernatural to people. "A commodity appears, at 
first sight, a very trivial thing, and easily understood,” Marx 
wrote. "Its analysis shows that it is, in reality, a very queer 
thing, abounding in metaphysical subtleties and theological 
niceties .” 1 The cause of this is rooted in the hidden social 
character that labour acquires in commodity production 
based on private property. Material goods are not made for 
personal consumption but for sale on the market, i.e. to satisfy 
the needs of society. Private property, however, separates the 
producers, and the only possible form of economic link be- 
tween people becomes the exchange of commodities, the 
movement of things. 

Since this exchange happens spontaneously, the position 
of each producer depends on the spontaneous market situa- 
tion. Commodity producers become totally dependent on the 
fluctuations of the market prices for commodities. On 
whether a commodity is sold or not, and on whether the 
amount received covers the expenses or not, depend 
both the fate of the enterprise and the prosperity of its 

The dependence of commodity producers on market forces 
is seen on the surface of society as the domination of a 
certain supernatural power of things (commodities, money) 
over people, who begin to worship the commodities they 
produce, just as the religious man bows down before the 
image of a God he has himself drawn. In the past peasants, 
believing that "God set prices”, sometimes had products 
blessed in church, and offered prayers, before taking them 
to market. 

The property of things to dominate people, however, is 
not engendered by their use value or by any mysterious power 

1 Karl Marx, Capital Vol. I, p. 76. 



with which they have been endowed by nature. It is only 
inherent in products of labour produced for a spontaneous 
market. Economic relations between separated private com- 
modity producers cannot be manifested in any way other 
than through the exchange relations between the products of 
their labour, i. e. commodities. They take a material form, 
and this materialisation of the production relations in a 
private property commodity economy, reflected in people's 
minds in the form of the supernatural properties of commodi- 
ties, Marx called the tetishism of commodities A 

The fetishism of commodities develops and strengthens as 
the social character of labour develops and the dependence 
of producers on the market strengthens. In a developed 
capitalist society, man feels a slave of the things and systems 
that surround him and dependent on the gigantic hostile 
social mechanism. This finds concrete expression in the 
omnipotence of gold and money. The fetishism of money, 
the deification and worship of gold, is the extreme manifes- 
tation of the fetishism of commodities in the contemporary 
capitalist world. 

Commodity fetishism, however, must not be understood 
simply as human misunderstanding. Its objective basis is 
a specific social existence, in particular, the conditions of 
spontaneous, private property commodity production, when 
things actually become the embodiment of elemental forces 
and begin to dominate people, determining their well-being, 
will and consciousness. The materialisation of production 
relations is the objective basis of the fetishism of com- 
modities, and the phenomenon does not disappear sim- 
ply because its mystery has been unveiled by Marxism- 

Bourgeois political economy not only has not disclosed 
the true nature of this fetishism, but on the contrary strives 
to strengthen it in every way possible, depicting money and 
its power over people as a specific natural property of gold, 
requiring the subordination of man to it. 

1 See Karl Marx, Capital Vol. I, p. 77. 

A fetish is an inanimate object, endowed in the minds of believers 
with supernatural properties and therefore serving as an object of 
blind worship. 



The transfer of power to the working people, the establish- 
ment of common ownership of the means of production, and 
planned organisation of the economy put an end to people's 
dependence on the spontaneous exchange of things and 
consequently, also put an end to the fetishism of com- 




One hundred and ten years ago, in August 1867, having just 
finished correcting the last page of the proofs of the first vo- 
lume of Capital, Marx wrote to Engels: "The best points in 
my book arc: 1) the twofold character of labour, according to 
whether it is expressed in use value or exchange value. {All 
understanding of the facts depends upon this.) It is empha- 
sised immediately, in the first chapter; 2) the treatment of 
surplus value independently of its particular forms as profit, 
interest, rent, etc.” 1 That is how Marx himself defined the 
significance and place of the fundamental element of his 
labour theory of value in the political economy of the prole- 
tariat that he had created. Marx's doctrine of the twofold 
character of the labour embodied in a commodity was the 
starting point of his revolution in economic science. 

The beginnings of the labour theory of value had been 
laid long before Karl Marx by the classical bourgeois politi- 
cal economists William Petty (1623-1687), Adam Smith (1723- 
1790) and David Ricardo (1772-1823). They were the first 
in the science to answer the question posed by Aristotle, 
stating that "if the quantity of labour realised in commodi- 
ties regulate their exchangeable value, every increase of the 
quantity of labour must augment the value of that commodity 
on which it is exercised, as every diminution must lower it”. 2 
Because of its class limitations, however, bourgeois political 
economy proved unable to understand the true nature of a 
commodity and of the labour embodied in it or to reveal its 

* Karl Marx and Frederick Engels, Selected Correspondence, 
Moscow, 1975, p. 180. 

2 David Ricardo, The Principles oi Political Economy and Taxation, 
London, New York, 1955, p. 7. 


contradictions and explain the mechanism by which the law 
of value operates. The classical bourgeois political economists 
considered the social division of labour, production and the 
exchange of commodities to be eternal phenomena outside 
history, resulting from the very nature of man and his innate 
inclination towards barter and exchange. From this logically 
stemmed their affirmation of the eternal nature and stability 
of capitalist production as the highest form of commodity 

Marx's discovery of the twofold character of the labour 
that creates a commodity transformed the labour theory of 
value into a truly scientific one and made it possible to dis- 
close the patterns of development of a commodity economy, 
explain its contradictions, define the historical boundaries of 
commodity-money relations, and analyse their economic 
content and role in different periods. 

Capitalist exploitation is based on commodity relations and 
is masked by them. The labour theory of value therefore 
served as a necessary scientific prerequisite for explaining 
the essence of capitalist exploitation. Since everything needed 
for living is produced by human labour, the questions natu- 
rally arise of how people who do not do any socially useful 
work exist in the capitalist world; from what sources does 
the wealth of the capitalist class as a whole increase,* and 
why do the working people not only not become richer, but, 
on the contrary, become poorer and live in constant need and 
deprivation. On £he basis of the labour theory of value, Marx 
ripped off the mask of a society of freedom, equality and 
fraternity from capitalism and exposed it as a system of the 
most refined exploitation of man by man. 

Lenin made a major contribution to the development of 
the Marxist theory of commodity production. Even in his early 
works, he gave a classical example of creative application of 
Marx's theoretical arguments to analyse concrete reality and 
demonstrated their tremendous vitality and revolutionary 
significance. He made an all-round analysis of the mechanism 
of the spontaneous operation of the law of value, and of the 
differentiation of simple commodity economy and the de- 
velopment of capitalism, using extensive factual data on the 
economy of tsarist Russia over more than a quarter of a 
century. Lenin showed that the commodity production of 



peasants and artisans, praised by the Narodniks (Populists) as 
the "people's system" and as "labour production", was not 
only not the antipode of capitalism, but, on the contrary, ser- 
ved as its broadest foundation, and that at a certain stage of its 
development, it inevitably gave birth to the two main classes 
of bourgeois society, the bourgeoisie and the proletariat. 
Having demonstrated scientifically that Russia had already 
taken the road of capitalist development, he showed at the 
same time the objective inevitability of a sharpening of the 
contradictions of capitalism, of the growth of a proletariat 
in Russia and of the development of class struggle. 

Analysis of the class differentiation of the Russian village 
showed that, in the ruined and exploited part of the peasantry, 
the proletariat could find a firm ally in its revolutionary 
struggle against the bourgeois-landowner system. This conclu- 
sion was and still is of exceptional importance, not only for 
victory of the socialist revolution and the building of socialism 
in Russia, but also for the development of the revolutionary 
process throughout the world. Lenin also made a thorough- 
going scientific study of the special features of the operation 
of the law of value and of capitalist competition in the epoch 
of monopoly domination in his Imperialism , the Highest 
Stage ot Capitalism. 

After the Great October Socialist Revolution, Lenin 
worked out all aspects of problems of employing commodity- 
money relations in the establishment and development of 
the socialist economy and of their fundamentally different 
content and purpose in the new historical epoch. 

Bourgeois ideologists and reformist and revisionist theore- 
ticians devote special attention to "disproving" or "overthrow- 
ing" the labour theory of value, because it is the key to 
scientific understanding of the essence of capitalist exploita- 
tion and to substantiation of the inevitability of the revolu- 
tionary replacement of capitalism by socialism. 

Critique of Modern Bourgeois 
and Reformist “Theories” of Value 

With the appearance of the first volume of Capital, previous 
vulgar theories of value (the theory of supply and demand, 
the theory of costs of production, and others) proved to be 




routed and Marx's doctrine was more and more widely accept- 
ed. In such circumstances, bourgeois political economy tried 
to oppose Marxism with a new version of the vulgar theory. 

In the second half of the nineteenth century, the represen- 
tatives of what is called the Austrian school, Bohm-Bawerk 
and Menger, advanced the theory ot marginal utility. Almost 
simultaneously a mathematical version was formulated by 
Jevons in England and Walras in Switzerland. According to 
the marginal utility theory, the value (exchange value) of any 
material good is determined by its marginal, i.e. its minimum, 
utility. By the utility of things the authors of this theory 
understood not the objective property of commodities to 
satisfy some particular social need in the actual conditions of 
commodity production, but their subjective psychological 
evaluation by people in the unusual circumstances in which 
they possessed a certain stock of some material goods and 
could not freely reproduce or exchange them for other goods. 
The subjective theory of value ignores the social character 
of production, denies the existence of objective economic 
laws and depicts each producer of material goods as a man 
living in complete isolation from society. Thus Bohm-Bawerk, 
for example, put his "economic man" in a hut, standing alone 
in a primitive forest. This settler had at his disposal five 
sacks of com, one of which he needed in order not to starve to 
death, another to improve his diet, a third to feed his domes- 
tic animals, a fourth to make schnapps, and the fifth to feed 
parrots for amusement. It was this last, fifth sack, that gave 
its owner the lowest utility, that supposedly determined the 
exchange value, or value, of corn. " The magnitude oi the value 
ot a material good,” Bohm-Bawerk concluded, "is determined 
by the importance ot the actual need (or partial need) which 
occupies the last place in the series of needs, satisfied by all 
available stocks ot material goods for the given type. . . . The 
value ot a thing is measured by the magnitude oi the marginal 
utility oi the thing. This is the central point in our theory of 
value. Everything else is connected with it and is concluded 
from it ." 1 

1 E. v. Bohm-Bawerk. "Grundzuge der Thcorie des wirtschaftlichen 
Giitcrwcrts". In: Jahrbucher iilr Natioiialokonomie und Statistik, 
Bd. 13, Jena, 1886, S. 28-29. 



Consequently, the more commodities there are, the lower 
their supposed utility, and the lower their value; conversely, 
the fewer commodities there are, the greater their utility and 
value. Trying to "improve" the marginal utility theory, the 
American bourgeois economist J. B. Clark and his followers 
began to assert that the value of a good was determined by 
society as a whole and that its utility for individuals was a 
reflection of its social utility. 

The modern American economist Paul A. Samuelson has 
his own way of trying to develop the marginal utility theory. 
Taking it as indisputable that the utilities of things, or their 
use values, are incomparable, he deduced mathematically, 
from an infinite series of the marginal utilities of individual 
commodities, a certain average marginal utility per -dollar of 
income, or what has been called the law of equal marginal 
utilities per dollar. This law supposedly serves as the basis 
for comparing the useful properties of different goods as 
exactly proportional to their prices. 

Engels showed the marginal utility theory to be unconvinc- 
ing as soon as it appeared, calling it the "theory of unlimit- 
ed disutility”. Its fundamental methodological weakness is 
that it is obviously idealistic in nature, since it deduces the 
objective economic category of commodity production-value- 
from the consciousness and psychological feelings of people, 
taken in isolation from concrete social relations and real life. 

Price formation under the actual conditions of commodity 
production is in fact subjected, in the final analysis, to eco- 
nomic laws that operate irrespective of human will and con- 
sciousness. The subjective evaluations of material goods by 
people of different social background cannot be the same: 
what seems cheap to the capitalist is considered dear by the 
worker, and unattainable by the unemployed. Yet identical 
goods are bought and sold at prices that are the same for all, 
which can only be explained by the prices of commodities 
having the same basis, an equal quantity of social labour 
expended on their production. At the same time, whatever 
individual person's subjective evaluations of various things, 
of motorcars and fountain pens, for example, the car will 
always be dearer than the pen, since more social labour is 
expended on its production. The marginal utility theory iden- 
tifies the value of commodities with their utility, i.e. with 



their use value; but utility (including marginal utility) 
cannot be the substance of value, cannot be the general mea- 
sure of things, since the use values of commodities are quali- 
tatively different and not comparable. 

Resorting to mathematics does not save marginal utility 
theory either. Mathematics can only serve as an instrument 
of economic analysis; if a formula is based on premises that 
are incorrect and do not reflect the real relations between 
people, the result will inevitably be misleading. The volume 
and structure of social demand under capitalism are deter- 
mined not by some mathematically expressed average class- 
less marginal utility, but above all by the antagonistic 
character of the distribution of material wealth among the 
different classes of bourgeois society. "A fall in the utility of 
material goods" resulting, as it were, from increasing satia- 
tion of man's needs, in fact means an increase of difficulties 
in selling commodities, caused by diminution of the workers' 
share of the national income and by their effective demand 
falling behind the development of production. 

In their striving to refute Marxism-Leninism and justify 
the continued existence of capitalism, reformist and revi- 
sionist theoreticians come closer and closer to the position of 
reactionary bourgeois economists, and their numerous "theo- 
ries" of value have the same aim. 

In spite of their seeming diversity, all these theories are 
fundamentally the same distortions of the essence of the 
Marxist-Leninist labour theory of value, denials of its real 
significance, and an open or hidden transition to a position 
of "subjective value". 

At the end of the last century, in opening the revisionist 
crusade against Marxism, Eduard Bernstein was already 
claiming that Marx's theory of value was too abstract and 
that it was simply a hypothesis that in no way corresponded 
to real life. He proposed combining it with marginal utility 

Decades later, after World War II, John Strachey, one of 
the leading theorists of British Labour, repeated essentially 
the same thing. While considering the labour theory of value 
only a rich hypothesis and according it some significance for 
the system of distribution, he believed that it had nothing 
to do with some convincing facts of their (i.e. capitalist-Ed.) 



modern economics and therefore it was now time to 
reject it. 

Other reformists, while pretending to support Marxist 
theory, in fact deny value as an objective economic category 
and try to depict the production relations contained in it 
either as, relations arising only in the sphere of circulation 
or as categories of consciousness (logical, moral, ethical, 
legal, etc.). Some of these "supporters" even try to attribute 
the subjective psychological interpretation of value to Marx 
himself. One of the theoreticians of West German Social- 
Democracy, Walter Theimer, claims that the theories of value 
and surplus value, like Marxism as a whole, rest on an ethi- 
cal rather than on an economic foundation and that Marx 
only needed his proclamation of labour as the sole source of 
value in order to show that all products should belong to the 
workers. In her An Essay on Marxian Economics, the English 
economist Joan Robinson also "proves" that none of the 
categories of Marxist political economy express actual eco-_ 
nomic relations, but were brought into science by Marx's 
"anger" and that there was allegedly no single point in the_ 
essence of Marx's argument that depended on the labour 
theory of value. 

Such arguments are not new. Long before contemporary 
reformists, the Russian "legal Marxist" M. I. Tugan- 
Baranovsky (1865-1919) also tried to prove that recognition 
of labour as the sole source of value was only linked with 
recognition of man as the "supreme value". If not for these 
purely ethical, humanist considerations, we could also con- 
sider that horses also create value. In actual fact, Marx 
deduced the economic significance of labour not from ethi- 
cal norms, but from its objective role in the life of human 
society. Through labour, man became differentiated from 
the animal world; labour united people and created human 
society from them. "Every child knows," he wrote to his 
friend Kugelmann, "that a nation which ceased to work, I 
will not say for a year, but even for a few weeks, would 
perish.'' 1 Value is a historically defined form of social labour. 
It expresses the relations between people in the course of 

1 Karl Marx and Frederick Engels, Selected. Works, in three 
volumes, Vol. 2, Moscow, 1969, p. 418. 




the production and appropriation of material wealth, and 
not the relations between man and things. This is why 
neither the energy of horses nor of machines has any rela- 
tion to the formation of value. Machines, horses and other 
means of production have value themselves only in so far 
as a certain share of the social labour of commodity pro- 
ducers is expended on them. 

If any capitalist business expends more labour on pro- 
ducing a unit of its output than is socially necessary, i.e. 
more than the social value of the given product, it will in- 
evitably begin to decline and its owner will be ruined (let us 
note, incidentally, that it is the owner who is ruined, not the 
horses or machines employed in this business, as exponents 
of the ethical "theory" of value represent it). All this irre- 
futably proves that labour value is an objective economic 
category, expressing the actual social relations of a com- 
modity society irrespective of the will and consciousness of 
people. And this is why the numerous attempts of bourgeois 
and reformist theoreticians to refute or distort the Marxist- 
Leninist labour theory of value, and to replace it with 
unscientific apologetic theories, are fruitless. "As to the 
theory of value," Lenin wrote describing these attempts, "it 
need only be said that apart from the vaguest of hints and 
sighs, a la Bohm-Bawerk, the revisionists have contributed 
absolutely nothing, and have therefore left no traces what- 
ever on the development of scientific thought." 1 

This evaluation also applies fully to modern reformists 
who, in conjunction with bourgeois economists, assiduously 
fulfil the social commands of the bourgeoisie-to justify 
capitalism with all their power and defend it from its 
inevitable end. 

Critique of Bourgeois Theories of Money 

Having proved incapable of revealing the true nature of a 
commodity and of the labour embodied in it, and of under- 
standing the essence of value, bourgeois economists could 

1 V. I. Lenin, 
Vol. 15, p. 36. 


"Marxism and Revisionism", Collected Works, 



not either, of course, explain the essence of money. They 
explain the value of money by the natural properties oi gold, 
or by the amount of money in circulation, or by its value 
having been set by state decree. Accordingly, there are three 
basic theories in their interpretation of the origin and essence 
of money: the metallist, quantity, and nominalist. Marx gave 
an exhaustive critique of these apologetic theories in Capital-, 
nevertheless, they are still in vogue. All contemporary bour- 
geois theories of money arc, in essence, only different variants 
and combinations of them. 

The metallist theory oi money arose in the early stages 
of the development of capitalism. Having made a fetish of 
money, the representatives of early metallism, William 
Stafford, Thomas Mun, Ferdinando Galiani and others, 
claimed that gold and silver were money by virtue of their 
nature, and that they had this property and would always 
have it, irrespective of the social structure. The functioning 
in currency of tokens for gold, paper money in particular, 
was considered unnatural. Marx demonstrated convincingly 
that money was the product of the long development of 
commodity production and of its contradictions. Objects of 
one kind or another only become money when social rela- 
tions require it. The noble metals are simply the most con- 
venient material for fulfilling the function of a universal 
equivalent. Gold becomes money, the bearer of social rela- 
tions, only under definite social and historical conditions, 
specifically with a sufficiently high level of development of 
commodity production and exchange. Contemporary "metal- 
lists” strive, but without success, to show that the instability 
of the capitalist economy and contradictions of capitalism 
can be eliminated and capitalism rescued with the help of the 
"miraculous” power of gold. 

The nominalist theory of money took shape during the 
establishment of the capitalist mode of production, although 
views similar to those of the nominalists were expressed by 
the Greek philosophers Plato and Aristotle. The theory re- 
ceived its substantiation and development in the works of the 
seventeenth- and eighteenth-century English economists, Ni- 
cholas Barbon, George Berkeley and James Stuart. Marxism- 
Leninism subjected the nominalist theory to devastating 
criticism, but it has been revived in the epoch of imperi- 



alism in the works of the German professor G. F. Knapp, 
the Austrian bourgeois economist Bendixen, and others. 

Supporters of the nominalist theory claim that money is 
simply a nominal unit of account, lacking any material con- 
tent, a conventional token established by the state for mea- 
suring the value of goods. In their opinion, money has no 
value itself and, consequently, no inner connections with 
commodities either, and receives its force entirely from the 
state authorities. 

It is not difficult to see that this theory is idealistic in 
nature. It replaces objective economic laws and categories 
by legal concepts and norms and reduces the essence of 
money as a historically determined social and production 
relationship to its outward and visible form, i.e. to the 
standard of price. The state can actually establish any stan- 
dard of price, i.e. the fixed weight of precious metal to be 
taken as the unit of money, but it is not in a position to 
legislate the value of this metal. Paper money, tokens of 
value, can of course also serve money circulation, but having 
no value of its own, paper money appears only as a substi- 
tute for actual gold money in its function as the medium of 
circulation and means of payment. With paper money in 
currency, the measure of value remains gold and the pur- 
chasing power of the paper money is determined, in the 
final analysis, by the value of the gold it replaces. 

In essence the nominalist theory is a reactionary 
bourgeois theory. When it appeared it served as a justifica- 
tion for the debasement of coinage, that is reduction of the 
precious metal content of coins, then practised by exche- 
quers and treasuries. At present, the theory is extensively 
employed to justify excessive issues of paper money and 
inflation, which are additional ways of robbing and exploit- 
ing working people. 

One of the most widely held bourgeois theories is the 
quantity theory of money, which affirms that the value of 
money, be it gold or paper, is determined exclusively by 
the quantity of it in circulation. This theory took shape in 
the eighteenth century, primarily in the United Kingdom, 
when the interests of industrial capital required freedom 
of trade. Its leading exponent then was the Scottish philoso- 
pher and economist David Hume, who held that money 

8 * 



had no innate value and that its value arose solely as a 
result of its functioning in currency. 

The fullest generalisation and development of the views 
of the classical supporters of the quantity theory are to be 
found in the works of David Ricardo. In Ricardo's theses 
concerning the essence of money one can see most clearly 
the inconsistency of his whole economic theory. As a sup 
porter of the labour theory of value, he considered that the 
noble metals had an innate value, determined (like the value 
of other commodities) by the labour time spent on then- 
production. Alongside this he held that gold coins had 
more or less value according to the number in circulation 
and that, as the quantity of gold increased, its value fell. 
This was a deviation from the labour theory of value. Ricardo, 
like all supporters of the quantity theory, reduced the 
essence of money to a single function, that of a medium ot 
circulation, not understanding its other functions. He con- 
fused the laws of circulation of full-value gold money and 
tokens of value, paper money, and assumed that any quan- 
tity of full-value coins could be in circulation. From that it 
followed that commodities entered circulation without a price 
and money without a value, and that the prices of commodi- 
ties altered according to the quantity of money on the market. 

In criticising the quantity theory, Marx demonstrated 
scientifically that only the quantity of full-value money actu- 
ally needed entered circulation. Money (or gold as a mone- 
tary commodity) has its own value, formed in production 
before the process of circulation. It fulfils its function as the 
measure of value of commodities before the direct act of 
purchase and sale. Commodities therefore enter circulation 
with a specific price and money with a specific value, and it 
is simply impossible for the quantity of gold money in cur- 
rency to be more or less than that needed. The depreciation 
of monetary gold in the seventeenth century (to which the 
quantity school usually referred) was the result not of a 
surplus in circulation, but of an increase in the productivity 
of labour in gold mining and a fall in the value of gold. 

The quantity theory is also not correct as regards the cur- 
rency of paper money since, on the market, a mass of paper 
money is not simply exchanged for a mass of commodities, 
but the purchasing power of the paper money is determined 



by its ratio to the quantity of gold money needed for 

circulation. . , 

Under contemporary conditions, the quantity theory, 
brought up to date by the British economist John Maynard 
Keynes (1883-1946), is employed by apologists of capitalism 
to "prove” the possibility of planned management ot the 
capitalist economy by regulating the circulation of money. 
In practice, however, this is reduced to justifying a limitation 
of the growth of workers' wages, inflation of the prices ot 
goods and services, increase of taxation of the working 

people, and so on. . , .. 

Consequently, however different the bourgeois apologetic 

theories of money may seem on the surface, in essence their 
sole purpose is one and the same, to justify and defend the 
capitalist system. 

Chapter 4 


The theory of capital and surplus value is central to 
Marxist-Lcninist political economy. It describes the essence 
of capitalist production, its goal and motive force, and 
reveals the antagonistic contradictions of capitalism. Karl 
Marx was the first to give a truly scientific analysis of the 
capitalist mode of production. He discovered the basic eco- 
nomic law of capitalism, the law of surplus value, substan- 
tiated the inevitability and significance of the irreconcilable 
class struggle between proletariat and bourgeoisie, and 
demonstrated the inevitability of victory of the socialist 



The General Formula for Capital 

The historical premises for the emergence of capital were 
commodity production and the developed forms of 
commodity-money circulation. The end-product of commodity 
circulation is money which is also, at the same time, the first 
form of the movement of capital. 

With simple commodity circulation, the petty commodity 
producers, artisans or peasants, sell their commodities for 
money in order to buy other commodities with it. This act, 
as we know, is completed according to the formula C (com- 
inodity)-M (money)-C (commodity); and in it, money ful- 
fils its function as a medium of circulation, serves as an 



intermediary in exchange and is not capital. The goal of 
circulation is use value. Petty commodity producers sell the 
products of their labour in order, with the money they receive, 
to buy the consumer goods and means of production they 
need. "Consumption, the satisfaction of wants, in one word, 
use-value, is its [i.e. circulation-Ed.] end and aim," Marx 
said. 1 

At a certain stage in the development of commodity 
production, money is transformed into capital. The general 
formula of capital is M-C-M', where M'=M+m, i.e. equals 
the sum of money originally advanced plus a certain incre- 
ment. Money forms the starting and finishing point of the 
movement of capital, while the role of intermediary is played 
by a commodity. 

In this cycle, money is not spent, but simply advanced. It 
returns to its original owner, and, what is more, with a cer- 
tain increment or increase. And this increment or surplus of 
value over the value originally advanced Marx called sur- 
plus value. The goal of the circulation of money as capital, 
consequently, is an increase or augmentation of value. In the 
formula of the circulation of money as capital, the chief aim 
and compelling motive of capitalist production, the extrac- 
tion of surplus value, is clearly visible. Consequently, capital 
is value that yields surplus value, or sell-expanding value. 

The M-C-M' cycle is not concluded by a single act, but 
is constantly repeated and renewed. Th£_movemenLpf capi- 
tal knows no limits and in it value acquires the magical ca- 
pacity to create new value or, as Marx put it, "to lay golden 
eggs". The owner of money becomes a capitalist and his 
goal- the appropriation of surplus value. 

The question arises as to where this increase in money 
takes place and where the surplus value comes from. Bour- 
geois economists have asserted that the increment of money 
is begotten in the process of circulation itself and is an 
increase on the price of the goods being sold. Marx refuted 
these views and showed scientifically that surplus value can- 
not arise directly from commodity circulation. 

The process of circulation, taken as a whole, is an exchange 
of equivalents, i.e. of equal values. When commodities are 

_1 Karl Marx, Capital Vol. 1/ P- 148. 



bought and sold, it is not value that changes, but only its 
form; the commodity form is converted into the money 
form and vice versa. 

The deviations of prices from values during exchange 
cancel themselves out. Suppose a capitalist sells commodi- 
ties of 100 dollars' value for 110 dollars. As seller he gains 
ten dollars, but when he becomes a buyer he loses the same 
ten dollars since other capitalists also have the ''privilege” of 
selling their goods with a "mark-up on the price”. The 
mutual winnings and losses of buyers and sellers cancel each 
other out. Individual capitalists can gain at the expense of 
others, of course, but the sum total of values will not increase 
as a result. This means that the increase in wealth of the 
whole capitalist class cannot be explained in that way. "The 
capitalist class, as a whole, in any country, cannot over-reach 
themselves," Marx said. 1 

Surplus value, however, cannot arise independently of 
commodity circulation. The capitalist cannot turn money into 
capital without entering into exchange relations with other 
commodity owners. He is constantly buying means of pro- 
duction and labour power and" selling the commodities pro- 
duced. All of this takes place on the market, in the sphere 
of circulation. The general formula for the movement of 
capital M-C-M', Marx showed, contains a fundamental 
contradiction. "It is therefore impossible,” he wrote, "for 
capital to be produced by circulation, and it is equally impos- 
sible for it to originate apart from circulation. It must have 
its origin both in circulation and yet not in circulation." 2 
Since the law of value operates under capitalism, as in a 
simple commodity economy, the capitalist must buy commodi- 
ties at their value and sell them at their value and, never- 
theless, receive surplus value. At first glance it would seem 
that the begetting of surplus value contradicts the equiva- 
lence of exchange, i.e. contradicts the law of value. But, as 
Marx showed, surplus value not only does not contradict the 
law of value, but is actually formed on the basis of it. 

How does this happen? Since circulation presumes an 
exchange of equivalents and surplus value, consequently. 

1 Karl Marx, Capital, Vol, I, p. 160. 

2 ibid., p. m 



becomes obvious that its source lies in the use value of some 
special commodity bought by capitalists on the market. In 
capitalist society, this commodity is labour power, the use 
value of which possesses the unique property of being the 
source of value. 

Labour Power as a Commodity, 
and Its Properties 

Labour power is the aggregate of all the physical and 
mental capabilities of a human being for labour that are 
realised during production. It has always existed and will 
always exist, but only becomes a commodity under capitalism. 
Labour power becomes a commodity given two conditions: 
(1) the worker must be personally free and have the right 
to dispose freely of his own labour power; (2) the worker 
must be deprived of the means of production and means of 
existence and therefore be compelled to sell his labour power. 
The appearance on the market of this special commodity, 
labour power, meant the beginning of a specific period in 
the history of society, the epoch of capitalism. 

The conditions in which labour power becomes a com- 
modity are not created by nature but are the result of 
historical development, of economic revolutions and collapse 
of the series of socio-economic formations that existed before 

Being a commodity, labour power has both value and use 

The value of labour power as a commodity, like that of 
any other commodity, is determined by the labour time 
socially necessary for its reproduction. Labour power exists 
only as the capacity of a livin g in dividual, and is inseparable 
from the worker. The reproduction of labour power, conse- 
quently, boils down to maintenance of the life of the worker 
himself. To restore and preserve his capacity to work, a 
worker must satisfy his needs for food, clothing, footwear and 
so on, which he buys on the market. Maintenance of his 
family is also one of the factors determining the value of 


labour power. The owners of labour power are mortal. The 
continuous process of capitalist reproduction requires a con- 
tinuous influx of new workers to replace those being lost. 
Expenditure on the training of workers, and on their acquisi- 
tion of specific skills, is also included in the value of labour 
power. Marx also showed that, "in contradistinction therefore 
to the case of other commodities, there enters into the deter- 
mination of the value of labour-power a historical and moral 
element". 1 The scale and character of the needs of a worker 
depend on the historical development of the given country, 
on the conditions in which the working class was formed 
and on its cultural level. 

Thus, the value of labour power is determined by the 
value of the means of subsistence necessary for the repro- 
duction of labour power, i.e. for maintaining the worker and 
his family. 

The use value of a commodity, as we know, consists in its 
ability to satisfy a certain need of the purchaser. The capi- 
talist who buys labour power consumes it in the process of 
production. In being consumed the labour power creates new 
commodities and new value. The process of consuming labour 
power ork. The use value oi labour power as a commodi- 
r^«6nsequently, consists in the worker's capacity to create 
new value by his labour, greater than the value of his own 
labour power. 

A strict distinction must be drawn between labour power 
and labour. Marx was the first to establish this. He revealed 
that the worker sells the capitalist not labour, but labour 
power. This is' one of the main questions of political economy, 
which bourgeois economic science was not able to solve. Adam 
Smith and David Ricardo identified labour power with labour, 
and considered that what was bought and sold was the labour 
of the wage worker. 

Labour power is only the capacity of the worker for labour, 
while labour is the process of productive consumption of 
labour power, its function. "When we speak of capacity for 
labour," Marx wrote, "we do not speak of labour, any more 
than when we speak of capacity for digestion, we speak of 

1 Karl Marx, Capital, Vol. I, p. 168. 




digestion." 1 During production, the worker creates new value 
with his labour, value that is greater than the value of his 
labour power. The difference between the newly-created value 
and the value of the labour power itself constitutes surplus 



The Labour Process under Capitalism 

The labour process, considered in isolation from its social 
form, is a process of interaction between man and nature, 
the purposeful activity of people to create use values, an 
eternal and natural condition of human life. 

Any labour process, however, takes place in a definite 
social form- In each historical epoch it has its own, special, 
specific features. Under capitalism, these are two: (1) the 
worker works under the control of a capitalist to whom his 
labour belongs,- and (2) the product of the worker's labour 
is appropriated by the capitalist. 

Capitalist production also has a dual character. On the one 
hand, it is the process by which use values are created and, 
on the other hand, that by which value is increased or sur- 
plus value created. The production of use values, for capi- 
talists, is simply the means of increasing value, since the 
goal of capitalist production is the creation of surplus value. 
The capitalist, Marx wrote, wants "to produce not only a use- 
value, but a commodity also; not only use-value, but value; 
not only value, but at the same time surplus-value". 2 

The Process of Producing Surplus Value 

The process of the simultaneous creation of use value and 
of an increase in value, or the production of surplus value, 
can be illustrated by the following example. 

Let us assume that a capitalist has set up a spinning mill 
in which, during an eight-hour working day, a worker 
processes an average of 100 kilograms of yarn, for which 100 

1 Ibid., p. 170. 

2 Ibid., p. 181. 



dollars' worth of raw materials, etc., and electricity are 
required. The wear and tear on the instruments of labour 
(machinery, equipment, and buildings) in the processing of 
this amount of yam is four dollars. Thus, the total value of 
the means of production expended is 104 dollars. In addi- 
tion, the capitalist incurs an expenditure on the purchase of 
labour power, the daily value of which is three dollars. Let 
us assume that in the first four hours of labour the worker 
fully reproduces the daily value of his labour power (three 
dollars) and in the next four hours creates surplus value 
(three dollars). 

The twofold character of labour has a correspondingly 
twofold result: use value is created by concrete labour, and 
value by abstract labour. 

The spinner, making proper use of the means of produc- 
tion, produces a new product-yarn; in this process the value 
of the means of production consumed does not disappear 
but is preserved and transferred by concrete labour (work) 
to the new product. At the same time, the spinner spends 
his labour power on making the yarn and creates new value. 
Thus, a single process of the creation of use value and value 
takes place. In our example, the worker preserved the value 
of the means of production (104 dollars) during production 
and transferred it to the yarn. In addition, in the course of 
eight hours of labour, six dollars' worth of new value was 
created. By his labour the worker not only reproduced the 
daily value of his labour power (three dollars), but also creat- 
ed three dollars of surplus value. 

"Therefore, the value of labour-power, and the value which 
that labour-power creates in the labour-process, are two 
entirely different magnitudes," Marx wrote, "and this dif- 
ference of the two values was what the capitalist had in view, 
when he was purchasing the labour-power." 1 

The worker's ability to create, in the labour process, a 
value greater than that of his labour power, is not a capitalist 
invention, but a result of the development of the productive 
forces of society. The capitalist, having concentrated the 
means of production in his own hands, appropriates this 
social result without compensation and uses it to exploit wage 

1 Karl Marx, Capital, Vol. I, p. 188. 



In our example, the capitalist spent 107 (104+3) dollars 
on the production of 100 kilograms of yarn and received a 
product worth 110 (104+6) dollars. His money has been 
transformed into capital. It becomes such under the social 
form of economy in which labour power is a commodity. The 
transformation of labour power into an object of purchase 
and sale is what distinguishes the capitalist mode of produc- 
tion from the slave-owning and feudal modes. 

Bourgeois and reformist theoreticians try to prove that 
workers and capitalists are "equal" as commodity owners, that 
they exchange equal, equivalent values with each other so that 
the labour of wage workers in capitalist enterprises is free, 
voluntary labour. In reality, the "equality" of capitalists and 
workers is formal. Behind the label of "equality" is concealed 
economic compulsion to work. The worker, having neither 
means of production nor means of existence, is compelled 
to work a substantial portion of the working day for the 
capitalist without pay, and his labour is in fact forced labour, 
which Marx described as wage slavery. In essence, capitalist 
exploitation differs from slave-owner and feudal exploitation 
only in being concealed and masked by the exchange rela- 
tions of the purchase and sale of labour power. 

Under capitalism, surplus labour is appropriated in the 
form of surplus value. Surplus value is a historical category, 
inherent only in capitalism. 

The Law of Surplus Value — 

the Basic Economic Law of Capitalism 

In the preface to the first volume of Capital, Karl Marx 
wrote that it was "the ultimate aim of this work, to lay bare 
the economic law of motion of modern society”, 1 i.e. of capi- 
talist, bourgeois society. That law is the law ol surplus value. 
"Production of surplus-value is the absolute law of this mode- 
of production," he said. 2 1 

The aim of capitalist production is, consequently, the crea J 
tion of surplus value and its appropriation by capitalists. 

1 Ibid., p. 20. 

2 Ibid., p. 580. 




Workers exist only for the needs of capital, serve as means 
of producing surplus value and are simply human material 
suitable for exploitation. The law of surplus value expresses 
the very essence of capitalist production, i.e. the relations 
of the exploitation of wage workers by capitalists. The rela- 
tions between labour and capital, between workers and the 
bourgeoisie, are the main, fundamental relations of produc- 
tion under capitalism and determine all the other relations 
of bourgeois society. The law of surplus value is the law of 
motion of the capitalist mode of production and, as will be 
shown below, determines the growth and intensification of 
all its contradictions. 

The scientific substantiation of the origin and essence of 
surplus value was Marx’s great historic contribution. The 
theory of surplus value, in Lenin's famous evaluation, is the 
corner-stone of Marxist economic theory. In revealing the 
essence of the capitalist mode of production and demonstrat- 
ing that exploitation of the working class is the source of 
surplus value, Marx provided this class with an ideological 
weapon in its struggle against capitalism. His theory of sur- 
plus value, therefore, naturally provoked the violent hatred 
of the bourgeoisie and its apologists. Bourgeois writers and 
right-wing Socialists attempted, and are still trying, to 
"annihilate" Marxism, to "refute" the Marxist theory of 
surplus value and to justify capitalism. 

In discovering the economic law of motion of capitalist 
society Marx revealed the contradictions of capitalism and 
scientifically substantiated the inevitability of its downfall 
and of the victory of communism. As Lenin said, in his bio- 
graphical sketch of Karl Marx, the inevitability of the trans- 
formation of capitalist society into socialist society was de- 
duced by Marx "wholly and exclusively from the economic law 
of the development of contemporary society". 1 

The Essence of Capital 

j When defining capital, bourgeois economists substitute 
analysis of the relations between man and things for analy- 
sis of the production relations of capitalism, and identify 
capital wit h the means of production, claiming that capital 

1 V. I. Lenin, "Karl Marx", Collected Works, Vol. 21, p. 71. 



is any kind of accumulated labour that serves for further 
production, i.e. any material wealth, means of production, 
or things in themselves. From that point of view, the bow 
and arrow in the hands of primitive man were just as much 
capital as the machine belonging to a capitalist. 

The theory of the three so-called factors of production of 
the French vulgar economist J. B. Say (1767-1832) was widely 
accepted by bourgeois economists. Its essence was that three 
factors were involved in the process of production: land, 
capital and labour, and that they all took part to the same 
degree in the creation of value. Three types of income cor- 
responded to the three factors of production-the landowner 
received rent, the owner of capital profit, and the worker 
wages. According to this theory, complete harmony of inter- 
ests prevailed among the different classes; no one exploited 
anyone, and all received revenues corresponding to the share 
of each in production. 

In Capital Marx subjected "the trivialities of a J. B. Say", 
as he put it, to sharp criticism, demonstrating that all forms 
of non-labour revenue (profit, rent, and interest) have sur- 
plus value as their sole source, that is surplus value created 
by productive labour in the sphere of material production. 
The means of production are not in themselves capital. They 
only become capital under definite social conditions, when 
they function as means of exploiting wage labour. Capital, 
in Marx's definition, is value begetting surplus value, or self- 
expanding value. Hence it follows that capital is not a thing, 
but a historically determined social relation ot production 
between capitalists, who own the means of production, and 
workers, who lack them and are compelled to sell their labour 
power to the capitalists and to create surplus value for them. 
CapttatTs a bourgeois relation ot production. 

The actual relations between people are hidden and appear 
on the -surface of bourgeois society as relations between 
things. Where bourgeois economists saw a relation between 
things (the exchange of a commodity for a commodity) Marx 
revealed relations between people. 

Contemporary bourgeois economists and right-wing So- 
cialists cither completely deny the existence of capital or 
distort its nature in all sorts of ways. They press the idea 
that a "transformation of capitalism" is taking place today 



and that modern capitalism is no longer a system o£ exploi; 
t a tion and oppression but a system of "people s capitalism 
and a "welfare state" in which the production and distribu- 
tion of wealth are carried out in the interests of society as a 
whole. But capitalist reality itself refutes these fabrications 
of the apologists of the bourgeoisie. The private capital of 
iust three families of American multimillionaires, the Rocke- 
fellers, Du Ponts and Mellons, for example, exceeds the 
annual pay of 25 million American workers. 


Constant and Variable Capital 

The labour process involves (1) means of production 
(instruments of labour, raw materials, fuel, auxiliary mate- 
rials) and (2) man himself. These factors play different roles 
in the formation of value and of surplus value; the worker, 
as we know, creates new value and, what is more, new value 
that is greater than the value of his own labour power, while 
the -means of production do not create new value. In the 
labour process, the value of the means of production con 
sumed is preserved and transferred to the new product by 

^ But how does the worker, by his labour, simultaneously 
create new value and transfer the value of the means 
of production consumed to the new product . For the 
worker does not do double work, i.e. first transferring 
the old value and then creating new value. He is able 
to do so because of the twofold character of the labour 
that creates commodities. With abstract labour the worker 
creates new value, measured by the labour time spent on 
producing the commodity; with concrete labour (or work) 
he creates a certain use value and, at the same time, trans- 
fers the value of the means of production consumed to the 
new product. So the processes of creating new value and ot 
transferring old value take place simultaneously. 

The material factors in the labour process (the instru- 
ments of labour, the objects of labour and auxiliary or acces- 
sory materials) do not transfer their value to the new product 
in the same way. Machines and buildings serve for a long 
time and their value is transferred in bits as they wear out. 



The objects of labour and auxiliary materials are involved 
in production only once and either change their J^ , 
disanoear without trace; but their value is preserved and 
transferred to the new commodity in the same amount as wa 
omtained in the materials used up. It is characteristic of the 
material factors of production that they do not create ne 

S&od e Of the value transferred from the = 

of production consumed does not change For th ' 

Marx called that part of capital which is advanced £ “ 
of production its constant, invariable part or consum 

“Meters are quite different as concerns the subjective factor 
in the labour process, i.e. labour power. In transferring the 
value of the means of production used up to the new product 
bv his work or concrete labour, the worker simultaneous y 
creates new value with abstract labour, and this new value 
, t-Vmn that of the labour power for which the capi 
ralisfpayst th^forl ofwtcs. Consequently, that part o 
capitaf which the capitalist advances for the purchase of 

labour power changes in magnitude and “ 

labour process. For that reason Marx called it the variable 

Dart of capital or variable capital. . , . ... i 

P In Capital constant capital is symbolised by c (the initial 

letter of "constant"), variable capital by v (the ^letter 
of "variable") and surplus value by s (the initial letter 

” S Ma« wa^the first to discover the division of capital into 


by its variable part, in other words, by workers in the labour 

The Rate and Mass of Surplus Value 

Havina elucidated the essence of the exploitation of worker 
i ;♦ is necessary to determine how to measure 

by capital , (C ) investe d j n production is divided 

rts degree. Any W £ } The original 

‘^"^for example, a sum of 500 dollars-may 




consist of 410<rf90u. At the end of the process of production, 
a commodity is created, the value of which is equal to 
410c+90u+90s. Of this, the 410c is old value transferred 
and the 90u+90s is newly-created value. In the labour pro- 
cess, workers reproduce the variable capital (u) advanced 
by capitalists for the purchase of labour power and create 
surplus value (s). To determine the degree of exploitation of 
labour power, therefore, the surplus value (s) must be related 
not to all the capital advanced (C), but to the variable capi- 
tal (u) alone. The relationship is usually expressed in per- 
centages. In our example, it will look like this : 

^j:X 100= 100 per cent. 

The rate of surplus value is the ratio of surplus value to 
variable capital, and is symbolised as s'. The formula for 

the rate of surplus value then has this form: s'= • 

The working day and the labour expended in the course 
of it are divided into two parts. That part of it during which 
the value of labour power is reproduced Marx called neces- 
sary labour time and the labour expended during it necessary 
labour. The other part of the working day during which 
surplus value is created Marx called surplus labour time 
and the labour expended during it surplus labour. 


The ratio — can be expressed as the ratio of surplus 

labour time to necessary labour time or of surplus labour to 
necessary labour. From that it follows that the rate of surplus 
value is an exact expression of the degree of exploitation of 
labour power by capital, or of worker by capitalist. It shows 
in what proportion the new value is divided between capi- 
talist and worker, and what portion of the working day a 
worker works for himself and what portion for the capi- 
talist. In his article "Workers' Earnings and Capitalist Profits 
in Russia", Lenin calculated from the statistics that the degree 
of exploitation of workers in Russia in 1908, i.e. the rate of 
surplus value, exceeded 100 per cent. "Each worker," he 
wrote, "receives, on the average, 246 rubles a year, but he 
brings the capitalist an average profit of 252 rubles a year. 



"It follows that the worker works the lesser part of the 
day for himself and the greater part of it for the capitalist." 1 

The degree of exploitation of the working class has increased 
considerably today in all capitalist countries. Economists 
have calculated that the rate of surplus value in the manufac- 
turing industry in the USA increased from 96 per cent in 1849 
to 309 per cent in 1965. In British industry, over the 25 years 
from 1938 to 1963, it increased from 170 to 238 per cent. In 
West German industry in the mid-1960s, the rate of surplus 
value reached 350 per cent, and in Japan was about 400 per 

Although the rate of surplus value is an exact expression 
of the degree of exploitation of the worker, it nevertheless 
cannot express the absolute magnitude of exploitation. The 
absolute magnitude of exploitation of workers is determined 
by the mass of surplus value. If we signify the mass of sur- 
plus value by S, the surplus value created by one worker by 
s, the variable capital advanced for the purchase of one man's 
labour power by v, and the sum total of variable capital by 
V, the formula for the mass of surplus value takes the fol- 
lowing form: 

This formula indicates that the total amount of surplus 
value will be greater, the higher the rate of surplus value and 
the greater the variable capital advanced (or the number of 
workers simultaneously exploited by the capitalist). Since the 
amount of each capitalist's capital is limited, he will always 
try to increase the degree of exploitation of the workers. 

With the development of capitalism, the mass of surplus 
value has been constantly rising. In the USA, for example, 
according to U. S. News and World Report, the incomes of the 
largest corporations increased from 33 billion dollars in 1963 
to 72 billion dollars in 1973, or by 120 per cent. In Great 
Britain, the profits of capitalists increased from 1,000 million 
pounds sterling in 1938 to 9,000 million pounds sterling in 
1970, i.e. by 800, per cent. 

1 V. I. Lenin, Collected Works, Vol. 18, p. 257. 

9 * 




In their constant drive to increase the rate and mass of sur- 
plus value, capitalists resort to two main ways of increasing 
the degree of exploitation. 

Absolute Surplus Value 

The first way consists in directly increasing the length of 
the working day. Let us assume that the working day is eight 
hours, four hours of which are necessary labour time and 
four hours are surplus labour time. This can be presented as 
follows : 

4 hours ' 4 hours 

necessary time surplus time * 

In this example, the degree of exploitation will be: 
s' = ~ X 100 = 100 per cent. 

If the working day is increased from eight hours to ten, 
while the necessary labour time remains the same, surplus 
labour time will increase from four to six hours, and the 
degree of exploitation will be : 

s' = %X 100 — 150 per cent. 

Surplus value produced by increasing the length of the 
working day beyond the necessary time Marx called absolute 
surplus value. It can be obtained not only by directly increas- 
ing the length of the working day, but also by increasing the 
intensity of labour, which represents a concealed lengthening 
of the working day. 

Capital knows no limits in its drive to increase surplus 
value. Every capitalist strives to increase the working day to 
the maximum, but it cannot be extended without limit; there 
are both physical and moral limits. First, a worker cannot 
work all the 24 hours of the day. He needs time to restore his 
labour power, i.e. time to rest, to eat, and so on. That deter- 
mines the physical limit to the working day. Second, a worker 



needs a certain amount of time to satisfy his various spiritual 
needs and to fulfil his social obligations, which depend on the 
degree of organisation of the working class. This determines 
the moral or social limit to the working day. A change in the 
length of the working day therefore takes place in accordance 
with these physical and social limits. 

In reality, the length of the working day is established as 
a result of continuous and relentless class struggle between the 
proletariat and the bourgeoisie. 

In the history of labour legislation there are two periods- 
one of legal lengthening of the working day and one of its 
legal shortening and limitation. 

Capitalism arose, as we know, in the womb of feudal 
society. It developed then on the basis of primitive handicraft 
techniques that did not permit any significant increase of out- 
put without a lengthening of the working day. Increase in the 
length of the working day was the characteristic way of 
increasing the degree of exploitation of workers by capitalists 
in that period; and in accordance with the features of exploi- 
tation of that kind, laws were issued in most countries to 
lengthen the working day. 

With the emergence of large-scale capitalist machine 
industry, petty commodity producers were squeezed 
out and ruined en masse , and unemployment developed 
and grew. It was then that the working day was at its 
longest. Every capitalist did his best to use his machinery to 
increase the degree of exploitation. The working day was 
extended to the maximum, going beyond its physical and 
moral limits. As Marx said, “capital celebrated its orgies' 

As the working class grew in numbers, however, and 
improved its organisation and developed class consciousness, 
the resistance of the proletariat became stronger and stronger, 
and a relentless struggle for legal limitation of the working 
day developed. “As soon as the working-class, stunned at 
first by the noise and turmoil of the new system of production, 
recovered, in some measure, its senses," Marx vividly de- 
scribed it, “its resistance began, and first in the native land of 
machinism, in England." - 

1 Karl Marx, Capital, Vol. I. P- 264. 

2 Ibid. 



First, the British working class succeeded in winning limi- 
tation of the working day for children, then for women and, 
finally, for men. Then other countries, too, followed Britain's 
path of legal limitation of the working day. 

In tsarist Russia, as a result of stubborn strikes, fought 
under the leadership of Lenin's League of Struggle for the 
Emancipation of the Working Class, a law was promulgated 
on June 2, 1897, limiting the working day to 11.5 hours. Until 
then there had been no limit at all. 

The General Congress of Labour in Baltimore (USA) and 
the Geneva Congress of the First International (1866) put 
forward the demand for an eight-hour working day. The slo- 
gan of the eight-hour day became the battle cry of the eco- 
nomic and political struggle of the proletariat. 

The average working week today in the main capitalist 
countries is 40 to 46 hours. That average, however, conceals 
short-time working by one section of the workers and an 
excessively long working day for others. 

The working day is extremely long in economically less 
developed countries and in colonies. 

Relative Surplus Value 

The productive forces grow and the possibility develops of 
increasing surplus value by another method, by reducing the 
necessary labour time for a given length of the working day. 
This is also brought about by the growing resistance of the 
working class fighting for reduction of the working day and 
against excessive intensification of labour. The surplus value 
that arises as a consequence of reduction of necessary labour 
time and the corresponding increase of surplus time Marx 
called relative surplus value. 

Let us assume that the capitalists have succeeded in reduc- 
ing necessary labour time to three hours and in correspond- 
ingly increasing surplus time to five hours. Then a working 
day takes the following form : 

3 hours 5 hours 

necessary time surplus time * 



The degree of exploitation increases and will be : 

5 hours of surplus time . . 

S = lS hours of necessary time X 100 = 167 P er cent - 

How does a reduction of necessary labour time come about? 
During it, as we know, the value of labour power 
is reproduced. If we assume that labour power is sold as a 
commodity at its full value, then the only cause of a reduction 
in necessary labour time can be a fall in the value of labour 

The value of labour power is determined by the value of the 
means of subsistence necessary for its reproduction; a fall in 
the value of labour power can therefore be achieved only by 
way of a fall in the values of the commodities consumed by 
the worker and his family (food, clothing, footwear, house 
rent, domestic appliances and furniture and so on). 

A fall in the value of the consumer goods is achieved, in 
turn, through increasing labour productivity in the industries 
making these goods or in the industries producing means of 
production for making consumer goods. 

Thus, an increase in the productivity of social labour re- 
duces the value of the consumer goods and leads to a fall in 
the value of labour power, and the necessary labour time is cor- 
respondingly reduced. The same quantity of the means of 
subsistence needed by the worker is produced in a fewer num- 
ber of hours, in three instead of four, for example. Surplus 
time is therefore lengthened from four to five hours. 

Extra Surplus Value 

One variety of relative surplus value is extra surplus value. 
Improvement in the process of production and raising of the 
productivity of labour do not take place simultaneously in all 
the enterprises of any particular industry. A rise in labour 
productivity in any enterprise leads to a fall in the individual 
value of the commodity. 

Let us assume that, in the majority of textile mills, a work- 
er produces an average of 100 metres of cloth in eight hours, 
creating new value equal to ten dollars, five of which consti- 
tute the value of labour power and five are surplus vakxe. In 



that case, the average or social value of one metre of cloth 
will be ten cents (for simplicity we take only new value into 
account, ignoring the means of production consumed). 

Let us further assume that some individual capitalist has 
succeeded in doubling the labour productivity of the workers. 
Then, in his mill, a worker will produce 200 metres of cloth 
in eight hours. The newly-created value of ten dollars will 
now be embodied in 200 metres of cloth and the individual 
value of one metre to this capitalist is five cents. The capi- 
talist, however, will sell his commodity not at its individual 
value, but at its social value, as before, i.e. at ten cents a 
metre, and will receive 20 dollars for his 200 metres of cloth, 
five of which he pays the worker, five represent the usual sur- 
plus value, and ten dollars are the extra surplus value. 

The difference between the social value of a commodity 
and its lower individual value constitutes an extra (or addi- 
tional) surplus value. We call it extra because it exceeds the 
usual or normal surplus value. In order to conquer the mar- 
ket and increase the sale of his commodities, the capitalist 
can sell his commodity at a little below its social value, but 
above its individual value, and still receive extra surplus 

value. . , 

In this way, extra surplus value arises as a consequence ot 
an increase in labour productivity in individual enterprises 
compared with the average social productivity of labour in 
the industry as a whole. Where the worker had previously 
worked half of the working day for himself and half for the 
capitalist, he now reproduces the value of his labour power 
(five dollars) in two hours and in the other six hours creates 
surptfS value equal to 15 dollars. The necessary labour time 
in that enterprise has, consequently, been cut from four hours 
to two, while surplus time has increased from four hours to 
six. The degree of exploitation has grown from 100 to 
300 per cent. 

s' = x 100 = 300 per cent. 

Individual capitalists appropriate extra surplus value until 
the new improvement in production becomes common. The 
desire to ensure himself extra surplus value prompts every 
capitalist to improve the technology and organisation of pro- 



duction and to raise the productivity of labour. This finally 
leads to an overall increase in labour productivity and to a 
fall in the social value of a unit of output. As soon as any 
improvement spreads to the majority of enterprises m the 
industry, extra surplus value disappears. It reappears m indi- 
vidual enterprises as a result of the introduction of new ana 

even more advanced technology. . , 

The overall increase in labour productivity and tail m me 
value of commodities needed as means of subsistence tor the 
workers engender an overall fall in the value of labour power 
which, in turn, leads to a reduction of necessary labour time. 
As a result, relative surplus value and the general rate of sur- 
plus value increase for all capitalists. . £ 

Extra surplus value is a most important stimulus for the 
development of productive forces under capitalism. 

The Marxist theory of relative surplus value shows that, 
with an increase in labour productivity, the degree of exploi- 
tation of workers increases steeply, which leads to deepening 
and sharpening of the antagonistic contradiction bftween 
labour and capital. 

Unity of and Difference between 
Absolute and Relative Surplus Value 

Absolute surplus value forms the general foundation of the 
capitalist mode of production. Production of absolute surplus 
value was characteristic of the early stages ot its emergence 
and development, when capitalist exploitation was based on 
old craft techniques. Under those conditions, an increase m 
the degree of exploitation could mainly be ensured oy 
lengthening the working day and increasing the intensity ot 

3 Later this method of intensifying exploitation came up 
against social, technical and economic barriers. The self-expaii- 
sion of value came into conflict with the old craft basis, which 
was resolved by creation of the new, more advanced technical 
base of capitalism. The production of relative surplus value 
developed on this basis. Machine industry permitted an in- 
crease in the degree of exploitation without extending the 
working day, but 9 the machine gave capitalists the chance to 


increase the intensity of labour enormously, i.e. the expendi- 
ture of labour power per unit of time. An increase in the inten- 
sity of labour in individual enterprises is, in essence, a conceal- 
ed form of extension of the working day and is a way of pro- 
ducing absolute surplus value. When the intensity of labour 
rises in the majority of enterprises, the level of the average 
intensity of labour for the whole of society rises, which is the 
same thing as an increase in the productivity of social labour 
and the production of relative surplus value. Absolute surplus 
value and relative surplus value are closely interconnected and 
interwoven with each other, and there is a certain unity be- 
tween them. "From one standpoint,” Marx said, "any distinc- 
tion between absolute and relative surplus-value appears illu- 
sory. Relative surplus-value is absolute, since it compels the 
absolute prolongation of the working-day beyond the labour- 
time necessary to the existence of the labourer himself. Abso- 
lute surplus-value is relative, since it makes necessary such 
a development of the productiveness of labour, as will allow 
of the necessary labour-time being confined to a portion of 
the working-day." 1 

The source of both absolute and relative surplus value is the 
surplus labour of the worker. 

At the same time, there are significant differences between 
absolute and relative surplus value. When it is a matter of 
increasing the rate of surplus value, the difference between 
the two is immediately evident. At a given level of labour 
productivity, the rate of surplus value can only be raised 
through an absolute prolongation of the working day or a 
rise in the intensity of labour. At the same time, with given 
limits on the length of the working day and a given level of 
intensity of labour, the rate of surplus value can only be raised 
through reducing necessary labour time and correspond- 
ingly increasing surplus labour time, and this presupposes 
a change in the productivity of labour. 

The difference between the methods of producing surplus 
value is not only of theoretical importance, but also has great 
practical significance for the class struggle of the proletariat. 
The production of absolute surplus value, connected with 
lengthening of the working day and intensification of labour. 

1 Karl Marx, Capital Vol. I, pp. 478-79. 



is obvious evidence of an intensification of exploitation; but 
the production of relative surplus value camouflages the 
increase in the degree of exploitation of wage workers. 


When analysing the production of relative surplus value, 
Marx investigated the following three main historical stages 
of increasing productivity of labour under capitalism: 
(1) simple co-operation; (2) division of labour and manufac- 
ture,- (3) machines and large-scale industry. 

Capitalist Simple Co-operation 

By co-operation Marx meant the form of organisation of 
work under which many people take part together in one and 
the same labour process or in different, but interconnected, 
labour processes. 

Simple capitalist co-operation is the first stage of the 
development of capitalism in industry. At this stage the 
capitalist workshop differed from that of the petty com- 
modity producer only in the larger number of workers em- 
ployed at one time. There was still no division of labour. All 
workers did the same type of work. But even simple co- 
operation had important economic advantages over indi- 
vidual handicraft production. 

With co-operation, the distinctions between individual 
labour operations were smoothed out. Expenditure of labour 
approximated to the average social expenditure. The produc- 
tion and sale of commodities by capitalists, therefore, ac- 
quired a more stable character. Co-operation led to significant 
economics in the means of production, owing to their joint 
use in the labour process. It was cheaper, for example, to 
build and maintain one workshop for 20 workers than to 
build ten workshops for two workers each. It also gave the 
opportunity of concentrating masses of labour in separate 
sectors and of ensuring continuity of the labour process. Co- 
operation made it possible to fulfil seasonal and urgent work 



n^wPQtin a sheep shearing and so on) using much labour 
lower over’ a short period of time. It encouraged a significant 
Eease in ?he productivity o£ the workers. In co-opera ion 
Mara wrote, "mere social contact begets in most mdustri 
an emulation and a stimulation of *e animal spirits ‘hat 
heiahten the efficiency of each individual workman . At the 
same time co -operation created the new productive power 
of social labour, the consequence of joint labour. This social 
productivepower appeared as the productive power rf capx- 
tal and the capitalist appropriated its results as a gitt 
Thus, simple capitalist co-operation promoted lais ng of 
the productivity of labour and lowering of the value ot 
labour power, and so increased relative surplus value. 

In the course of the competitive struggle and race between 
capitalists for surplus value, simple co-operation evolved into 
capitalist manufacture. 

Division of Labour and Manufacture 

Manufacture is the second stage in the development of 
capitalism in industry. By manufacture we mean capitalist 
co operation based on manual techniques and division of 

la Manufactur?arose in two ways (1) Capitalists brought 
together workers with different trades or crafts into one 
workshop to produce a single type of product. For the pro- 
duction of carriages, for example, the capitalist combined 
previously independent craftsmen and artificers in one wor 
shop such as wheelwrights, coppersmiths upholsterers gla- 
varnishers, polishers, gilders etc. (2) The capitalists 
combined artificers with one and the same speciality in one 
workshop. In this case, the process of production was broken 
down into a series of separate operations each of wh, h be- 
came the exclusive function of an ^ dl o V ^ U ^X r dre w the 
production of needles, for example one worker drew tne 

wire a second cut it, a third ground it, and so on). 

In both cases, the specialisation of workers took place on 
the basis of division of labour. Each worker made some one 
detail or performed a single special operation, and in that way 

i Karl "Marx, Capital, Vol. I, p. 309. 



became a detail worker who gradually lost his ability to car- 
ry on his old craft to its full extent. 

Depending on its internal structure, manufacture had two 
forms, heterogeneous and serial. In heterogeneous manutac- 
ture. the division of labour among workers was mainly ac- 
cording to the individual details from which the finished 
product (carriages, trunks, etc.) was assembled In serial 
manutacture, the division of labour was according to the 
operation (in the manufacture of needles, for example, the 
wire passed through the hands of 72 or sometimes even 92 

specialised or detail workers). , , 

With division of labour, the worker performed one and 
the same operation all the time, and that raised the intensity 
and productivity of labour. Specialisation and improvement 
of tools were taking place simultaneously. For the craftsman, 
the same implement or tool was often used for completely 
different operations. In manufacture, as a consequence ot 
the division of labour, tools became differentiated and were 
adapted to the performance of specific operations. In Bir- 
mingham, for example, in the manufacturing period, about 
500 types of hammer alone were in use. 

Specialisation of the tools and implements of labour, and 
of workers, developed the new productive power of socia 
labour. At the same time, the domination of labour by capital 
became stronger and the production of relative surplus value 
increased. Manufacture impoverished the worker spnitually 
and maimed him physically. In the production process ot 
manufacture, a further separation of mental and physical la 

bour took place. . . , . 

Manufacture was the first form of large-scale industry. 
Many small establishments, however, existed alongside big 
capitalist enterprises. Very often these small enterprises be- 
came simply departments of capitalist manufactories. Capi- 
talist outwork, sometimes called domestic or cottage industry 
or the putting-out system, developed greatly during the manu- 
facturing period. In his The Development ot Capitalism 
in Russia, Lenin summarised an enormous amount ot tactual 
material on Russian manufacture and demonstrated that a 
large number of workers fulfilled orders from large manu- 
factories, working at home. For a small wage, the outworker 
and all the members of his family worked in insanitary 



conditions for 16 to 18 hours a day, fulfilling an order from a 
manufactory. Taking advantage of the lack of organisation 
among these workers, the capitalists dictated their own terms 
to them, increasing the degree of exploitation in every way 
possible. Outworkers often became totally dependent on the 
boss and on numerous intermediaries-buyers-up, putters-out 
and usurers. 

- Manufacture did not complete the revolution in the tech- 
nical basis of production. Its foundation remained manual 
techniques. This narrow technical basis brought the develop- 
ment of manufacture at a certain stage into conflict with the 
needs of expanding production and the market. In order to 
extract more surplus value, capitalists began to improve 
manufacturing production and gradually went over to 
machine industry. 

The historical significance of manufacture was that it pre- 
pared the ground for the transition to the next stage of the 
development of capitalism, i.e. to large-scale machine indus- 
try. (1) Manufacture trained skilled workers. Lenin wrote in 
his The Development ol Capitalism in Russia that large- 
scale machine industry would not have developed so rapidly 
if there had not been a long period during which workers 
had been trained by manufacture. (2) The high degree of 
specialisation of the implements of labour achieved in the 
manufacturing period, the simplification and detailed elabo- 
ration of tools and their adaptation to separate partial opera- 
tions created the material conditions for the emergence of 

The Capitalist Factory 

Production based on the employment of machines is the 
third stage of the development of capitalism in industry. 
Marx showed that all developed machinery consists of three 
parts, the motor mechanism or prime-mover, the transmit- 
ting mechanism, and the tool or working machine. The tool 
or working machine is the main part of a developed system 
of machines. It acts directly on the object of labour and im- 
parts the properties of use value to it. The two other parts of 



a machine, the motor mechanism and the transmission, are 
there solely to set the tool or working machine in motion. 

The working machine is a mechanism that can operate 
many different or similar tools or implements at the same 
time. The spinning jenny, for example, even in its first years 
operated with 12 to 18 spindles, and the stocking frame knit- 
ted with thousands of needles. 

The working machine was put into motion at first by the 
power of a man or a beast, or of wind or water. Its develop- 
ment and increase in size, however, insistently demanded a 
mightier motive power, not dependent on natural conditions. 
A revolution in the motor mechanism took place with the 
invention of the steam engine. 

For a long time, machines were made by manual labour 
on the basis of manufacturing techniques, which held back 
the development and improvement of machine production. 
This contradiction was resolved when machines began to be 
produced by machines, and their fabrication by hand was 
replaced by factory production. 

On the basis of large-scale machine industry, there devel- 
oped co-operation of similar or different working machines 
set in motion by a prime-mover, thus the factory emerged. 
The capitalist factory is a large industrial enterprise, based 
on the use of a system of machinery. "As soon as a machine 
executes, without man's help, all the movements requisite to 
elaborate the raw material, needing only attendance from 
him," Marx pointed out, "we have an automatic system of 
machinery." 1 

With the development of machine industry, the machine 
and its components underwent fundamental changes. In our 
day, science and technology have made great advances. Pow- 
erful new machines have been introduced into industry, 
electricity is employed on a wide scale, complex all-round 
mechanisation and automation are being carried out, and 
atomic energy is being used. A fourth part has now been ad- 
ded to the three parts of machinery (motor, transmission and 
working machine) -a control and regulating mechanism. 
Special instruments, instead of man, control technological 
operations and regulate them. But neither the complex 

1 Karl Marx, Capital, Vol. I, p. 360. 



mechanisation nor the automation of production means com- 
plete elimination of the worker. On the contrary, his func- 
tions become more complex and call for even greater inten- 
sity of labour. The worker controls the production process, 
supervises the working of machines and apparatus, adjusts 

them and eliminates breakages, and so on. 

The capitalist factory is the highest form of capitalist co- 
operation of labour. In it capital exercises its dominion oyer 
labour to the limit. In the labour process, the whole complex 
system of machinery is opposed to the worker and economi- 
cally predominates over living labour power, transforming 
workers into obedient slaves. Under capitalism, the machine 
is an instrument for exploiting workers, a means by which 
the capitalists extract surplus value. 


The Industrial Revolution 

The industrial revolution began with the invention and ap- 
plication of working machines and was completed with the 
production of machines by machines. In Western Europe, it 
covered the period from the second half of the eighteenth 
century to the middle of the nineteenth century. 

Large-scale machine industry arose first in Great Britain, 
and began later to develop in the other countries of Europe 
and in the USA. In Russia, the industrial revolution took 
place later. Many inventions and discoveries of world sig- 
nificance made by Russian scientists and technicians found no 
application in their country at the time. 

The industrial revolution, as a result of which large-scale 
machine industry develops, means industrialisation of a par- 
ticular country. Industrialisation is such a development of 
industry as a whole that it, and above all heavy industry, 
becomes the main branch of the economy. In capitalist coun- 
tries, industrialisation usually began with light industry, in 
which capital has a more rapid turnover than in heavy in- 
dustry and, consequently, brings in quicker profits. Only 
after a long period of profit accumulation in light industry 
did capitalists begin to invest capital in heavy industry. 

Capitalist industry was created both through exploitation 
of the workers within the countries and through the influx 



of resources from outside. The development of industry in 
Great Britain, for example, was largely brought about by the 
plunder of colonies. One of the sources of industrialisation 
in Germany was the war indemnity of 5,000 million francs 
paid by France after its defeat in the Franco-Prussian War 
of 1871. The industry of the USA was founded on foreign 
loans, cruel exploitation of the Blacks and on plunder of 
enslaved nations. Tsarist Russia tried to develop its industry 
by attracting foreign capital. . . 

With the creation of large-scale machine industry capital- 
ism was finally victorious over feudalism and became the 
dominant mode of production. "Modern Industry," Marx 
wrote, "had therefore itself to take in hand the machine, its 
characteristic instrument of production, and to construct 
machines by machines. It was not till it did this, that it built 
up for itself a fitting technical foundation, and stood on its 

own feet." 1 . . c , 

The transition from manufacture to the factory signified a 
complete technical revolution, leading to a sharp break in 
social relations of production. All the dark sides of capital- 
ism were exposed, while the contradictions between labour 
and capital became vastly deeper. 

The Limits and Contradictions 
of the Capitalist Use of Machines 

The transition from handicraft tools to machines and the 
transformation of manufacturing industry into large-scale 
machine industry was, without doubt, an enormous stride 
forward in the development of the productive forces of hu- 
man society. The machine itself vastly economises on and 
lightens labour. It is a powerful means by which man can 
tame the forces of nature and increase the productivity of 
labour. Under capitalism, however, the machine is used as 
a means of extorting an ever growing amount of unpaid la- 
bour from wage workers. The capitalist is not interested in 
economising on labour in general, but in saving on payment 
for labour power. He will use a machine only if it costs him 
less than the labour power it replaces. 

1 Karl Marx, Capital, Vol. I, P- 363. 




The production of a machine, for example, takes 3,000 
hours of labour. Let us assume that its use over its whole 
operative life replaces 5,000 hours of living labour. In that 
case, the use of the machine saves society 2,000 hours of la- 
bour. The capitalist, however, does not pay the full value of 
the labour of a worker. If the rate of surplus value is 100 per 
cent, the paid labour is only 2,500 hours while the machine 
takes 3,000 hours. So the machine will not be used in a capi- 
talist enterprise. 

Capitalists use machinery to increase production of sur- 
plus value. But, as a result of its mass use, the amount of 
the surplus value produced by capitals of the same size docs 
not increase; on the contrary, it falls. That is because 
machines squeeze workers out and the number of workers 
exploited by a capital of given size decreases. With the help 
of the machine, the capitalist receives more surplus value 
from each remaining worker than before; but the mass of 
surplus value does not depend solely on the degree of exploi- 
tation, but also on the number of workers exploited. If fewer 
workers are exploited, the mass of surplus value produced 
by the advanced capital also decreases. This contradiction in 
the capitalist use of machines prompts capitalists to intensify 

The scientific and technical revolution now developing is 
opening up new opportunities for extending man's power 
over nature and developing the productive forces. 

Bourgeois economists and reformists consider it the "second 
industrial revolution", which will allegedly fundamentally 
alter the social nature of capitalism and usher in an "era of 
permanent prosperity". Automation and the latest technology 
are a leap forward in the development of the productive forces 
of society, but automation of industry under capitalism comes 
up against the narrow bounds of bourgeois relations of pro- 
duction. As a result of automation, the profits of capitalists are 
increased, the numbers of unemployed rise, and small pro- 
ducers are ruined. The contemporary scientific and technical 
revolution is taking place in the period of capitalism's de- 
cline, when bourgeois relations of production are becoming 
a serious brake on development of the productive forces, and 
the most important advances of science and technology are 
being used not to increase production of material wealth, but 


in the arms race, leading to an increase in unproductive mil- 
itary consumption. Only the revolutionary replacement of 
capitalism by socialism opens up unlimited opportunities for 
development of the productive forces. 

The Direct Effect of Capitalist Machine Industry 
on the Worker’s Position 

With the development of large-scale machine industry, ex- 
ploitation of the working class rose steeply. Marx emphasised 
that "the labour of women and children was, therefore, the 
first thing sought for by capitalists who used machinery". 1 
With the use of machines, it became possible to employ work- 
ers with slight muscular strength and whose physical develop- 
ment was not yet complete. The use of female and child 
labour, Marx said, altered "the contract between the labour- 
er and the capitalist, which formally fixes their mutual rela- 
tions". 2 Previously, the workman sold only his own labour 
power, but now the capitalist dragged his wife and children 
into the factory, too. 

The value of labour power is determined by the labour time 
necessary for the existence not only of the individual adult 
worker, but also of his family. With the employment of female 
and child labour, the value of labour power falls, since it 
is distributed among all the working members of the family. 

Machinery "becomes in the hands of capital the most 
powerful means . . . for lengthening the working-day beyond 
all bounds set by human nature". 3 The longer it operates and 
the more it produces, the smaller the part of its value trans- 
ferred to each unit of output. The value of machinery is trans- 
ferred to and appears in the new commodity only when it is 
in use. This prompts the capitalist to lengthen the working 
day, to introduce additional shifts and to speed up the rate 
of work so that the value of the machine will be transferred 
as soon as possible. 

In their pursuit of extra surplus value, capitalists increase 
the intensity of labour and employ the most varied methods 

1 Karl Marx, Capital, Vol. I, p. 372. 

2 Ibid., p. 373. 

3 Ibid., p. 380. 

10 * 



of increasing exploitation of the workers-increasing the num- 
ber of machines under the control of one worker, introducing 
conveyors, using sweating systems of payment, and so on. 

Under the conditions of capitalist machine industry, mental 
labour becomes separated from physical labour and the con- 
trast between them is vastly deepened. All the achievements 
of science and engineering are used to intensify exploitation 
and to enrich the capitalists. 

Capitalist use of machinery is one of the causes giving rise 
to a relative excess of the working population and to 

Thus, the capitalist use of machinery leads to unbridled 
intensification of the exploitation of the working class. "Ma- 
chinery, considered alone," Marx wrote, "shortens the hours 
of labour, but, when in the service of capital, lengthens them; 

. . .in itself it lightens labour, but when employed by cap- 
ital, heightens the intensity of labour; ... in itself it is a 
victory of man over the forces of Nature, but in the hands 
of capital, makes man the slave of those forces; ... in itself 
it increases the wealth of the producers, but in the hands of 
capital, makes them paupers. . . Z' 1 

The Basic Contradiction of Capitalism 

In comparison with feudal society, capitalism has developed 
the productive forces enormously and has imparted a so- 
cial character to the process of production. And it has led 
to an unprecedented concentration of production. In the 
place of handicraft workshops there appeared huge mills 
and factories equipped with modern machinery in which 
hundreds and thousands of wage workers work. At the same 
time, the social division of labour and the interconnections 
and interdependence of different enterprises and industries 
have become deeper and broader. Capitalism constantly re- 
duces the proportion of the population employed in agricul- 
ture and replenishes the ranks of the proletariat. 

The process by which production becomes increasingly 
socialised under capitalism is one of the causes of the emer- 

1 Karl Marx, Capital, Vol. I, p. 416. 



gence and sharpening of the basic contradiction ot this mode 
ol production, i.e. the contradiction between the social char- 
acter ot production and the private capitalist form ot ap- 
propriation. Production increasingly takes on a social charac- 
ter, while the means of production and the products consti- 
tute the private property of individual capitalists. "All pro- 
duction processes thus merge into a single social production 
process," Lenin wrote in What the "Friends ot the People" 
Are and How They Fight the Social-Democrats, "yet each 
branch is conducted by a separate capitalist, it depends on him 
and the social products are his private property. Is it not clear 
that the form of production comes into irreconcilable contra- 
diction with the form of appropriation?" 1 

But the socialisation of labour by capitalism is accompanied 
by a strengthening of competition and a splitting of the 
whole of society into major groups occupying diametrically 
opposite positions in production, and gives a tremendous im- 
petus to union within each group. 

In developing the productive forces and imparting a social 
character to the production process, capitalism has thus 
created the material and subjective conditions for its revolu- 
tionary replacement by socialism. As capitalism develops, 
the working class grows, uniting and organising for struggle 
against capital. The historical mission of the working class 
is the overthrow of capitalism and the building of 

The Essence of Wages 

Under capitalism, as explained above, labour power be- 
comes a commodity with a specific value and use value. The 
value of this commodity, labour power, in money terms is 
its price. The value and price of labour power are expressed 
directly in wages. The sum of money that the worker receives 
as wages outwardly appears to be the value or price of 
labour. The form of wages creates the deception that the 

1 V. I. Lenin, Collected Works, Vol. 1, p. 177. 


capitalist is paying for all the labour expended by the 

In revealing the essence of capitalist exploitation, Marx 
gave the first scientific definition of wages. He called them 
"a converted form of the value or price of labour power" } 
since on the surface of bourgeois society, they appear as pay- 
ment for the work performed, i.e. for all the labour of the 
worker. There are a number of reasons for this. (1) There is 
the very nature of production relations under capitalism and 
the special features of capitalist exploitation. Under capital- 
ism, the division of the working day into necessary and sur- 
plus labour time is concealed, veiled by the relations of the 
purchase and sale of labour power. (2) There are the forms 
and periods of payment for labour power. The worker receives 
his wage only after finishing work, and for him it appears 
as payment for the whole working day. In actual fact, the 
worker advances his labour to the capitalist, spending it 
before he receives his wages. (3) With a change in the length 
of the working day, the magnitude of the wage also changes. 
Wages are paid for the time that has actually been worked, 
or for the number of objects produced on a piece-rate basis. 
Because of that they camouflage the exploitation of workers 
by capitalists. 

Marx was the first to establish the difference between la- 
bour power and labour, demonstrating scientifically that it 
is not labour that is the commodity, but labour power. Why 
is it that the labour of a worker cannot be a commodity? 

(1) Labour creates value but itself has no value. The as- 
sumption that labour is a commodity and has value leads to 
the absurd. We know that value is the labour embodied in 
commodities; if labour itself had value, it would follow that 
labour was created by labour. 

(2) If the capitalist paid fully for the labour of the worker, 
there would then be no surplus value, and it would be im- 
possible for the capitalist mode of production itself to exist. 

(3) When a capitalist hires a worker, the labour does not 
as yet exist. So he is buying not labour, but only the capacity 
to work, i.e. labour power. Labour is the productive ap- 
plication of labour power in production, i.e. after the worker 

1 Karl Marx, Capital, Vol. I, p. 551. 


has already sold his labour power, so that his labour and its 
result already belong to the capitalist and not to him. 

In the productive process the worker creates value greater 
than that of his labour power. Consequently, wages are a 
part of the newly-created value although, on the surface of 
bourgeois society, it is represented as payment for all the 
labour. "Wages,” Marx therefore pointed out, "are not what 
they appear to be, namely, the value, or price, of labour, but 
only a masked form for the value, or price, of labour power. 

The Main Forms of Wages 

The essence of wages under capitalism is manifested direct- 
ly in their forms, which are mainly time wages and piece 

wages. c 

Time wages are the form of wages when the amount ot a 

worker's pay depends on the actual time worked by him 
(hour, day, week or month). They therefore appear directly 
in the form of hourly, daily, weekly or monthly payments. 
The unit of measurement of a worker's payment with time 
wages is the price of a working hour or the price of labour. 
Marx introduced the concept "price of labour" in order to 
determine the actual amount of time payment. The price or 
labour is a special form of expression of the value of labour 
power. It is the ratio between the daily value of labour power 
and the number of hours in the working day. If, for example, 
the daily value of labour power is four dollars and the work- 
ing day consists of eight hours, the price of an hour of labour 
will be 50 cents : 

4.00 dollars X 100 cents _ 400 cents = cen t s . 

8 8 

The price of labour thus expresses the price of a working 

h °With time wages, an increase in the degree of exploitation 
of a worker is achieved by way of a decrease in the price of 
labour. If, for example, with prolongation of the working 

i Karl Marx, "Critique of the Gotha Programme". In: Karl Marx 
and Frederick Engels, Selected Works, in three volumes, Vol. 3, p. 23. 



day, or, what is the same thing, an increase in the intensity 
of labour, the time wage remains unchanged, the price of 
one hour will fall. If the wage is four dollars, but the working 
day is lengthened from eight to ten hours, the price of an 
hour of labour falls from 50 to 40 cents : 

4.00 dollars X 100 cents _ cen ^ s 
10 hours 

Time wages can rise but the price of labour will remain 
unchanged or even fall. If wages rise from four to four and 
a half dollars, while the working day is increased from eight 
to ten hours, the price of an hour of labour falls from 50 cents 
to 45. Under present-day conditions, a fall in the price of 
labour is usually achieved by increasing the intensity of 

Capitalists make wide use of hourly payment of workers. 
Under this system, the length of the working day and the 
amount of time wages are not fixed in advance, but only the 
price of a working hour. This makes it possible, in certain 
circumstances, to reduce the working day or to introduce 
short-time working and so cut wages correspondingly. The 
worker and his family, consequently, lose the possibility of 
supporting themselves normally. In the USA, for example, 
about a fifth of all workers work less than a full week and 
receive reduced wages. Thus, the worker suffers both ways, 
either from a lengthening of the working day or from a 
shortening of it. 

Time wages have the special feature that they do not 
depend directly on the productivity and intensity of the work- 
er's labour and the worker has no interest in raising produc- 
tivity. But, with modern technology, capitalists introduce 
working regimes for machines and such controls as ensure 
high intensity of labour, regardless of the wishes of the 

Piece wages , unlike time wages, are determined by the 
number of articles or parts produced in a unit of time. In 
this case, a work norm or quota is established, i.e. the num- 
ber of articles to be produced in a day, and a rate for each 

As Marx pointed out, piece wages are a converted form of 
time wages. In establishing rates, capitalists start from the 



size of the daily wage and the number of articles made in the 
course of the working day. As a rule, the norm is established 
on the basis of the work done by the most skilled and strong- 
est time-wage workers during a working day. 

Piece wages, even more so than time wages, conceal ex- 
ploitation of the worker, since they create the impression that 
he is no longer being paid for his labour but for the product 
of his labour and at a price equal to all the newly-created 

Piece wages serve as a means of intensifying labour. When 
piece rates are established, the daily wages of workers de- 
pend on the number of articles produced. If, for example, a 
worker makes eight of a particular article in a day and 
receives a daily wage of four dollars (50 cents an article), 
then, if he increases his output to ten articles a day, he will 
receive five dollars in wages. But once many workers have 
increased their output to ten articles a day, the capitalist 
reduces the piece rate and wages fall. Piece work, Marx 
noted, has "a tendency, while raising individual wages above 
the average, to lower this average itself''. 1 With piece work 
the need to maintain a staff of overseers disappears. The 
form of payment itself forces workers to produce as much 
as possible and to work with the greatest intensity. 

Sweating Systems of Payment 

Various systems and forms of wages have been employed, 
depending on the concrete historical conditions. The main 
aim has always been to increase the intensity of labour and 
the degree of exploitation of the workers as much as possible. 
Piece rates lend themselves to various sweating systems, as 
in the notorious sweatshops and putting out systems of the 
nineteenth century. Modern piece-rate systems based on time 
and motion study are also sweating systems; the first of them 

was the Taylor system. n 

At the beginning of the century, the American engineer 
F. W. Taylor developed a new system of organising work 
and wages and applied it in American enterprises. When 

1 Karl Marx, Capital, Vol. I, P- 520. 



this system was being introduced in a factory, a group of 
specially selected workers was taken and by means of time 
study, the number of minutes, seconds and fractions of sec- 
onds of the working time they spent on each job operation 
was established. The data obtained were analysed to elimi- 
nate all superfluous movements on the part of the worker. 
On this basis, very high work norm or ''job” was set. Higher 
piece rates were fixed for fulfilment and overfulfilment of 
the "job", and for those who did not, very low "punitive" 
rates were set. Only a few of the strongest and most skilled 
workers were able to fulfil the "job". Lenin called the Taylor 
system a scientific system of squeezing sweat out of the 
worker. At the same time he noted that in itself scientific 
work organisation had progressive significance. 

As labour processes became more mechanised, a system 
of work organisation and wages known as Fordism became 
common. It was first employed and advertised in 1914 as a 
"system of high wages". The American millionaire Henry 
Ford employed a system of production based on the assembly 
line in his motor works. By increasing the speed of the line, 
an enormous intensification of labour was achieved. Not all 
workers could stand the excessive strain caused by the in- 
creased speed of the conveyor. The work of the worker em- 
ployed in a monotonous, detail operation became an extremely 
exhausting process, not requiring high skill. The wide- 
spread application of assembly line and conveyor systems in 
capitalist countries was accompanied by a steep increase in 
the number of accidents and in industrial illness. 

In a number of capitalist countries, "profit-sharing'' systems 
are common. Under them, wages consist of two parts: the 
basic-time or piece wages, and an additional part that the 
capitalist pays to the worker at the end of the year as a 
"share of the profits" of the enterprise. In reality, however, 
the worker receives part of his own wages as "profit-sharing", 
since the basic wage is established at a reduced level. But 
the impression is created that the worker shares in the distri- 
bution of profits with the capitalist, and is equally interested 
in increasing the profitability of the enterprise. The aim of 
the system is to ensure maximum profits for the capitalists, 
and to distract workers from participation in the class 



Various "bonus" forms of wages were developed in the 
systems of Halsey, Gantt, Rowan, and others. All of them 
envisaged a steep increase in the intensity of labour and an 
actual decrease in payment for work above the established 
norm. The basic wage is paid for work performed within the 
norm, while "bonuses" are paid for overfulfilment. Under 
these systems, wages increase at a much slower rate than 
the degree to which the worker overfulfils the established 
work norm. Underlying the Halsey system, for example, is 
the principle of bonus payments for "time-saving" in addi- 
tion to the average payment per hour of labour. But the bonus 
is not paid at the full hourly rate, but at a third or a half 
of it. The result is that the more labour is intensified, the 
lower the hourly rate of payment. 

In connection with technical progress in the economies of 
industrially developed capitalist countries, the forms of pay- 
ment for labour power also change. Along with the introduc- 
tion of new sweating systems, the old forms of wages also 
undergo modification. For example, as a result of the wide- 
spread mechanisation and automation of production processes 
and the introduction of conveyor systems, the proportion of 
time wages has increased significantly. At present, wage sys- 
tems are used that not only stimulate increase of output, but 
also take other factors into account. 

In the main capitalist countries, "analytical job evaluation" 
has become common. It consists in essence in a quantitative 
point system based on a scale of indices (factors) characteris- 
ing the complexity of the different operations and the require- 
ments that the worker must satisfy. All types of job arc 
evaluated according to numerous factors, e.g. how heavy it 
is, the skill of the operative, the mental and physical energy 
spent on the work, the operative's responsibility for the use 
of equipment, materials, and so on. The earnings of a worker 
whose job is evaluated with the lowest number of points are 
taken as the basis of the wage scale. To evaluate the jobs of 
others, a correction is used that depends on the points 
characterising any particular type of work. On the basis of 
"analytical job evaluations", a multiplicity of individual wage 
rates is established. Thus, in the Huckingem steelworks (West 
Germany), which has 5,000 workers, more than a thousand 
wage rates are used. Under these conditions, the appearance 



of careful substantiation of the magnitude of wages is created 
when, in actual fact, they depend on many arbitrary indices 
that make it more difficult for workers to check the correct 
calculation of their earnings. Capitalists strive to use this 
system so as to make it more difficult for workers to organise, 
and to distract them from participation in the class struggle. 

It is no accident that the factors determining the wage leve 
include such things as "inclination to collaborate , general 
behaviour", "general reliability”, etc. 

Nominal and Real Wages 

The magnitude of wages is the basic index of the standard 
of living of the working class. Nominal and real wages must 
be distinguished. Nominal mages are the sum of money re- 
ceived by a worker for the sale of his labour power. Real 
wages are the amount of goods and services that he can 
actually buy with his money wages. The level of real wages 
consequently depends, first, on the size of nominal or money 
earnings and, second, on the price level of the means of sub- 
sistence needed by the worker. A change in nominal wages 
docs not coincide with the movement of real wages. 

Real wages, under capitalism, when viewed over a long 
period, have a tendency to fall. "The general tendency of cap- 
italist production," Marx put it, "is not to raise, but to sink 
the average standard of wages." 1 This tendency, however 
should not be understood simply as an absolute sinking of 
the quantity of the worker's means of subsistence. The level 
of real wages is determined by a host of factors, often operat- 
ing in opposite directions. It is directly connected with 
changes in the value of labour power, growth of unemploy- 
ment and increase of the intensity of labour, a rise in the 
proportion of low-paid female and child labour, and so on. 
The movement of wages can therefore only be considered and 
correctly understood in connection with analysis of the process 

of capital accumulation. _ . . 

Wage levels differ in various capitalist countries, which is 

1 Karl Marx and Frederick Engels, Selected Works, in three 
volumes, Vol. 2, p. 75. 



mainly explained by a difference in the value of labour ^p 
cr Marx pointed out that, when elucidating the reasons fo 
national differences in wages, all factors causing changes in 
the value of labour power must be taken into account. Wages 
are particularly low in the developing _ countries, which is 
one of the grave consequences of colonialism. Accoidmg 
official United Nations data, the wages of an African worker 
at the present time are, on average, not more than a tentn 
of those of West European workers. 

Critique of Bourgeois Theories of Wages 

Bourgeois political economy strove, and is still striving, 
to refute the Marxist theory of wages. The apologists ot cap- 
italism have "invented" many wage theories aimed at con 
cealing the essence of capitalist exploitation. Nearly all bour- 
geois economists and sociologists agree that the workerseU 
not his labour power, but his labour and receives payment 
for his labour or "the full product of his labour . 

At the beginning of this century, M. I. Tugan-Baranovsky 
produced a " social " theory ot wages. He claimed that labour 
power was not a commodity and therefore had no value and 
no price, while wages were part of the total S0C1 ^ p ^ d ^ o 
The wage level, according to him, was determined by two 
factors- (a) by the productivity of the social labour crea ^9 
the total product, and (b) by the social strength of the working 
class, on which the share of the social product at the disposal 

of the workers depended. . ... . , , 

The social theory of wages and its variants are still widely 
employed in the works of bourgeois ideologists and retoim- 
ist theoreticians. For example, John Strachey claimed, in his 
Contemporary Capitalism , that the working class is able to 
use a rise in labour productivity under contemporary capital- 
ism to improve its own well-being, and that the distribution 
of wealth between the different classes takes place in the in 

terests of society as a whole. . . £ 

Supporters of the social theory claim that the raising of 
wages depends on growth of lab< Dur prodi ucti ivity. ^ a ctual 
fact, under capitalism, a rise m the productivity of labour 
to a fall in the value of labour power and, correspondingly. 



to an increase in surplus value. Numerous facts confirm 
that the wage level falls a long way behind the rate of in- 
crease of productivity. The economic struggle of the working 
class (its "social strength”) can at best bring wages some- 
what closer to the value of labour power. The value of labour 
power is the upper limit of wages. 

Another widely held version of bourgeois wage theory 
is the theory oi " regulated " wages. Its most eminent represen- 
tative was J. M. Keynes. According to his theory, the state 
and the trade unions play the decisive role in the regulation 
of wages. The state by its labour legislation, and the trade 
unions through collective bargaining with employers, are able 
to determine and establish the level of wages. 

Keynes considered it necessary to pursue a policy of low- 
ering real wages, allegedly to combat unemployment, stating 
openly that an increase in the level of employment of the 
working population could only come about through a fall in 
real v/age rates. He tried to justify his proposals by a "mar- 
ginal productivity" theory by which wages were determined 
by marginal, i.e. the lowest, labour productivity. In his opin- 
ion, it was risky to cut nominal wages directly, since that 
would provoke resistance on the part of the working class. 
He therefore recommended the bourgeois state to pursue a 
policy of "freezing” nominal wages and reducing real wages 
by means of inflation. 

The theory of "regulated" wages denies the objective eco- 
nomic laws determining wages under capitalism. It is a false 
theory advocating the idea of co-operation between workers 
and capitalists, and harmony of the interests of capital and 
labour. It is aimed at diverting the working class from revolu- 
tionary struggle. 

Contemporary bourgeois economists and right-wing Social- 
ists, in striving to justify "wage-freeze" policies, began to 
propagate the theory ot the " vicious circle' or "inflationary 
spiral oi wages and prices", the essence of which is that an 
increase in wages inevitably leads to a rise in the prices of 
commodities, while the rise in prices, in turn, must lead to 
an increase in wages and so on, the result being a vicious 
circle. The apologists of contemporary capitalism endeavour 
to convince workers that it is pointless to struggle for wage 
increases. In actual fact, price rises are connected not with 



wage increases, but with the raising of prices by monopolies 
and the policy of inflation pursued by bourgeois states in the 
interests of the exploiting classes. 

The Working Class’s Struggle 
for Wage Increases 

As capitalism develops, the working class grows in num- 
bers, improves its organisation and intensifies its struggle for 
higher wages and better working conditions. 

In this struggle, the workers combine in trade unions. Eco- 
nomic struggle, however, cannot solve the basic problems 
of the working class’s position. In its economic struggle, Marx 
pointed out, the working class only comes up against the 
consequences and not the causes of these consequences. 

In spite of the limited possibilities of the economic struggle, 
Marxism-Leninism does not deny its importance for the work- 
ing class. The economic struggle is, above all, a school of 
class struggle for the broad masses of workers. 

Marxism-Leninism teaches that the political struggle of the 
working class, directed at overthrow of the capitalist system, 
is the main thing. A correct combination of economic and 
political struggle is the most important condition for achieving 
its goals. Under contemporary conditions, the monopolistic 
bourgeoisie widely uses the bourgeois state to suppress the 
revolutionary movement of the proletariat. The instability of 
the capitalist economy, the sharpening of the monetary, ener- 
gy, raw material, and other crises and the growth of the 
army of unemployed strengthen the attempts of the financial 
oligarchy to shift the burden of the economic difficulties onto 
the shoulders of the working people. 

In a number of capitalist countries, anti-working-class 
laws have been introduced, forbidding strikes and demonstra- 
tions, limiting the rights of trade unions and placing their 
activities under state control. Under those conditions, the 
problem of the working class's struggle for political rights 
becomes particularly pressing. 

The strength and organisation of the working class of cap- 
italist countries are growing from year to year and its po- 
litical consciousness is increasing. Its struggle in defence of 



its economic and political interests is becoming ever broader, 
as the data on the steady growth of the strike movement in 
the post-war period indicate. Whereas from 1919 to 1939, 
around four million people took part in strikes throughout 
the capitalist world, between 1946 and I960, the number of 
strikers was 150 million, and from 1961 to 1971, 315 million. 
In the first half of the 1970s, the total number of those taking 
part in workers' mass actions in capitalist countries was 314 
million, including more than 106 million involved in the strike 
movement. Strikes are taking on vast dimensions and are 
more and more often acquiring a national character. 

In the Report to the 25th Congress of the CPSU, 
L. I. Brezhnev described the sharp deterioration in the condi- 
tion of the workers in capitalist countries as a result of the de- 
veloping of the worst world economic crisis of the post-war 
period, as follows. "The working class retaliates," he said, "in 
the proletarian spirit by intensifying the struggle against big 
capital, the main culprit of social calamities. The strike wave, 
which involves diverse sections of working people, has risen to 
the highest level in the past several decades. The strength and 
prestige of the working class are greater, and its role of 
vanguard in the struggle for the interests of working people, 
the true interests of the nation, has increased." 1 

1 L. I. Brezhnev, Report of the CPSU Central Committee and the 
Immediate Tasks of the Party in Home and Foreign Policy. 25tl\ 
Congress of the CPSU, p. 34. 

Chapter 5 



After his comprehensive and thorough analysis of the pro- 
duction of surplus value, as a result of which the basic eco- 
nomic law of capitalism was discovered, Karl Marx investigat- 
ed the transformation of surplus value into capital, i.e. the 
accumulation of capital. The most remarkable conclusion 
emerging from his investigation was, in Engels's opinion, 
substantiation of the growing strength of the proletariat and 
the historical necessity of socialist revolution. 


Production and Reproduction 

In starting his investigation of the process of accumulation 
of capital, Marx looked first at the bases of reproduction 
common to all stages of social development. 

In order to live, people must continually produce material 
goods. A society can no more cease to produce for even the 
briefest period, than it can cease to consume. The production 
of material wealth, looked at not as a single, separate act, 
but as a continuous, constantly repeated process, is called 
reproduction. Like production, it always has a social character. 

In every socio-economic formation, there is always repro- 
duction of labour power and of the corresponding relations 
of production, as well as reproduction of material goods. 

Marx distinguished two types of reproduction-simple and 
extended. Sometimes, when conditions are deteriorating, Marx 




wrote, "imperfect-defective-reproduction” might take place. 1 
In pre-capitalist socio-economic formations, simple and, in 
certain periods, incomplete reproduction prevailed for long 
periods, since the surplus product, by which production is 
able to expand, had either not yet been produced or was 
almost completely spent on the parasitic needs of the slave- 
owners and feudals. 

Extended reproduction, in which the process of production 
renews itself on an ever increasing scale, is characteristic of 
capitalism. Nevertheless, Marx began his analysis of the 
process of capital accumulation with simple reproduction, as 
the latter is the basis, the main component, of extended 
reproduction and consideration of it facilitates deeper 
understanding of the exploitative essence of the bourgeois 

Simple Capitalist Reproduction 

With simple capitalist reproduction, the whole of the sur- 
plus value is used for the personal consumption of the capi- 
talists and other exploiters, while the process of production 
is renewed on the old scale. Marx's analysis of simple capi- 
talist reproduction enabled him to draw a number of very 
important conclusions. 

(1) For the process of simple reproduction to take place 
continuously, the capitalist must regularly make new pur- 
chases of labour power. In looking at a single act of the sale 
of labour power, the illusion is created that the capitalist 
advances the money to pay for it from his own pocket. But 
when reproduction is analysed, it becomes clear that it is not 
the capitalist who makes an interim payment to the workers, 
but the workers who advance their labour to the capitalist, 
since the source from which the capitalist pays for labour 
power each time is the value of the commodity created by 
the workers themselves in the previous period. 

(2) Over a certain period of time, simple reproduction 
inevitably transforms any capital originally advanced, what- 

1 Karl Marx, Capital, Vol. II, Moscow, 1974, p. 399. 


ever its origin, into accumulated capital or into capitalised 

surplus value. , 

Let us assume that the capitalist originally advanced 
100,000 dollars to organise a business. Each year, this busi- 
ness brings him in 20,000 dollars in surplus value, which 
he spends exclusively on personal consumption. Over five 
years, he spends 100,000 dollars (20,000 X 5), which is equal 
to the original capital advanced. Nevertheless, the same 
amount of capital is still in his hands and functioning 
and, in essence, it is nothing other than surplus value 
appropriated gratuitously by the capitalist, i.e. accumulated 

When the working class, during the socialist revolution, 
expropriates the capitalists, it is only taking back what was 
created by its own surplus labour and appropriated, without 
compensation, by the capitalists. 

(3) There are two types of consumption. When the worker 
consumes means of production in the labour process and si- 
multaneously expends his own labour power, we have pro- 
ductive consumption. But, when he and his family consume 
the means of subsistence obtained with his wages, that is 
personal consumption. Under capitalism, the impression is 
created that the worker is subordinate to the capitalist only 
during productive consumption, while during personal con- 
sumption he is free and independent. Analysis of the process 
of reproduction, however, shows that the worker s personal 
consumption is no more than an instant in the reproduction 
of capital and that it is, above all, necessary to the worker 
in order to restore the strength he has expended and to be 
able to continue his compulsory labour in the capitalist fac- 
tory. The worker is therefore subordinated to capital even 
before he sells his labour power to a capitalist. 

(4) From analysis of simple reproduction, it becomes obvi- 
ous that the worker is always left without means of produc- 
tion, although he works continuously. The capitalist, on the 
contrary, always remains the owner of the means of produc- 
tion, although he does not work. So capitalist reproduction 
is reproduction oi material wealth, labour power, and oi 
capitalist relations oi production. 




Extended Capitalist Reproduction. 

Accumulation of Capital 

Extended capitalist reproduction presupposes the system- 
atic addition of a part of surplus value to the functioning 
capital through the purchase of additional means of produc- 
tion and labour power. Surplus value is divided into two parts. 
"One portion is consumed by the capitalist as revenue, the 
other is employed as capital, is accumulated." 1 The conver- 
sion ot surplus value into capital is the accumulation ol 

In his theory of surplus value, Marx disclosed how capital 
gave rise to surplus value and in his theory of the accumula- 
tion of capital, he showed how capital itself arose from sur- 
plus value. 

Three things are necessary for extended capitalist repro- 
duction (at a given productivity of labour) : (1) additional 
means of production; (2) additional means of subsistence for 
the workers newly drawn into production; (3) additional 
labour power. In his study of extended reproduction, Marx 
started from the assumption that they were all available. 

Analysis of extended capitalist reproduction shows that 
all the new capital arising from capitalised surplus value is, 
right from the start, the result of appropriation of the un- 
paid labour of others. The equivalent exchange relations be- 
tween capitalists and workers during the sale of labour power 
are only its outward and visible form. "What really takes 
place is this," Marx said, "the capitalist again and again 
appropriates, without equivalent, a portion of the previously 
materialised labour of others, and exchanges it for a greater 
quantity of living labour." 2 This capitalist mode of appropria- 
tion is not engendered by a breach of the laws of commodity 
production and exchange, but, on the contrary, through their 
application. Having bought labour power and paid its value, 
the capitalist has the right to dispose of its use value as he 
sees fit. 

Thus, capitalist extended reproduction, or the accumula- 
tion ot capital, is the reproduction oi capital and ot capitalist 
production relations on an increasing scale. 

1 Karl Marx, Capital, Vol. I, p. 554. 

2 Ibid., p. 547. 




Factors Affecting the Scale 
of Capital Accumulation 

Surplus value, as we said above, breaks down into a fund 
for accumulation (capital) and a fund for personal consump- 
tion (revenue). While the proportion of each of these two 
funds is known, the size of the fund for accumulation depends 
on the circumstances that determine the total mass of sur- 
plus value. 

(1) The scale of accumulation depends on the degree of 
exploitation, which increases as capitalism develops. As ex- 
ploitation increases, the mass of surplus value grows, which 
means that the part of it going into the fund for accumulation 
also grows. Employing the method of production of absolute 
surplus value, the capitalists Jengthem the working day, raise 
the intensity of labour and extract more surplus value. As a 
result, the fund for accumulation grows without a correspond- 
ing increase in such components of constant capital as build- 
ings, machinery and equipment. The fall in real wages in com- 
parison with the value of labour power, which is particularly 
increasing under contemporary conditions, enables the capi- 
talists to convert part of the fund for the workers' personal 
consumption into the fund for capital accumulation. 

(2) Capitalist accumulation depends on the productive 
power of social labour. Since growth of the productivity of 
labour in industries producing means of subsistence for the 
workers leads to a fall in the value of labour power, a variable 
capital of the same amount can set a greater mass of living 
labour in motion. Consequently, capitalists intensify exploi- 
tation through relative surplus value, broaden its scope and 
increase accumulation. The personal consumption of the capi- 
talist can also grow without an increase in his money rev- 
enue, since the value of consumer goods and luxuries 
falls as a consequence of the rise in the productivity of 

With an increase in the productivity of labour in industries 
producing means of production, the value of machines, raw 
materials and semi-finished goods falls. Because of that, 
capitalists can acquire more means of production for a con- 
stant capital of the same amount, and with the progress of 
science and engineering, these not only become cheaper, but 



also become more efficient, which makes for an increase in 
the scale of capital accumulation. The latest advances of chem- 
istry and physics have made possible rapid increase of the 
number of products useful for production and consumption, 
and extension of the use of already known substances. With 
today's scientific and technical revolution, Marx's remarks 
on science and technology's providing functioning capital 
with the ability to expand, irrespective of its size, sound as 
if they had been written now. 

(3) The scale of accumulation depends on the difference 
between the capital employed and the capital consumed. The 
value of the instruments of labour (production buildings, ma- 
chinery, equipment and so on) is not transferred to the new 
product all at once, but in bits, as they wear out. But the in- 
struments of labour take part in the process of production 
as a whole throughout their functioning life. 

Let us assume that a capitalist employs 100 looms in his 
mill and that their depreciation period is ten years. In five 
years, the capital employed by him in the form of these ma- 
chines has already been half consumed and transferred to the 
value of the products made and returned to him, when they 
have been sold, in the form of depreciation allowances. But 
all 100 machines will still be functioning as before in the 
process of production. With the depreciation allowances ac- 
cumulated, the capitalist can buy another 50 looms and in 
fact increase the employed capital by 50 per cent, to 150 
machines. In that way, the greater the part of constant 
capital that is embodied in instruments of labour and the 
greater the difference between the capital employed and the 
capital consumed, the greater is the possibility for ac- 

In this connection, Marx made the very pertinent point 
that there are possibilities in developed capitalist countries, 
where much fixed capital is used, of increasing the fund for 
accumulation without making deductions from surplus value. 
This possibility, he emphasised, "does not exist at levels of 
production and in nations where there is not much fixed cap- 

ital. This is an important point." 1 


1 Karl Mane, Theories ol Surplus-Value, Part II, Moscow, 1968, 



This point of Marx's is fully confirmed by present-day 
capitalist reality. According to American statistics, the pro- 
portion of depreciation in the gross capital investment of 
the USA has now reached 87 per cent. The actual scale of 
depreciation, and its proportion in the capital investments of 
capitalist firms, is greatly exaggerated, of course, so as to con- 
ceal super-profits from the tax authorities. Nevertheless, the 
role of this factor in the accumulation of capital increasingly 
grows as capitalism develops. 

(4) The scale of accumulation depends on the magnitude 
of all the functioning capital and its rate of turnover. With 
the same degree of exploitation, the mass of surplus value 
depends on the number of workers exploited at one time, and 
the number of workers, in turn, is connected with the amount 
of capital in operation, from which it follows that accumula- 
tion increases as functioning capital increases. 


The Organic Composition of Capital 

As capital is accumulated, its composition changes. The 
composition of capital can be viewed from two aspects. In 
physical terms, capital consists of a definite quantity of means 
of production (buildings, machines, raw materials, fuel and 
so on) and a certain quantity of labour power. The ratio be- 
tween the mass of employed means of production and the 
amount of labour necessary to use them Marx called the tech- 
nical composition ol capital. 

In terms of value, capital is divided into the value of the 
means of production (constant capital) and the value of la- 
bour power (variable capital). The ratio between the value 
of constant capital and variable capital Marx called the value 
composition ol capital. 

There is a strict correlation between the technical compo- 
sition of capital and its value composition. A change in the 
technical composition of capital connected with a develop- 
ment in the production techniques leads as a rule to a change 



in its value composition as well. The ratio between constant 
and variable capital [c-.v), i.e. its value composition, in so far 
as it is determined by its technical composition and mirrors 
changes of the latter, Marx called the organic composition 
ot capital. 

Growth of the Organic Composition of Capital 
as Capitalism Develops 

As capitalism develops, the organic composition of capital 
rises, i.e. the capital spent on the acquisition of means of 
production (c) grows more quickly, so that there is a relative 
diminution of the part used to purchase labour power (y). 
This results from the development of the productive 
forces and the operation of the basic economic law of capi- 

The striving to obtain as much surplus value as possible, 
and competition, prompt all capitalists to re-equip enterprises 
technically, with the result that the organic composition 
of capital rises (though by different amounts) in all sectors 
of the capitalist economy. 

In recent years, under the impact of the scientific and 
technical revolution complicated and contradictory changes 
have been taking place in the organic composition of capital. 
The technical composition of capital in industry, transport, 
and agriculture has risen in all developed capitalist coun- 
tries, and the rate of growth has been particularly high in 
the newest branches of industry, and it has grown consider- 
ably faster in their agriculture than in industry. Indicators 
of this rise are an increase in the power per worker ratio, 
growth of the number of machine tools and aggregates, the 
amount of raw materials and semi-finished goods used per 
employed worker, and so on. At the same time, the growth 
in the value composition of capital has been held back in 
the main by two factors: (1) the consequences of the rising 
efficiency of the instruments of labour and of technological 
processes; (2) the results of the growth in the value of ag- 
gregate labour power caused by increasing expen- 
diture on the general education and specialised training of 



workers, the rise in the numbers and proportion of engineci- 
inq and technical staff among the production personnel ot 
enterprises, and expanding real needs of the working class 
in connection with the development of social production, and 

Even so, the organic composition of capital (considered oyer 
a long term) has continued to grow in all branches ot the 

CC °WhTi^as the organic composition of capital in US manu- 
facturing industry, i.e. the ratio c : v, was 4.6 : 1 m 1889, 
1968 it was 7.3 : 1. 

Concentration and Centralisation of Capital 

As capitalism develops, there is a concentration and een- 
tralisation of capital. Concentration oi capital is its increase 
through the capitalisation of surplus value. An 
the size of individual capitals as a result of concentratio 
leads to a growth of the total social capital. . , 

Centralisation oi capital is the concentration °£ aiready 
existing individual capitals in the hands of and n ff^ 

capitalists. This takes place m two ways: (1) through the 
ruin of some capitalists in the course of competition and 
the swallowing up of their capital by other, 
ists; and (2) through the uniting of individual capitals in 
ioint-stock companies or corporations. In modern literatuie, 
"e usually called take-overs and mergers The merger 
process became particularly strong m imperialist countries 
from the middle of the 1950s. In US industry or exmnple, 
there were 2,929 mergers between 1945 and 19 j 4 ,_ 7,7.31 be 
tween 1955 and 1964, and 8,152 in the quinquennium 1965- 
69 This means that the rate of centralisation was accelerated 
bv more than 400 per cent in comparison with the first post- 
war decade A new feature of the centralisation of capital 
in modern conditions has become the merging of giant monop- 
olies. Two of the largest steel firms in West Germany Thys- 
sen and Rheinstahl, merged in 1974. This was the biggest 
merger ever to take place m that country In France m the 
same year, two of the leading automobile firms, Citroen 
and Peugeot, merged. The new amalgamated firm produces 
around 1 500,000 vehicles a year, or 42 per cent of the total 


output of the French automobile industry; in the opinion of 
experts, it is able to compete successfully on world markets 
against the giant American firms. 

While increasing the size of individual capitals, centrali- 
sation, unlike concentration, does not mean a simultaneous 
increase in social capital. It only alters its distribution among 
capitalists. But, in speeding up the creation of bigger and 
bigger undertakings, centralisation actively furthers concen- 
tration and, consequently, the growth of total social capital. 

Big businesses have a number of economic advantages over 
small ones and so the process of concentration, i.e. of the ac- 
cumulation of capital, proceeds more intensively in them. 
But the stronger the big capitalists become, the more rapidly 
they squeeze out and ruin their small competitors, forcing the 
pace of centralisation. Thus, concentration and centralisation 
of capital are mutually interconnected and mutually comple- 
mentary processes, concentration being the more important 
of the two. 

The concentration and centralisation of capital are accom- 
panied, as a rule, with a concentration of production. As capi- 
talism develops, production becomes more and more con- 
centrated in a comparatively small number of big and very 
big firms. As Lenin wrote in Imperialism, the Highest Stage ot 
Capitalism, "the enormous growth of industry and the re- 
markably rapid concentration of production in ever-larger en- 
terprises are one of the most characteristic features of 
capitalism ." 1 

Powerful accelerators of the centralising of capital and 
production are wars and economic crises. Under the shocks 
of crises, thousands of small and medium businesses go bank- 
rupt and are ruined while bigger firms take them over and 
become even bigger. Today the scientific and technical revo- 
lution is exerting an enormous influence on the pace of con- 
centration and centralisation. Projects in the newest indus- 
tries (the atomic power industry., electronics, rocket engi- 
neering, and others) can only be set up with enormous cen- 
tralised capital. 

1 V. I. Lenin, Collected Works, Vol. 22, p. 196. 


The Advantages of Large-Scale Production 

Large capitalist businesses ruin and swallow up small ones 
because they have decisive advantages over them in all 
spheres of activity. Their superiority manifests itself above 
all in production. Big businesses have wider opportunities at 
their disposal for setting up research laboratories and design 
offices, for attracting qualified staffs of scientists, engineers 
and skilled workers, and for introducing new techniques 
and new methods of organising production. They enjoy all 
the benefits of mass co-operation of labour and have relatively 
lower general overheads and administrative and management 
costs (per unit of output). As a result, they achieve higher 
productivity of labour and a lower individual value of 
commodities, which is the basic condition for success in 

Large-scale capitalist production also has great advantages 
in commercial operations. The purchase of equipment, raw 
materials, etc. wholesale, in bulk, comes considerably cheap- 
er. Conditions for the sale of commodities are also more fav- 
ourable for big businesses. 

Large entrepreneurs can employ bank credit on a bigger 
scale and at favourable rates, which enables them to make 
better use of boom conditions for a rapid expansion of pro- 
duction. The economic superiority of large-scale production 
leads to its constantly squeezing out small-scale production 
in all capitalist countries. 




Accumulation of Capital 

and Relative Surplus Population. 

The Capitalist Law of Population 

In pursuit of surplus value, as stated above, capitalists ex- 
pand production and improve technology which causes an 
increase in the organic composition of capital. Let us assume 
that, at the inauguration of a business, its capital consisted 



half of constant capital and half of variable capital, i.e. that 
the ratio c : v was 1:1. After several years, production ex- 
panded through capitalisation of surplus value and the ad- 
ditional capital was already of a higher organic composition, 
since technology has forged ahead in the intervening years, 
the ratio c : v having become, let us assume, 2:1. The same 
thing happened when the old fixed capital was renewed 
from depreciation allowances. Now not half the capital, but 
only a third is spent on labour power and two-thirds on means 
of production. 

An extremely important conclusion follows from this. As 
the organic composition of capital rises, the amount of labour 
power consumed by social capital grows more slowly than 
capital itself, i.e. the growth of demand for labour power 
slows down. At the same time, the accumulation of capital 
accelerates growth of the supply of labour power, since it 
causes the ruin of masses of small commodity producers, 
transforming them from sellers of the commodities they pro- 
duced into sellers of their own labour power. The supply of 
labour power exceeds the demand for it and causes a sur- 
plus working population in comparison with the needs of 

Being the inevitable result of the accumulation of capital, 
the surplus working population forms an industrial reserve 
army of labour which, as Lenin put it, "is an indispensable 
attribute to the capitalist economy, which could neither exist 
nor develop without it". 1 The continuous renewal of this 
relative surplus population is a specific law oi population in- 
herent only in the capitalist mode of production. 

Marx foresaw that the elimination of capital as a social 
relation would produce a radical change in the social conse- 
quences of the growth and improvement of the means of 
production. "The workmen, if they were dominant," he wrote, 
"if they were allowed to produce for themselves, would very 
soon, and without great exertion, bring the capital (to use 
a phrase of the vulgar economists) up to the standard of 
their needs." 2 

1 V. I. Lenin, "A Characterisation of Economic Romanticism", Col- 
lected Works. Vol. 2, p. 181. 

2 Karl Marx, Theories of Surplus-Value, Part II, p. 580. 




The elimination of relative surplus population (unemploy- 
ment) in socialist countries is full confirmation of Marx's 
scientific foresight. 

The growth of relative surplus population under capitalism 
was reinforced through use of cheap female and child labour. 
The members of the worker's family became competitors on 
the labour market and helped to reduce the wages of the 
head of the family in two ways: first, the value of labour 
power fell, since the family was supported by several of its 
members, exploited in capitalist enterprises; second, the wid- 
er use of female and child labour increased the number of 
men unemployed. 

Lengthening of the working day and intensification of la- 
bour also affects the rate of growth of surplus working popu- 
lation. Excessive work by the employed section of the work- 
ing class dooms the other section-the unemployed-to en- 
forced idleness. 

The industrial reserve army is constantly being replenished 
from the ranks of small producers (peasants and artisans) 
ruined by big capital. Under contemporary conditions, this 
process is also developing rapidly in those capitalist countries 
that are not highly developed industrially. For this reason, 
in countries like Spain, Greece, Turkey and others, a huge 
"surplus" of labour power has been formed, which is the 
source of cheap labour for West Germany, Great Britain, 
France and other imperialist states. 

The Three Main Forms 
of Relative Surplus Population 

There are three main forms of relative surplus population: 
floating, latent and stagnant. The floating form is the com- 
monest in industrial centres. Workers temporarily losing their 
jobs either get sucked back into the process of production or 
swell the army of the unemployed. It is a rare worker who 
has never been unemployed during his working life or, at 
least, partially unemployed. Older people become unemployed 
with increasing frequency. Capitalists, enjoying the oppor- 
tunity of hiring new, younger and stronger workers from the 
reserve army, dismiss older people first. 



The floating form of surplus population results, under capi- 
talism, from the technical revolutions that take place now- 
in one branch of production and now in another. With the 
introduction of new machines, the worker often loses not 
only his job but also his trade. His skill and experience, ac- 
cumulated over long years of work, prove to be unwanted. 
This is happening with particular force under the conditions 
of today's scientific and technical revolution. The automation 
of production squeezes out workers-machine-tool operators, 
operatives and general workers-and gives rise to a need tor 
workers with new, higher qualifications. Alongside the grow th 
of unemployment, a lack of highly qualified labour power, 
therefore, is making itself felt in a number of countries. 

Latent surplus population is the form most characteristic 
of rural areas, and is often called agrarian overpopulation. 
Since capitalism is penetrating more and more into agricul- 
ture, the bulk of peasant farms, unable to stand up to the 
competition of big capitalist farms, are ruined. In the village, 
too, there is a huge number of unemployed and semi- 
unemployed poor, concealed by the illusion of possessing an 
insignificant patch of land that does not ensure even a meagre 
existence. Furthermore, capital accumulation in agriculture, 
even more than in industry, is accompanied by a "release" 
of workers and by an absolute decrease in the number of 
persons engaged in agricultural labour. Agrarian overpopu- 
lation is especially great in the developing countries. In 
Indonesia, for example, specialists estimate, it stands at ten 
to fifteen million people at the present time. .... , 

The existence of a permanent source for replenishing the 
ranks of the urban proletariat permits the capitalist class at 
any time to find sufficient workers ready to do the heaviest 
and most dangerous work for the lowest wages. Latent surplus 
population also exists in capitalist towns in the persons of 
impoverished artisans, petty street traders and so on. This 
form of surplus population encourages increased exploita- 
tion of the proletariat and hampers development of the class 

Stagnant surplus population is formed from working people 
in towns and villages who have been without work for a 
long time and make ends meet from casual earnings, mainly 
outwork at home (domestic industry) under conditions of ex- 


treme poverty. A clear description of this category of the 
poor was given by Engels in his famous The Condition ot 
the Working Class in England. Many were already unable to 
work because of injury and illness. Marx named an even low- 
er stratum of unemployed who live in the sphere of pauper- 
ism, and is the hospital of the industrial reserve army. 

Before the Second World War, unemployment in capitalist 
countries was at its highest level in the whole history of cap- 
italism (excluding the 1929-33 crisis, when it was even high- 
er). In the USA in 1939, there were 9.4 million unemployed 
and in Britain in 1938 there were 1.9 million. Since World 
War II, chronic unemployment, as before, has been a most 
acute problem for many capitalist countries, despite the pro- 
testations of bourgeois economists and politicians that it has 
been eliminated. 

According to International Labour Organisation data, at 
the end of 1975 there were about 18.5 million unemployed in 
the developed capitalist countries, including 8.5 million in 
the USA, 5.4 million in Europe and 1.3 million in Japan. A 
characteristic feature of the structure of the reserve army in 
recent times has been a decrease in the numbers employed in 
the service sphere and mass dismissals of "white-collar" work- 
ers, including engineers and scientific workers, by many firms. 

Under contemporary capitalism, unemployment is distin- 
guished not only by the number involved, but also by its 
length. Being unemployed for long periods, workers lose their 
skills and qualifications, migrate in search of work, or emi- 
grate to other countries. 

Critique of Malthus’s Reactionary Theory 
of Population and Modern Malthusians 

Right at the beginning of the development of capitalism, 
the bourgeoisie's tame economists were trying to lay the blame 
for the unemployment and poverty of the labouring masses on 
Nature and on the scarcity of her resources and, at the same 
time, to justify the capitalist system. When the development 
of large-scale machine industry in Great Britain gave rise to 
a rapid growth of "surplus" population, the English vulgar 
economist T. R. Malthus published An Essay on the Principle 



oi Population (1789). In it he "proved" that the poverty of 
the broad masses of labourers under capitalism was caused by 
people reproducing more quickly than production of the 
means of subsistence increased. According to his estimates, 
population grew in geometric progression: doubling in the 
first 25 years, and again in the next 25 years (a fourfold in- 
crease), then again doubling (eightfold) and so on, while the 
means of subsistence increased only at a rate of 1, 2, 3, 4 
and so on, i.e. in arithmetic progression. Malthus illustrated 
his "law" with falsified data on population growth in the USA, 
deliberately ignoring the fact that the population of North 
America was increasing rapidly at that time mainly through 
the influx of large numbers of immigrants. Nevertheless, his 
book was noisily acclaimed by bourgeois readers and the aim 
of its publication was achieved. This aim, as the Russian rev- 
olutionary democrat N. G. Cherny shevsky wrote, was to 
"show that human calamities are mainly the result, not of 
inadequacies of the economic system, but of the laws of 
nature itself and that no reforms will bring about a lasting 
improvement of the human condition". 1 

Malthus claimed that calamities like cholera, plague, 
famine and wars were blessings for humanity, since they re- 
duced the population, bringing it into correspondence with the 
available means of subsistence. 

"The productive power at mankind's disposal is unmeasur- 
able," Frederick Engels wrote, criticising this reactionary 
"theory". "The productivity of the soil can be increased ad 
inlinitum by the application of capital, labour and science." 2 
Even the reality of capitalism itself shows the bankruptcy of 
Malthus's "theory". In the USA, in the 30 years from 1938 to 
1967 the population increased 53 per cent, while agricultural 
production rose by 75 per cent and output of manufactur- 
ing industry 400 per cent. 

Malthus's absurd views, which had nothing in common with 
science, were put by fascist ideology to the service of German 
imperialism with its delirious ideas of the enslavement and 
extermination of whole nations. A vast number of books and 

1 N. G. Chernyshcvsky, Selected Works, Vol. II, Part 2, Moscow, 
1935, p. 483 (in Russian). 

2 Karl Marx and Frederick Engels, Collected Works, Vol. 3, Mos- 
cow, 1975, p. 436. 



articles has been published in capitalist countries since the 
Second World War, also devoted to "justifying" the need for 
a new war and for mass destruction of people by atomic and 
bacteriological weapons. 

The books of the American neo-Malthusians Pearson and 
Pendell enjoy great popularity among the ideologists of im- 
perialism. W. Vogt in his Road to Survival, published in 1948, 
"proved" that, since modern agriculture can apparently feed 
only half the population of the world, the majority of the 
people are doomed to starvation and death. He ignored the 
fact that huge amounts of food were periodically destroyed in 
capitalist countries for lack of effective demand. To eliminate 
"surplus" population, Vogt suggested deliberately organising 
starvation in India and China, and cutting of the population 
of Europe to a third and of Japan to an eighth. In another 
work, in 1960, Vogt said that rapid growth of population 
was more dangerous and represented a more direct threat 
than the hydrogen bomb. Pearson proposed cutting world 
population to 900 million. Pendell cynically called for the 
introduction of a law forbidding marriage for those who 
could not furnish evidence of adequate income to support 
a family. 

It is a premise of Marxist political economy that the welfare 
of the people depends not only on natural wealth, but mainly 
on the state of production and the character of the social sys- 
tem. Working people are not just consumers of material 
wealth, but are also the main productive force of society. At 
the present-day level of productivity of social labour, a man 
is able to produce many more means of subsistence than are 
needed to provide a normal life for his family. The outlook 
for further development of material production, given full 
use of the latest achievements of science and technology, is 
truly immense. The actual reasons for the increase of poverty 
and unemployment in capitalist countries are to be found not 
in overpopulation or in the "laws of nature", but in capitalist 
relations, which hold back the development of material pro- 
duction more and more strongly. 

The problem of the population growth in individual coun- 
tries under contemporary conditions requires thorough in- 
vestigation. The statistics indicate that since the 1950s popu- 
lation growth has noticeably speeded up in comparison 


with previous periods, particularly in a number of develop- 
ing countries in Asia and Latin America. Scientific analysis 
of these demographic problems, however, has nothing in com- 
mon with the nonsense talked by contemporary Malthusians, 
who call for the extermination of hundreds of millions of 
people in order to save the doomed capitalist system. 

The views of contemporary Malthusians are refuted with 
increasing frequency even by bourgeois economists and so- 
" ciologists. The most shattering blow to their "theories", how- 
ever, is the experience of the Soviet Union and other socialist 
countries, where the social causes of unemployment and pov- 
erty have already been eliminated once and for all. 

— - 



The Essence of the General Law 
of Capitalist Accumulation 

The essence of the general law of capitalist accumulation 
is that growth of wealth at one pole of bourgeois society- 
that of the capitalists-inevitably leads to increase in the num- 
bers of the proletariat and in the torment of forced labour, 
unemployment and poverty at the other-that of the working 
people. "The greater the social wealth," Marx wrote, 
"the functioning capital, the extent and energy of its growth, 
and, therefore, also the absolute mass of the proletariat and 
the productiveness of its labour, the greater is the industrial 
reserve army But the greater this reserve army in pro- 

portion to the active labour-army, the greater is the mass of 
a consolidated surplus-population, whose misery is in inverse 
ratio to its torment of labour. The more extensive, finally, 
the lazarus-layers of the working-class, and the industrial 
reserve army, the greater is official pauperism. This is the 
absolute general lata of capitalist accumulation. Like all other 
laws it is modified in its working by many circumstan- 
ces. . . Z' 1 

The deterioration of the condition of the working class 
1 Karl Marx, Capital, Vol. I, p. 603. 



under capitalism takes the form either of a relative or of an 
absolute impoverishment. 

Relative Impoverishment 

Relative impoverishment is seen in a worsening of the con- 
dition of the working class in comparison with that of the 
bourgeoisie. In any capitalist country this process can be ob- 
served by confronting the dynamics of wages and of capital- 
ists' profits. 

The value of the output of capitalist enterprises consists 
of the value of the constant capital (c) consumed in its pro- 
duction, plus the value of the labour power (u) and surplus 
value (s). The sum of the value of labour power and surplus 
value (u-f-s) represents the newly-created value or, on the 
scale of the society, the national income. Since the rate of 
surplus value increases as capitalism develops, this means 
that s grows more rapidly than v, and that the capitalists 
receive an ever increasing share of the national income, and 
the workers an ever smaller share. The working class's share 
in the national income of Great Britain, for example, fell 
from 42.7 per cent in 1891 to 26 per cent in 1963. In the 
USA, the working class's share of the national income in 1909 
was 39.3 per cent, and in 1965 only 24.4 per cent. The net 
profits of US corporations increased by 91 per cent between 
1960 and 1968, and the wages of industrial workers by 11 
per cent. 

The relative impoverishment of the working class is also 
seen in a fall in the workers' share of the national wealth of 
capitalist countries. According to bourgeois statistics, the rich 
in the USA, who constitute 3 per cent of the total population, 
appropriate 57 per cent of the national wealth. In Great 
Britain, 61 per cent of the national wealth belongs to 3 per 
cent of the population. 

There is also relative deterioration of the condition of the 
working class during periods (a) when real wages rise, unem- 
ployment falls, and the workers' condition does not deterio- 
rate in absolute terms, or even (b) when there is temporary 
improvement in workers' living standards, as sometimes hap- 
pens in times of high economic activity when capitalists' 
profits grow much more quickly than workers' wages. 

12 * 



Absolute Impoverishment 

By absolute impoverishment, Marxist-Leninist political 
economy understands deterioration of the whole aggregate 
of the workers' working and living conditions and social 

position in capitalist society. . , A 

Absolute impoverishment of the working class is cause 
by the very nature of capitalism and by the operation ot its 
basic economic law, which determines the main aim of capi- 
talist production, i.e. the largest possible increase m surplus 
value through rapacious exploitation of wage labour. Absolute 
impoverishment, however, does not occur as a constant and 
continuous deterioration in the workers' position from montn 
to month or year to year in every enterprise, or in every in- 
dustry. Absolute impoverishment, like all other processes 
taking place under capitalism, develops very unevenly. In 
some periods, it increases, in others, it slows down. In some 
countries, it goes to extremes, in others, conditions develop 
in which the working class manages to slow down the im- 
poverishment process temporarily and even to gain a certain 
increase in the standard of living. The forms of absolute im- 
poverishment alter fundamentally in accordance with concrete 
historical conditions and the specific features of the develop- 
ment of capitalism in any particular country. 

Marx considered the iormation ot the industrial reserve 
army and the growth ot unemployment as the initial, deter- 
mining factor in impoverishment of the proletariat. Loss ot 
his job plunges the worker into terrible poverty. The higher 
the percentage of wholly and partially unemployed in a coun- 
try, the worse all the workers live, including the employed, 
many of whom have to support unemployed members of the 
family on their wages. The capitalists use unemployment to 
intensify labour and lower the overall level of, wages. Tie 
growth of unemployment increases the workers' uncertainty 
about the morrow and the insecurity of their existence. 

An important index of absolute worsening of the working 
class's condition is increase ot the gap between the value ot 
labour power and real wages. Bourgeois economists loudly 
advertise the certain increase of real wages that took place 
after the Second World War in several capitalist countries, as 
if it refuted the Marxist theory of impoverishment. But 



they keep silent about the circumstances, which are very 
important for a correct evaluation of the process, ignoring, 

very significant point, that the movement o 
real wages must not be considered in isolation horn ^the val 
of labour power which also alters as capitalism deve P • 

° Growth P o£ the productivity o£ social labour in mdustrms 
producing consumer goods £or workers causes a tall m me 
value ot labour power; but other factors also affect it. 

(1) Scientific *and technical progress and new technology 
as aonlied under capitalism constantly give rise to a speed 
ing up of the pace of labour and to an increase in its intensity, 
and make ever increasing demands on the wker 
general educational and technical training, skill, etc. The cur 
rent° scientific and technical revolution is leading to a signifi- 
cant rise in the proportion of skilled and highly skilled labour 
in the sum total ofwage labour. These are factors causing a 

riqo in the value of labour power. . . 

(2) The material living conditions of society change, 
creaLig the needs of all people, including the real needs of 
the working class. At the end of the nineteenth century Lenm 
had' wrhten : '' W e must not lose sight of the indubitable fact 
that the development of capitalism inevitably entai s * i 
evel of requirements for the entire population, including the 
industrial proletariat.'' 1 Under contemporary conditions, the 
range and volume of needs resulting from altered living con- 
ditions the growth of production and the development of new 

constantly growing. Thu, . without 

watermains, electricity, refrigerators, radio and without 
creasing expenditure on transport, the working_class fam y 
can hardly exist in a large modern city. All this, too, raises 
Se value of labour power. The growth of real wages, how 
ever is constantly restrained by rising prices and taxes, by 
anti-working-class legislation, and by the traitorous policies 
of corrupt trade union leaders, and falls further and further 
r \ , , A. increase in the value of labour power, 
behind waqes with the subsistence minimum 

°T^! TOC ois statisticians calculate much below the actual 
(W1Ch S^ves some idea of the workers' con- 
dition°In US manufacturing industry, for example, the aver- 

I V. I.Tenin, "On the So-Called Market Question", Collected Works, 

Vol. 1, p. 106. 



age yearly wage in 1944 covered 80.9 per cent of the 
subsistence minimum, but in 1965 only 71 per cent. In France, 
in 1965, 66 per cent of workers received less than the sub- 
sistence minimum. In Japan, where the standard of living of 
workers is even lower than in Western Europe and the USA, 
the average monthly wage of workers in 1968 (45,200 yen) 
was less than half the subsistence minimum of a worker's 
family. US official government documents state that 32 mil- 
lion Americans continue to live in poverty, while 26 million 
of them are on the borderline and do not receive the necessary 
help from the government. 

Absolute deterioration of the condition of the working class 
is also manifested in excessive intensification of the labour 
of wage workers. Statistics do not provide direct data on in- 
creases in labour intensity. It can only be judged from in- 
direct indices, in particular, from the increase in hourly out- 
put, which is not only the result of technical progress but 
also, to a significant degree, of an increase in the intensity of 
labour. Between 1960 and 1970, output per man-hour in 
US manufacturing industry, for example, increased by 36 
per cent, in Italy by almost 100 per cent, and in Japan by 160 
per cent. Such an increase in hourly output over a relatively 
short period cannot be explained by improved production tech- 
niques and technology alone. The rise in the intensity of la- 
bour necessitates a significant increase in the needs of workers 
in order to reproduce their labour power. Even with an in- 
crease in real wages, therefore, the gap between wages and 
the value of labour power may increase. Moreover, the exces- 
sively high tempos of work and the nervous tension now 
common in capitalist production lead to irreplaceable expen- 
diture of the worker's strength, to premature loss of capacity 
to work, to a rise of injuries, occupational diseases and, in 
particular, diseases of the cardiovascular and nervous systems. 

Medical statistics indicate that complaints of the cardio- 
vascular and nervous systems have become a genuine threat 
to the working people in many capitalist countries, the more 
so since the majority are deprived of qualified medical as- 
sistance by its high cost. One of the worst consequences of 
the intensification of labour-the rate of industrial injuries 
and occupational diseases-is on the increase. In the USA, in 
1960, 1,950,000 persons suffered industrial injuries, includ- 



ing 13,800 fatalities. In 1971, the number had increased to 
2.5 million, including 14,600 fatalities. In Italy, the numbers 
suffering industrial injuries rose in the same period from 
1,497,000 to 1,546,000 and in France, the number of regis- 
tered * occupational diseases increased from 25,800 to 51,800. 

During economic crises and imperialist wars, the condition 
of the workers deteriorates to the limit. As the Programme o 
the CPSU says : "Crises and periods of industrial stagnation, 
in turn, are still more ruinous to small producers, increase the 
dependence of wage labour on capital and lead more rap^ly 
to a relative, and sometimes an absolute, deterioration or the 
condition of the working class." 1 The 1929-33 crisis, for ex- 
ample, caused a gigantic rise in the number of unemployed 
to 30 or 40 million, and a sharp fall in wages in all capitalist 
countries. During the First and Second World wars, the ab- 
solute deterioration of the condition of hundreds of millions 
of working people was reflected in hunger on ^ unprece- 
dented scale, physical exhaustion, epidemics and, in World 
War II, in forced slave labour in fascist concentration camps 
and the direct destruction and extermination of millions ot 
people. The 1974-75 economic crisis produced the largest rise 
in unemployment experienced by capitalism since the last 
war. At the same time, the cost of living increased at an 
unprecedented rate. From July 1974 to December 1975 alone, 
the price of foodstuffs and consumer goods of everyday use 
rose on average by 18.7 per cent in the developed capitalist 
countries. Real wages fell, according to official data, by 1-5 
per cent in the USA, Great Britain, Japan and some other 

countries. , . , . f 

Among the factors adding to absolute impoverishment ot 

the proletariat are the growth of taxes and rents, the deteriora 
tion of nutrition, racial and national discrimination in work- 
ing conditions and pay, and the unattainability of good medi- 
cal care and higher education because of their cost for the 
bulk of the working people. Confirmation of this is the fact 
that in the richest country in the capitalist world-the USA- 
1.8 million children of school age did not go to school in 
197? because their parents lacked the means, and 300,000 
places in higher education institutions were not filled because 
high tuition fees prevented young people from enrolling. 

i The Road to Communism. Moscow, 1961, pp. 452-53. 



Even in state colleges and universities, tuition fees are 4,800 
dollars a year, and in private institutions they are much high- 
er. In the USA, over the last 40 years, average per capita 
taxes have risen from 23 dollars to 962 dollars a year, i.e. 
nearly 42 times. The population of Israel pays 41 per cent 
of the value of the gross national product in the form of taxes 
and compulsory loans because of militarisation of the 

The realities of capitalism thus confirm Marx's thesis that, 
as capital is accumulated, the condition of the working class 
deteriorates, however high or low wages may be. 

In capitalist countries, the process of impoverishment is 
manifested in a conflict between two trends : a basic tendency 
toward absolute worsening of the proletariat's condition; and 
an opposite tendency to slow this process down and some- 
times even toward temporary improvement in the workers' 
condition in certain sectors of the economy and in individual 
countries. In the article "The Strike Movement and Wages”, 
Lenin wrote of the results of the working class's struggle in 
Russia in 1905: "The year 1905 improved the worker's liv- 
ing standard to a degree that normally is attained during 
several decades." 1 y 

The more capitalism develops, the more numerous and 
organised the working class becomes, and the more active 
is its struggle against capitalist exploitation. After World 
War II the working class in capitalist countries obtained 
favourable conditions in its struggle for a higher standard 
ot living owing to the formation and development of the 
world socialist system. As the Programme of the CPSU says: 
"Fear of revolution, the successes of the socialist countries', 
and the pressure of working-class movement compel the bour- 
geoisie to make partial concessions with respect to waqes 
labour conditions, and social security." 2 But it is not pos- 
sible to eliminate the trend toward impoverishment and the 
operation of the general law of capitalist accumulation as long 
as capitalism exists. "In spite of some successes in the eco- 
nomic struggle, the condition of the working class in the cani- 
tahst world is, on the whole, deteriorating." 3 

\ V I. Lenin, Collected. Works, Vol. 18, p. 259. 

The Road to Communism, pp, 474-75 

3 Ibid. 



Contrary to all the talk of bourgeois propaganda about the 
favourable influence of the imperialist powers on the develop- 
ing countries, mass unemployment, poverty and death from 
starvation and intolerable living conditions is the lot of 
millions of working people today in many countries in Asia, 
Africa and Latin America, whose economies are still 
dominated by foreign monopoly capital. According to UN 
statistics, there are about 1,500 million people in the 
capitalist world who are either starving or regularly under- 

The absolute impoverishment of peasants and handicraft 
workers under capitalism is also seen in decline of their po- 
sition in spite of excessive toil, in growth of latent unemploy- 
ment and in their complete ruin. We arraign capitalism, Lenin 
wrote, "for the poverty of the masses (and not only for the 
poverty of the working class)". 1 The absolute impoverishment 
of the working people is consequently most clearly seen 
from analysing the whole system of relations of capitalist 
exploitation on a world scale. 

Bourgeois economists and reformist theoreticians fiercely 
attack Marx's and Lenin's theory of the impoverishment of 
the proletariat in capitalist society. But the periodic nature 
of their attacks is itself most indicative. As soon as the work- 
ing class succeeds in achieving certain concessions in the 
struggle with capital, the troubadours of bourgeois propa- 
ganda screech in one key about the "final collapse" of the 
Marxist-Leninist theory of capital accumulation and impov- 
erishment of the proletariat. But as soon as crises set in and 
unemployment rises, and in wartime, when terrible disasters 
befall the proletariat, the apologists of capitalism urge work- 
ers to be patient, to renounce their demands and to "unite" 
with the capitalists. Bourgeois economists and reformists as- 
cribe to the founders of scientific communism an interpreta- 
tion of impoverishment foreign to them as a constant deterio- 
ration of the condition of the workers. The Marxist-Leninist 
interpretation of the process of impoverishment has noth- 
ing in common with such a vulgar notion. Even when sub- 
stantiating his definition of the law of capitalist 

1 V. I. Lenin, "Opinion on Plekhanov's Second Draft", Collected 
Works, Vol. 6, p. 59. 




accumulation, Marx emphasised that its operation was modi- 
fied by numerous circumstances. Analysing the reasons for the 
relatively high level of wages in the USA, he pointed, in par- 
ticular, to the absence there of relative surplus population 
in the first half of the nineteenth century and to the oppor- 
tunities that existed for the American worker to become a 
farmer. But from the example of Great Britain and other 
countries, Marx and Engels showed the whole abomination 
of which capital was capable in its drive to accumulate, when 
relative surplus population grew and the working class was 
still not sufficiently organised to resist. 

Since World War II, the working class of capitalist coun- 
tries has won a number of concessions in tense class struggle, 
concessions reflected in an increase of real wages, shorten- 
ing of the working day, extension of social insurance and 
pensions in a number of countries, and so on. But the present 
unrestrained rise of the prices of prime necessities and ser- 
vices reduces these achievements and tends to cancel out the 
workers' gains. 

Consequently, while capitalism still exists, the working class 
can never be sure of the gains it has won and cannot be 
confident about its future. Communist and Workers' parties 
therefore raise the struggle for current economic and polit- 
ical interests of the working class to a new level, linking 
it more and more with the fundamental political tasks of 
the workers and all working people. 


Capitalism grew up within the womb of feudalism. The 
accumulation of capital first took place under the old, pre- 
capitalist systems and their corresponding forms of exploi- 
tation. The main basis on which capitalism developed was the 
simple commodity economy existing as one of the economic 
forms within feudalism. The operation of the laws of value 
and competition gradually brought about a concentration of 
the property of many small commodity producers in the hands 
of a few owners, who became capitalists, the ruin of masses 
of peasants and artisans, compelling them to become sellers 



of the only commodity remaining to them, their labour power. 
The development of capitalism was also encouraged by the 
process of primitive accumulation of capital, which is a tragic 
and bloody history of forced expropriation of the land and 
other means of production from millions of peasants and 

As a result of these two processes, economic differentiation 
and the forced expropriation of small commodity producers, 
the private property of the small producers, based on per- 
sonal labour, was replaced by a new form of private owner- 
ship, capitalist property, based on the exploitation of wage 

With the domination of capitalist property established, the 
basic source of capital accumulation became the surplus value 
created by the labour of wage workers. Alongside that, the 
operation of the law of capitalist accumulation now brought 
down individual capitalists, whose property was expropriated 
by bigger and stronger capitalists. 

As capitalism developed, production became more and 
more social, which brought a growing need to establish social 
regulation and control over it. Ownership of the means of pro- 
duction and the products of labour became concentrated in 
the hands of fewer and fewer big capitalists, who subordinated 
the whole huge mechanism of social production to their 
mercenary interests. Sharpening of the basic contradiction 
of capitalism, that between the social character of produc- 
tion and the private capitalist form of appropriation, prede- 
termines the inevitable downfall of the capitalist mode of 

Along with capital accumulation, the degree and scale of 
capitalist exploitation grow and the proletariat increases, the 
social force that grows ever stronger within capitalism as 
its gravedigger. 

As Marx said, “centralisation of the means of production 
and socialisation of labour at last reach a point where they 
become incompatible with their capitalist integument. Thus 
integument is burst asunder. The knell of capitalist private 
property sounds. The expropriators are expropriated ." 1 As a 
result of the socialist revolution, capitalist property is abol- 

1 Karl Marx, Capital, Vol. I, P- 715. 



ishcd and is replaced by public ownership of the means of 
production, corresponding to the social nature of the pro- 
ductive forces today. The revolutionary working class is called 
on to solve the world historic task of replacing capital- 
ism by socialism and is trained for this mission by the whole 
course of development of capitalist production. It solves it 
in close alliance with the masses of all other working and 
exploited people. 

Chapter 6 




In the previous chapters we have looked at the most im- 
portant problems of the first volume of Capital, in which 
Marx investigated capital as a historically determined social- 
production relationship between the bourgeoisie and the 
working class, revealed the mechanism of the "self-expansion” 
of value in the process of production and discovered the 
secret of the exploitation of wage labour by capital. At the 
same time, he already showed in Volume I that capital can- 
not grow without circulation and without continuous move- 
ment of the value advanced. Marx devoted the second volume 
of Capital, brought out by Engels in 1885, to analysis of the 
process of circulation and its effect on the production of 
surplus value. 

"Capital as self-expanding value," he wrote, "embraces not 
only class relations, a society of a definite character resting 
on the existence of labour in the form of wage-labour. It is a 
movement, a circuit-describing process going through various 
stages, which itself comprises three different forms of the 
circuit-describing process. Therefore it can be understood only 
as motion, not as a thing at rest." 1 

In its movement, capital passes through three stages. 

First stage. The capitalist appears on the commodity and 
labour market with his money capital, where he buys means 
of production ( Mp ) and labour power ( Lp ), i.e. the commodi- 
ties he needs for productive consumption. As a result of 
this, his money capital (M) is converted into productive cap- 
ital. The transformation of money capital into productive 
capital is given by the formula 

1 Karl Marx, Capital, Vol. II, P- 108. 



Second stage. In the process of production, workers trans- 
fer the value of the means of production consumed to the 
manufactured commodity by their labour and create new 
value, which consists of the reproduced value of labour pow- 
er plus surplus value. The commodity produced differs from 
the commodities bought by the capitalist in the first stage 
of the movement of capital, not only in physical terms, but 
also in value, for it embodies surplus value. As a result of 
the second stage of movement, productive capital becomes 
commodity capital 

(' C <Mp - P - C). 

Third stage. The capitalist returns to the commodity market 
and sells the commodities produced, turning them into money. 
In this act of circulation, capital value, already expanded by 
the amount of surplus value, casts off the commodity form and 
takes on its original, monetary form. In other words, com- 
modity capital is converted into money capital ( C'-M '). 

Money capital is the first form of capital. Money becomes 
capital whenever it serves as an instrument for the exploi- 
tation of wage labour. The capitalist does not buy just any 
commodities, but only those that can function as productive 
capital, i.e. means of production and labour power. So the 
function of money capital is to create the conditions needed 
to bring labour power into combination with the means of 

With the transformation of money capital into productive 
capital, circulation is interrupted and the process of produc- 
tion begins. The function of productive capital consists in the 
production of surplus value. This is also the aim of capital- 
ist production. Consequently, capital becomes productive only 
in so far as surplus value is produced. 

The expanded capital value embodied in the commodities 
produced has to be realised and converted into the monetary 
form. Realisation of the increased capital value is the func- 
tion of commodity capital. 

Thus, capital passes through three consecutive stages in its 
movement and takes on three forms, each of which-money. 


productive and commodity-fulfils its own specific function in 
the circular movement of capital. This is why Marx calls them 
the functional forms of capital. The consecutive transforma- 
tion of capital from one functional form to another and its 
return to the original form is called the circuit ot capital. 

'-'The capital," Marx said, "which assumes these forms 
in the course of its total circuit and then discards them and 
in each of them performs the function corresponding to the 
particular form, is industrial capital , industrial here in the 
sense that it comprises every branch of industry run on a 
capitalist basis ." 1 

The complete circuit of industrial capital is described by 
the formula 

The dots in this formula indicate that the circulation pro- 
cess is interrupted by the process of production (P). The true 
nature of capital, its essence, is manifested directly in the 
functioning of productive capital. In that form of capital the 
antagonistic relations between the bourgeoisie and the pro- 
letariat, the relations of the exploitation of wage labour, are 
expressed directly. Only in the process of production is there 
a change in the magnitude of value, its self-expansion. The 
acts of M-C and C'-M' that take place in the sphere of cir- 
culation are a change in the form of value and are the neces- 
sary conditions for the functioning of productive capital. 

The movement of industrial capital is not limited to a 
single circuit. The capitalist turns over his capital repeatedly 
in order to appropriate more and more surplus value. In this 
way the movement of industrial capital is characterised by a 
constant repetition of the circuit. One circuit follows the 
other : 

M-C<Jf p ...P - ... P> ... C’-M* 

and so on. . 

Through continuous renewal and repetition of circuits, 
industrial capital not only in consequence takes on the three 
forms indicated-money, productive and commodity-but also 

1 Karl Marx, Capital, Vol. II. P- 50- 



exists in all three of them at any one moment. The simulta- 
neous existence of industrial capital in three forms is 
confirmed by the balance sheet of any capitalist industrial 

The circular movement of industrial capital presupposes 
continuity of the circuits of its individual parts-money, pro- 
ductive and commodity capital. If capital stops short in its 
first phase ( M-C ), then money capital becomes a hoard. If 
it stops in the phase of production, the means of production 
and labour power remain unemployed. And if capital halts 
its movement in the C'-M' stage, then the commodities pro- 
duced are not sold and, consequently, the circuit cannot be 

Circuits of the Three Forms of Capital 

Money capital serves as the initial form in the circuit of 
industrial capital, gives it the first impetus, and then supports 
the functioning of productive capital. The circuit of money 

capital M — - P - C1 — M' 

most clearly describes the specific character of capitalist pro- 
duction, its subordination to the law of surplus value. But 
it masks the source of expansion of value, the exploitation 
of wage labour. 

The main function of productive capital, as explained 
above, is the production of surplus value. It can fulfil this 
function without interruption only through its specific 
circuit : 

P ... C -M-C<$ p ... P. 

The circuit of productive capital shows the continuity and 
periodicity of production and serves as the very basis of re- 
production. But it masks the goal of capitalist production 
and creates the impression that the development of production 
under capitalism is a goal in itself. 

The continuous movement of industrial capital also re- 
quires commodity capital to function uninterruptedly. The 
formula for its circuit is the following : 


C'-M'-C^p ... P ... C\ 

The content of the circuit of commodity capital is the pro- 
cess of realisation. This circuit reveals the dependence of 
capitalist production and its goal on the realisation of the 
commodities produced and on the effective demand of pur- 
chasers. If the capitalist does not sell the commodities pro- 
duced, he cannot restart the circuit. 

Thus, the movement of industrial capital takes place si- 
multaneously in all its three forms. While money capital is 
being transformed into productive capital, functioning pro- 
ductive capital is at the same time being transformed into 
commodity capital, and commodity capital into money capital. 
As Marx said: "The actual circuit of industrial capital in its 
continuity is therefore not alone the unity of the processes of 
circulation and production but also the unity of all its three 
circuits ." 1 

Common to all three forms of circuit is the expansion of 
value as the determining goal and motive force of capitalist 

The movement of productive capital can only be continuous 
with unity of all three forms of circuit. But its continuity is 
usually disturbed by reason of the basic contradiction of 
capitalist production and the anarchic character of its devel- 
opment. The disturbances are observed particularly clearly 
in times of periodic economic crises, when factories are shut 
down, masses of workers thrown onto the streets, and piles 
of unsold commodities accumulate in warehouses and shops, 
spoil and are destroyed. 



The Turnover Time and the Number 

of Turnovers 

As already noted above, the movement of capital is not 
limited to a single circuit. The very nature of capital and the 
specific goal of capitalist production compel the capitalist 

1 Karl Marx, Capital, Vol. II, P- 106. 



to repeat the circuit over and over again. Marx defined it as 
follows: "A circuit performed by a capital and meant to 
be a periodical process, not an individual act, is called its 
turnover ." 1 

In its movement, capital goes through the stage of produc- 
tion and two stages of circulation. It completes its turnover 
during a certain period of time. The total time during which 
all the capital value advanced passes through the stages of 
production and circulation comprises the time ot turnover 
of capital. 

The turnover time of individual capitals differs according 
to the different conditions of production and circulation. Thus, 
in the building of large hydroelectric power stations, canals 
and other large-scale installations, capital takes a long time 
to turn over, sometimes years, while in the light and food 
industries it may turn over in a few weeks or months. 

A year is taken as the basic unit for measuring and compar- 
ing the turnover time of different individual capitals. If we 
designate the year as the unit of measure of turnover time 
by T, the time of turnover of any particular capital by t, and 
the number of its turnovers by n. then the number of turn- 
overs of the given capital will be Thus, a capital that com- 
pletes its turnover in three months will have four turnovers 
in a year ( n = 3 -- ^”^ while a capital that takes 18 
months to turn over will complete two-thirds of its turnover 
in a year ( n = [ 8 months^ Consequently, the first capital 
turns over six times as fast as the second. 

Fixed and Circulating Capital 

Various factors affect the turnover speed of capital, one 
being the composition of productive capital. 

Productive capital, as we know, consists of constant and 
variable capital, or of the value of the functioning means of 
production and labour power. Means of production in- 

1 Karl Marx, Capital, Vo I. II, p. 158. 


elude factory buildings, machinery, equipment, tools and 
implements, electricity, draught cattle, raw materials, 
auxiliary materials, fuel and other material factors of pro- 

The capital value advanced on these factors is transferred 
to the product by different means in the process of produc- 
tion. The instruments of labour (factory buildings, machinery, 
equipment and so on) are bought all at once and function for 
a more or less extensive period of time, retaining their phys- 
ical form. Once fully worn out, they are scrapped and 
replaced by new ones. The instruments of labour participate 
in turnover to the extent of their wear and tear. For example, 
the amount of the value of a building with an operative life 
of 50 years transferred to the finished product each year will 
be l/50th or 2 per cent. The amount of the value of a machine 
intended to last for ten years transferred to the finished 
product each year will be l/ 10 th or 10 per cent, and 
so on. 

Those elements of productive capital that fully participate 
in production but transfer their value to the product bit 
by bit and return to the capitalist in money form Marx 
called fixed capital. The reimbursement of the value of 
the wear of fixed capital in money form is known as de- 

The capital value advanced on objects of labour turns over 
in a different way. In being processed, raw materials and 
auxiliary materials lose their former use value in a single 
process of production and acquire a new one. Thus, for exam- 
ple, the spinning and dyeing of cotton transforms it into col- 
oured thread. Fuel, lubricating oil, etc., unlike raw materials, 
do not enter physically into the product, and disappear in 
use. The value of objects of labour is completely transferred 
to the product, and after the latter has been sold, returns to 
the capitalist in money form. That part of productive cap- 
ital, the value of which is fully transferred to the newly- 
created commodity in the course of a single turnover and 
returns to the capitalist in money form, is called circulating 
capital. In practice, circulating capital also includes variable 
capital, though labour power does not in fact transfer 
its value to the product, but creates new value, part of 
which reimburses the capitalist's expenditure on labour 

13 * 



power. However, in its mode of turnover, variable capi- 
tal does not differ from the circulating part of constant 

Consequently, Marx said, the division of capital into fixed 
and circulating capital arises "from the different manner in 
which the various components of productive capital transfer 
their value to the product". 1 

The division of capital into fixed and circulating capital 
is inherent only in productive capital. Money capital and 
commodity capital function only in the sphere of cir- 
culation and so are not divided into fixed and circulating 

The division of productive capital into fixed and circulat- 
ing capital must not be confused with its division into con- 
stant and variable capital. The latter division is the result 
of the different roles of constant and variable capital in the 
production of value and surplus value. The division of pro- 
ductive capital into fixed and circulating capital, however, 
stems from the differences in the turnover of its component 
parts. The division of capital into fixed and circulating cap- 
ital conceals the source of the growth of value and masks 
capitalist exploitation. 

Physical Wear and Obsolescence 

Fixed capital undergoes constant physical wear and tear. 
This results (1) from its use in the process of production and 
(2) from fixed capital being destroyed by natural forces-air, 
water, heat, cold and so on. Continuous use of machinery 
and equipment leads to wear of their most important compo- 
nents and parts, as a consequence of which faults and break- 
downs become more frequent, and it becomes necessary to 
replace the most important parts or to carry out major 

In addition to physical wear and tear, fixed capital also 
suffers obsolescence. The various items of fixed capital func- 

1 Karl Marx, Capital, Vol. II, p. 170. 


tion for a number of years, in the course of which technical 
advances occur. As a result of the application of new scientific 
discoveries and technical inventions in production, the pro- 
ductivity of labour increases, on the one hand, and machines 
of the same design in consequence begin to be reproduced 
more cheaply, while, on the other hand, more technically 
advanced machines are produced for the same purpose, mak- 
ing it possible to produce the same output with a lower ex- 
penditure of labour. In both cases, the fixed capital in opera- 
tion loses some of its value : the value of a machine in opera- 
tion is determined not by the socially necessary labour time 
embodied in it, but by that needed to reproduce a new ma- 
chine. The process by which machines, equipment and other 
elements of fixed capital depreciate in value as a result of 
technical progress is known as the obsolescence of fixed cap- 
ital. As a result of obsolescence, outdated equipment is re- 
placed by technically more advanced machines, even though 
the former may still be useable. 

The shorter the period over which the whole value of a 
machine is transferred to the product, the smaller is the loss 
from non-productive wear and obsolescence. Capitalists strive 
to reduce the danger of obsolescence of fixed capital by 
lengthening the working day and raising the intensity of 
workers' labour to the limit. 


The aggregate turnover of advanced capital is the average 
of the turnover of fixed and circulating capital. 

Let us assume that the value of all fixed capital is 150,000 
dollars, of which production buildings cost 40,000 dollars 
and will serve for 40 years. Machinery and equipment cost 
90,000 dollars and function for ten years. The value of minor 
equipment and tools is 20,000 dollars and their working life 
four years. If we also assume that there is circulating capital 
of 45,000 dollars and that it turns over four times in a 
year, then the annual turnover of the separate parts of the 
capital advanced and its aggregate turnover has the follow- 
ing form: 



Components of productive capital 

(in dollars) 

N umber 
of turn- 
overs a 

(in dollars) 

Factory buildings 




Machinery and equipment 




Minor equipment and tools 




Total fixed capita! 
Circulating capital 







Total capital advanced 




From this example it is clear that the total capital ad- 
vanced (195,000 dollars) completed one turnover in a year. 
The circulating capital, however, turned over four times in the 
course of a year and its yearly turnover amounted to 180,000 
dollars. The fixed capital, worth 150,000 dollars, made only 
1/I0th of its turnover. The value of fixed capital is trans- 
ferred bit by bit to the product and decreases annually by 
15,000 dollars. The value transferred forms the depreciation 
fund needed to renew fixed capital. 

With scientific and technical progress, opposing trends, 
which exert different influences on the rate of turnover, gain 
in strength. Intensive introduction of new technology raises 
the share of fixed capital, which slows down the rate of 
turnover of the advanced capital. At the same time, develop- 
ment and improvement of the instruments of labour and their 
use in production cheapen the existing equipment and accel- 
erate its obsolescence, which speeds up the turnover of capi- 
tal. In order to reduce losses from the obsolescence of fixed 
capital, capitalists strive to establish higher depreciation rates 
for machinery and equipment. But an artificial increase of 
these rates makes the product more expensive and reduces the 
firm's competitiveness. Capitalists strive to speed up the 
turnover of capital and to lower expenditure on production 
of commodities through maximum use of machinery and 
equipment and by intensifying exploitation of the workers. 



Time of Production 

Apart from the composition of productive capital, the length 
of production and circulation time affects the rate of turn- 
over. Time of production is the time during which capital, 
as Marx said, “is held fast in the sphere of production". It 
consists mainly of the working period, i.e. "the number of 
connected working-days required in a certain branch of in- 
dustry for the manufacture of a finished product" 1 and can 
vary considerably in length, depending on the specific fea- 
tures of the production in question. A road can be built in a 
few months, but it takes several years to build a mainline 

How can the working period be shortened? 

First of all, the working period is shortened if the same 
number of workers work longer and more intensively every 
day. It can also be cut by increasing the number of workers 
working together. In the construction of canals, railways, 
etc., for example, building time is shortened if the number of 
workers is increased and work begins simultaneously at many 
different points. 

The decisive condition for shortening the working period 
is an increase in the productivity of labour as a result of co- 
operation and division of labour and the use of more ad- 
vanced equipment. 

During the other part of the time of production, the ob- 
jects of labour are subject to the independent effect of 
natural processes, physical, chemical or physiological, 
during which the labour process comes completely or par- 
tially to a halt. Agricultural crops, for example, require quite 
a long vegetative season. In the chemical industry, time is 
needed for reactions to take place. 

During all this time of the independent action of natural 
forces on the object of labour, no value and surplus value are 
created, capital does not undergo self-expansion, and its 
turnover time is lengthened. 

Time of production and, consequently, the turnover of capi- 

1 Karl Marx, Capital, Vol. II, P- 234. 



tal can be shortened by speeding up the natural processes 
in production, through science and technology, improvement 
of production methods and techniques, the use of catalysts, 
and so on. Thus, as a result of applying a high-frequency 
current, the time needed to season timber and heat-treat steel 
parts is much shortened. 

Time of production also includes the time during which 
capital exists in the form of production reserves. There must 
always be a certain reserve supply of raw and processed ma- 
terials, fuel and tools, so that the production process can con- 
tinue without interruption. 

Thus, production time covers the working period, the time 
for the independent action of natural forces on the object of 
labour, and the time during which capital is tied up in pro- 
duction reserves. A reduction of production time speeds up 
the turnover of capital. 

Time of Circulation 

The turnover time of capital also depends on its time of 

Time ot circulation consists of the time during which com- 
modities are transferred from their place of production to 
their market and the time during which their purchase and 
sale (or the change in the form of value) takes place. 

The socially necessary time for the delivery of a commod- 
ity from its place of production to the place of sale does not 
differ in nature from the time of production: in the course 
of the given period, the commodity is transported, stored, 
sorted, packed and so on. All these are production processes, 
carried out in the sphere of circulation. 

Selling time (sale and purchase) is of a completely dif- 
ferent nature. It is connected not with production processes, 
but with a change in the form of value (correspondence and 
negotiations on the conditions of sale of the commodity,- the 
drawing up of the commercial and money documents; sale 
of the commodity). 

What are the factors affecting the time of circulation of 

The capacity of the market and the purchasing power of 
the population exert a decisive influence on it. With a rela- 



tively narrow market, capital is left in the form of surplus 
stocks of commodities, and then it is necessary either to ad- 
vance additional capital, in order to maintain continuity of 
production, or to cut production. Time of circulation also 
diminishes or increases according to the distance of the 

An important condition for cutting time of circulation is 
the development of transport and communications and the 
use of railways and motor vehicles, powerful modern river- 
and merchant ships and transport aircraft-all of which great- 
ly speed up the transit of commodities from producer to 
consumer and considerably cheapen transport. 

Modern means of communication and information (post, 
telegraph, telephone, radio, press) make it possible to fol- 
low daily changes in the state of the world market, to nego- 
tiate and complete sales and purchases with the minimum 
expenditure of time, whereas a century or so ago, weeks and 
months were needed. 

The tendency to cut the time of circulation, however, is 
paralysed by the specific laws of the capitalist economy. 
The anarchy of capitalist production and circulation, the 
growth of exploitation and impoverishment of the working 
masses reduce the possibilities of realisation. Sales slow down, 
stocks of unsold commodities build up and, as a result, the 
time of circulation of capital is lengthened. 

In this way, the effect of cutting the time of circulation as 
a consequence of progress in the sphere of transport and com- 
munications is significantly reduced by an increase in the time 
of circulation arising from the contradictions of capitalism and 
increasing difficulties of realisation. 




Factors determining the speed of turnover of capital at 
the same time exert a fundamental influence on the produc- 
tion of surplus value. Acceleration of the turnover of the 
capital advanced, as a whole, also means acceleration in the 
turnover of its variable part, and the mass and annual rate 



of surplus value, in turn, depend on the speed of turnover of 
variable capital. 

Consider, for example, two enterprises with the variable 
capital of 10,000 dollars each. The first turns it over in a 
year and the second in a month. With a degree of exploita- 
tion of 100 per cent 10,000 dollars of surplus value will be 
produced in the first enterprise in the course of a year, and 
in the second 120,000 dollars (10,000 dollars X 12 turnovers). 
This big difference in the annual mass of surplus value oc- 
curs as a result of differences in the rate of turnover of 
variable capital. The fact is that with equal value of labour 
power, degree of exploitation, and time of payment, the 
owner of the second enterprise may simultaneously hire 
and exploit twelve times as many workers as the owner 
of the first. 

The velocity of turnover of variable capital not only affects 
the mass of surplus value, but also its annual rate. The an- 
nual rate of surplus value is the ratio between the mass of 
surplus value produced during a year and the variable capital 
advanced, and is equal to the actual rate of surplus value 
multiplied by the number of turnovers of the capital in a 
year, i.e. S' = s' X n. 

The first capitalist, having advanced 10,000u, received 
10,000s in the course of one year. The annual rate of surplus 
value was : 

s '=-S-x 100 = 100 P ercent - 

The second capitalist also advanced 10,000 v, but in the 
course of a year received 120,000s; the annual rate of surplus 
value was : 

Qt 120,000 S . . i ah t onn i 

5 = 10,000 a X 100= 1,200 per cent. 

Other conditions being equal, the mass of surplus value 
and its annual rate thus change in direct proportion to the 
number of turnovers of the variable capital advanced. 

The quicker the advanced variable capital is turned over, 
the more surplus value is produced in a year and the higher 
the annual rate of surplus value. 



Analysis of the process of circulation of capital leads to 
the conclusion that all factors directly or indirectly influenc- 
ing the rate of turnover of capital are, at the same time, 
factors facilitating expansion of the sphere of exploitation 
of the wage labour by capital. The antagonistic contradictions 
of capitalist production are made both more complex and 
more acute by the contradictions of capitalist circulation. 

Chapter 1 


The direct goal and motive force of capitalist production 
is the production and appropriation of the surplus value creat- 
ed by the surplus labour of wage workers. Surplus value is 
created in the process of production and realised in the pro- 
cess of circulation. 

Karl Marx studied the production of surplus value in the 
first volume of Capital. In the second volume, he disclosed 
the process of circulation of capital; and in the third volume, 
he analysed capitalist production as a whole, as an integrity 
of production and circulation. Marx investigated the concrete 
forms of capital and surplus value as they appear on the sur- 
face of bourgeois society. In the process of circular move- 
ment, from industrial capital employed in production two 
forms of capital become differentiated : (a) commodity capi- 
tal in the form of commercial capital, and (b) money capi- 
tal in the form of loan capital. Correspondingly, in the 
process of realisation surplus value takes on the forms 
of industrial profit, commercial profit, and interest on loans, 
and a certain part of surplus value takes the form of rent 
of land. 

Thus, the appropriation of surplus value expresses not only 
the relations of exploitation between workers and capitalists, 
but also the relations between capitalists, fighting among 
themselves for a larger share of surplus value during its 





Value and Cost Price of Production 

The value of any capitalist-produced commodity (C) breaks 
down into the value of the constant capital consumed (c), the 
variable capital reproduced ( v ), and surplus value (s). Here, 
c represents previously embodied labour, and v -J-s, the new 
value created by the expenditure of the living labour of 
workers. The formula c -f- v -{-s describes the nature and 
true source of surplus value. 

On the surface of bourgeois society, some of the value 
of a commodity appears as the cost price of production 
(c -\-v), which represents the capitalist's outlays on produc- 
tion of the commodity, or what the commodity costs the capi- 
talist. It is below the value of the commodity by the amount 
of surplus value. Surplus value does not enter into the cost 
price of production because it is created by the surplus 
labour of the worker and does not cost the capitalist 

What the commodity costs to the capitalist and what it 
costs to society are two quite different magnitudes. "The 
capitalist cost of the commodity," Marx wrote, "is measured 
by the expenditure of capital, while the actual cost of the 
commodity is measured by the expenditure of labour." 1 

Cost price of production conceals capitalist relations. In 
it, the difference between constant and variable capital dis- 
appears and the source of surplus value is obscured. 

The Conversion of Surplus Value into Profit 

Surplus value appears as the excess of the value of a com- 
modity over the cost price of its production, i.e. as an in- 
crement to the total of the capital advanced. "In its assumed 
capacity of offspring of the aggregate advanced capital, sur- 

1 Karl Marx, Capital, Vol. Ill, Moscow, 1974, p. 26. 



plus-value takes the converted form of profit." 1 If we desig- 
nate profit by p and cost price by k, the formula C = c + v -\-s 
becomes C = k -f- p. Commodity value now appears as cost 
price of production plus profit. 

The value of a commodity in the form of k -f- p already 
has no visible connection with labour. Both its parts appear 
in transmuted form: cost price as the result of expenditure 
of the capital advanced and not of labour, and profit as the 
outcome of this same advanced capital and not of the sur- 
plus labour of workers. Capitalist exploitation is concealed 
and is not visible on the surface, a fact that is widely em- 
ployed by bourgeois economists in defence of capitalism to 
deny that workers arc exploited by capitalists. 

The capitalist appropriates surplus value in the form of 
profit after realisation of the commodity. There can therefore 
be a quantitative discrepancy between the amount of surplus 
value created by the labour of workers in an individual capi- 
talist enterprise and the amount of profit realised by the 
capitalist in the price of the commodity. 

Thus, profit is a transmuted form of surplus value. It 
appears on the surface of capitalist society not as the 
result of exploitation of workers but as the outcome of the 
total capital advanced. 

The Rate of Profit 

The main stimulus to the development of capitalist pro- 
duction is the extraction of profit. Each capitalist strives to 
obtain maximum profit from the use of his capital. Its abso- 
lute magnitude, or the mass of profit, however, still does not 
show the degree of return on the use of the capital and the 
speed of its self-expansion. The degree of self-expansion of 
capital is determined only by the rate of profit. The ratio of 
surplus value to the total capital advanced in percentage 
terms, is called the rate of profit. We represent it convention- 
ally by p' and express it by the formula 

p'=T^r x 100 > or / = -^xioo, 

1 Karl Marx, Capital, Vol. in, p. 36. 


20 7 

where C is the advanced capital. 

Usually, the rate of profit means its annual rate, i.e. the 
percentage ratio between the mass of surplus value obtained 
in the course of a year and the capital advanced. Thus, if 
100 units of capital are advanced, which break down into 
80c + 20 u, then, with a 100 per cent rate of surplus value, the 
rate of profit will be : 

P '= 80^^ Xl0 °= 20 “ nt ’ ° r 

= 100 = 20 P er ceni 

The rate of profit is the transformed form of the rate of 
surplus value. It is the same surplus value, but measured 

differently, that is, not by its ratio to variable capital ), 

but by its ratio to the total capital advanced Like 

profit itself, it disguises the source of the expansion of 
value, i.e. the exploitation of wage labour. 

Factors Affecting the Rate of Profit 

The rate of profit depends, first, on the rate of surplus 
value-the higher the rate of surplus value, the higher is the 
rate of profit. If, in our example, the rate of surplus value is 
raised, for instance, to 200 per cent, then the rate of profit 
is doubled and will be 

40 s - x 100 = 40 per cent. 
100 c F 

Second, the rate of profit depends on the organic composi- 
tion of capital. With a low organic composition, the share of 
variable capital is higher and therefore more surplus value 
is created for the same total capital than with a high organic 
composition. For example, with the same rate of surplus value 
(100 per cent), a capital consisting of 70c -f 30v brings 
in 30 per cent profit, while one consisting of 80c + 20u brings 

in only 20 per cent. . , . .. L 

Third, the speed of turnover of capital also affects the rate 



of profit, which increases in direct proportion to the number 
of turnovers. Let us assume that a capital consisting of 
80c + 20v makes a single turnover in the course of a year 
and grows by 20s. The yearly rate of profit is then 20 per 
cent. If the same capital made two turnovers in the year, the 
capitalist would then be able to exploit twice as many work- 
ers and extract twice as much surplus value. The annual mass 
of surplus value would be 40s or 40 per cent profit on the 
capital advanced. 

Fourth, saving of constant capital plays a significant role 
in raising the rate of profit. It can be achieved through using 
more advanced or cheaper machinery and equipment, ap- 
plying scientific discoveries and inventions, and utilising pro- 
duction wastes or by-products, and also by cutting expendi- 
ture on safety and by worsening working conditions. As Marx 
wrote: "In line with its contradictory and antagonistic na- 
ture, the capitalist mode of production proceeds to count the 
prodigious dissipation of the labourer's life and health, and 
the lowering of his living conditions, as an economy in the 
use of constant capital and thereby as a means of raising the 
rate of profit." 1 An economy in the use of constant capital 
reduces cost price of production and at the same time in- 
creases the mass and rate of profit. As a result of capitalist 
rationalisation and economies on safety, the incidence of oc- 
cupational diseases and accidents in industry, leading to dis- 
ablement and death, increases sharply. 

Intra-Industry Competition and Formation 

of the Social Value of Commodities 

In the race between capitalists to increase profits, a fierce 
competitive struggle develops. Karl Marx considered two 
forms of competition-within an industry and between 

Intra-industry competition develops between capitalists 
producing the same type of commodity for more profitable 
sales and extra profits. In competition within an industry 
victory goes to the capitalists who can sell cheaper than their 

1 Karl Marx, Capital, Vol. Ill, p. 86. 



Capitalists producing similar commodities have businesses 
and enterprises of different capacities and different standards 
of technical equipment, and that gives a difference in the pro- 
ductivity of labour with the result that cost price of produc- 
tion and the value of the commodity are not the same in dif- 
ferent undertakings. But however much individual values 
may differ, they inevitably become equalised during compe- 
tition to the social or market value. The social value is de- 
termined by the individual value of the commodities "pro- 
duced under average conditions of their respective sphere and 
forming the bulk of the products of that sphere". 1 

Since market value is determined by the average condi- 
tions, those enterprises in which the individual value is lower 
than the social value obtain additional profit, in the form of 
extra surplus value, while those enterprises in which the in- 
dividual value is higher than the social value cannot compete. 
They are squeezed out, go bankrupt, and are swallowed up 
by their bigger rivals. 

One of the methods of intra-industry competition is the 
sale of commodities below their value. The law of capitalist 
competition, as Marx pointed out, is based on the "difference 
between the value and the cost-price of commodities, and on 
the resulting possibility of selling a commodity at a profit 
under its value”. 2 

Thus, intra-industry competition leads to formation of the 
social or market value of a commodity, and stimulates tech- 
nical progress in production; but at the same time it engen- 
ders a striving to keep new technological inventions a secret 
and not to allow others to use them. This drive is particularly 
strong in the conditions of monopoly capitalism. 

Inter-Industry Competition and Formation 
of General (Average) Profit 

Inter-industry competition is competition between capital- 
ists in different industries for more profitable use of capital. 
Competition within an industry equalises individual values 

1 Ibid., Vol. ill, p. 178. 

2 Ibid., p. 37. 

U— 1076 



of commodities in social value, but that does not mean that 
they will be sold at their social value. The commodities of 
different industries are exchanged not simply as commodities 
but as the products of capital. It is all the same to capitalists 
what kind of commodity they produce; they are only in- 
terested in profit and therefore they lay claim to profits cor- 
responding to the size of their capitals. 

We have already noted above that the organic composition 
of capital is different in different industries. Other conditions 
being equal, therefore, differences in rates of profit are also 
inevitable. Let us assume that there are three industries with 
the same amounts of capital but with different organic com- 
positions, say, the leather, textile, and engineering industries. 
To avoid complicating things, let us assume that the rate of 
surplus value, the turnover of capital, and the cost price of 
production are the same in all three industries, and that the 
capitals advanced arc completely consumed in the course of 
one year. Then we get a table like the following : 



Rate of 

(in per cent) 



Value of 

Rate of 
(in per 


70 c -}- 30 V 






80 c + 20 v 






90 c 4- 10 ti 






240 c 60 v 





These figures show that selling commodities at their value, 
the capitalists will receive different rates of profit: in the 
first industry of 30 per cent, in the second of 20 per cent and 
in the third of 10 per cent. Such sharp differences in rates of 
profit cannot, however, be maintained for long. Each capital- 
ist strives to obtain the maximum profit. In pursuit of maxi- 
mum profits, under free competition, capitalists will invest 
their new capital in more profitable industries, in our exam- 
ple, in the leather industry. A massive inflow of capital, and 
with it of labour, into these industries will give rise to an 




excess of supply of the given type of commodity over de- 
mand, a divergence of prices below value, and a fall in the 
rate of profit. 

In industries with a low rate of profit, on the contrary, the 
development of production will slow down, and supply drop 
below demand, so that prices of commodities will rise above 
value and the rate of profit will go up. The flow of capital 
from one industry to another results in the rate of profit in 
all three industries becoming levelled up in the general or 
average rate of profit. 

In our example, the total social capital is 240c + 60u. The 
total mass of surplus value created in all these industries is 
60s. The ratio between the mass of surplus value and the 
total social capital is the general or average rate of profit 

p' = w^ x 100 = 20 P ercent - 

The competition between industries thus equates the dif- 
ferent rates of profit in the average rate ot profit through the 
constant transfer of capital from one industry to another. 
The average (or general) rate of profit is consequently an ex- 
pression of the percentage ratio of the aggregate surplus 
value created by the whole working class to the social capital 
invested in all branches of production. 

The transformation of profit into average profit results in 
commodities beginning to be sold not at their value, but at 
their price of production, which is equal to the cost price of 
production plus the average profit on the capital advanced. 

As the table below indicates, the commodities produced 
in each of the three industries are now sold at their prices 
of production, i.e. at 120 monetary units. In those industries 
in which the organic composition of capital is below the aver- 
age, more surplus value is produced than is realised in the 
form of average profit (in our example, in the leather in- 
dustry). On the other hand, in industries with a high organic 
composition of capital, less surplus value is produced than 
is realised as average profit (in our example, in the engineer- 
ing industry). The excess of surplus value over average profit 
(10) created in industries with a low organic composition is 
realised by the capitalists in the industries in which the or- 
ganic composition is higher. 

14 * 












of pro- 




of pro- 

gence of 
of pro- 


70 c + 30 o 






— 10 


80c 4- 20 v 








90 C4 1 - 10 v 








240 c 4- 60 v 







The surplus value created in society is consequently dis- 
tributed between the different groups of capitalists accord- 
ing to the size of the capitals they have advanced. But that 
must not be understood as a direct distribution of profits. 
This situation arises spontaneously as a result of fierce com- 
petition between capitalists. 

The striving of capitalists to obtain maximum profit leads 
to continuous fluctuations in the rates of profit in individual 
industries around the average. "Under capitalist production," 
Marx wrote, "the general law acts as the prevailing tendency 
only in a very complicated and approximate manner, as a 
never ascertainable average of ceaseless fluctuations ." 1 

With the formation of the average rate of profit the basic 
economic law of capitalism, the law of surplus value, begins 
to operate through the law of average profit. 

Price of Production 

as a Transmuted Form of Value 

The formation of a general rate of profit and the equation 
of surplus value to average profit lead inevitably to the 
transmutation of value into price of production. Under capi- 
talism, commodities are not sold at their value but at their 
price of production, which differs from value both in form 
and magnitude. The value of a commodity is materialised 

1 Karl Marx, Capital, Vol. Ill, p. 161. 


abstract human labour. Its magnitude is determined by the 
socially necessary labour time. The price of production is 
determined by the cost price of production, i.e. by the ex- 
penditure of capital and by average profit. Outwardly both 
parts of the price of production are linked not with the la- 
bour of the worker but with capital; and this impression is 
strengthened by the quantitative discrepancy according to 
industry between price of production and value. 

After the third volume of Capital was published (1894), 
the apologists of capitalism declared that there was a con- 
tradiction between Volumes I and III, between Marx s 
doctrine of value and surplus value and his doctrine of price 
of production and average profit, and proclaimed the "over- 
throw" of Marx's labour theory of value and surplus value. 

In fact, the theory of average profit not only does not 
contradict the theory of value, but is an extension and 
further development of it. In his article "Karl Marx", Lenin 
emphasised that "Volume Three of Capital solves the prob- 
lem of how the average rate of profit is formed on the basis 
of the law of value". 1 

The price of production is a transmuted form of value. 
This is confirmed above all by the fact that the sum total 
of prices of production for the whole of society coincides 
with the value of the total mass of commodities. In our 
example (see table, page 212), the sum total of the values 
of the commodities is 360 units and the sum total of prices 
of production is also 360 units. This is also confirmed by 
the fact that a change in the value of commodities inevitably 
causes a change in the level of prices of production. 

Thus, the process of the conversion of profit into average 
profit and of value into price of production is the process 
by which surplus value is distributed between industrial 
capitalists according to the principle of "equal profit for 
equal capital". 

Under capitalism, the law of value does not operate 
directly, but through the law of the price of production. 
The prices at which commodities are bought and sold on 
the market no longer fluctuate about value but about the 
price of production. As a result of the competition between 

1 V. I. Lenin, Collected Works, Vol. 21, p. 66. 



industries and the flow of capital from one to another, the 
distribution of labour and means of production between dif- 
ferent sectors of the economy takes place spontaneously. 

Marx showed that the transmutation of value into price 
of production is a real historical process, taking place in 
conjunction with the transformation of simple commodity 
production into capitalist. The law of value, according to 
Engels, has been operating for five to seven thousand years. 
The law of price of production operates only in capitalist 

The theory of average profit and of price of production 
developed by Marx is one of his most important theoretical 
discoveries. It is of enormous significance for thorough un- 
derstanding of the causes aggravating not only the contra- 
dictions between workers and capitalists, but also sharpen- 
ing those between different groups of capitalists. 

The Law of the Tendency of the 
Rate of Profit to Fall 

As capitalist production develops the average rate of 
profit tends to fall, which is caused by the rising of the 
organic composition of the total social capital. The pursuit 
of high profits prompts capitalists to raise the productivity 
of labour by introducing new technology and techniques. 
As a result, the technical composition of capital (i.e. the 
ratio between the means of production and the labour power 
employed in production) rises continuously, and this, in 
turn, brings about a rise in the organic composition of so- 
cial capital and a fall in the rate of profit. 

Let us illustrate this with the following table: 


Rate of sur- 
plus value 
(In per cent) 



of capital 

Rate of 

(In per cent) 

70 c *h 30 y 



2.3c: 1 v 


200 c dr 50 v 



4c : 1 v 


630 c 4-70 o 



9c: 1 o 




In our example, the mass of surplus value increased from 
30 to 70 units but the rate of profit fell from 30 to 10 per 
cent. This is explained by the fact that the growth of social 
capital was accompanied with a rise in its organic composi- 
tion and a fall in the proportion of variable capital in the 
total social capital from 30 to 10 per cent. 

A fall in the rate of profit does not signify a decrease 
in the mass of profit, even when the rate of surplus value 
remains unchanged. On the contrary, the mass of profit 
grows, since the total number of workers being exploited 
increases (in our example, variable capital rose from 30 to 
70), and increases even more from intensifying the degree 
of exploitation of wage labour. 

Factors Counteracting Fall 
of the General Rate of Profit 

In reality, the rate of profit does not change in propor- 
tion to the rise in the organic composition of capital. A 
number of counteracting factors mitigate the operation of 
the general law, giving it the character of a tendency. For 
that reason, Marx called it the law ol the tendency of the 
rate of profit to fall. 

The main factor counteracting fall of the rate of profit 
is a higher degree of the exploitation of labour power. In 
the nineteenth century, the rate of surplus value in developed 
capitalist countries was about 100 per cent; at the present 
time it is upward of 300 or 400 per cent and even more. 

The essential factor counteracting a fall in the rate of 
profit is the falling of wages below the value of labour 
power, which has two consequences: (1) with a given, or 
even an increased, number of exploited wage workers, the 
amount of variable capital advanced decreases; and (2) pro- 
fits increase at the expense of workers' wages. 

The fall in the general rate of profit is also held back by 
the growth of relative surplus population, which serves as 
the basis for the existence of technically out-moded enter- 
prises and industries, where variable capital comprises a 
significant proportion of the capital advanced and wages are 
below average. The existence of industries with a low organic 
composition of capital, in turn, increases the total mass of 



surplus value, which arrests the fall of the average rate of 

The counteracting factors also include a cheapening of the 
elements of constant capital (machinery, equipment, fuel, raw 
and auxiliary materials, and so on). 

A role of no little significance in arresting the fall of the 
general rate of profit is played by foreign trade and the 
export of capital to other, especially the developing countries. 
(1) Foreign trade, by supplying cheaper means of production 
and consumer goods for the workers from abroad, enables 
capitalists to exploit a larger number of workers and to raise 
the rate of surplus value advancing the same amount of capi- 
tal. (2) Capital invested in countries with less developed econ- 
omy as a rule yields a much higher rate of profit, which 
increases the total mass and rate of profit in the capital-ex- 
porting country. 

The factors enumerated above weaken the effect of the 
law of fall in the average rate of profit and render it a nature 
of a tendency that manifests itself over long periods of 

Some bourgeois economists noticed this tendency as early 
as the beginning of the nineteenth century, but they were 
unable to explain its true causes. Starting from the false 
assumption that capitalism is eternal, they suggested that 
the causes lay in the laws of nature. 

Karl Marx substantiated scientifically that the limits of 
capitalist production lie not in the laws of nature, but in 
capital itself, in the specific laws of the capitalist mode of 

The law of the tendency of the rate of profit to fall reflects 
the contradiction between the goal of capitalist production 
and the means of attaining it. The direct aim and motiva- 
tion of capitalist production is the production of surplus 
value and maximising of profits. To attain their goal, capi- 
talists are compelled to develop the productive forces and to 
raise the productivity of labour. As a result, however, the 
organic composition of social capital rises, the proportion 
of variable capital falls, and so the general rate of profit 
sinks. The law of the tendency of the rate of profit to fall 
thus reflects the historically limited character of the capi- 
talist mode of production. 


Contemporary monopoly capital, in its attempts to over- 
come the tendency for the rate of profit to fall, increases 
exploitation of the working class and small producers, robs 
the peoples of developing countries, and intensifies milita- 
risation of the economy and the arms race. These measures, 
however, do not strengthen capitalism, but lead to further 
sharpening of all its contradictions. 

The Significance of Marx’s Theory of 
Average Profit for the Class Struggle 

Theoretical questions of the formation of the average 
rate of profit and of the price of production are of enormous 
significance for the development of the revolutionary 
struggle of the proletariat. Marx's theory of average profit 
convincingly demonstrates that capitalists, while competing 
fiei-ccly with each other for the most profitable application 
of capital, at the same time act as a united class, exploiting 
the working class together, and struggling for systematic 
raising of the degree of exploitation. Since the average rate 
of profit is the ratio between the aggregate surplus value 
and the total social capital, it expresses the antagonistic 
relations between the classes. "Here, then," Marx wrote, 
"we have a mathematically precise proof, why capitalists 
form a veritable freemason society vis-a-vis the whole 
working-class, while there is little love lost between them in 
competition among themselves." 1 

The working class must oppose the united front of the 
bourgeoisie with its own united proletarian front. This con- 
clusion, which follows directly from Marx's teaching on 
average profit, is the theoretical basis of the policy steadily 
pursued by Marxist-Leninist parties, aimed at ensuring unity 
of the working-class movement and of all revolutionary 
forces in the struggle against capitalism. 

Being exploited by the class of capitalists, united by its 
common economic interests, the workers cannot limit their 
struggle to their direct bosses alone, but must fight against 
the capitalist class as a whole. In order to obtain a radical 
improvement in their lives, workers act in an organised way, 
under the leadership of revolutionary parties, against the 

1 Karl Marx, Capital, Vol. HI, p. 198. 


domination of the bourgeoisie, against the whole system of 
capitalist slavery, and for liberation from all forms of ex- 
ploitation and oppression. Only if united and organised as 
a class can workers, in alliance with all other working peo- 
ple, overthrow the domination of the bourgeoisie, win politi- 
cal power, and accomplish the revolutionary transition from 
capitalism to socialism. 


Trading or merchant's capital historically preceded in- 
dustrial capital and appeared long before the capitalist 
mode of production. In Marx's definition, merchant's capital, 
along with usury capital, is the most ancient form of capi- 
tal. In order to function, it required a certain level of devel- 
opment of commodity production and of commodity and 
money circulation. These conditions existed long before 
capitalism and were the material prerequisites for the ap- 
pearance of merchant's capital. 

The function of merchant's capital, from the very begin- 
ning, was to cream off profit by being the intermediary in 
commodity exchange. The form of movement of merchant's 
capital is M - C - M 1 (purchase for the sake of sale at a 
profit) . 

Commercial Capital as a Separate 
Part of Industrial Capital 

Under the conditions of developed capitalist production, 
the bulk of commercial capital is the result of its separation 
from industrial capital and its transformation into indepen- 
dently functioning capital. The separation of commercial 
capital is caused by the movement of industrial capital in 
the process of reproduction. Industrial capital, in its circular 
movement, as was shown in Chapter 6, passes regularly 
through three stages and, at the same time, is found in three 
functioning forms: money, productive, and commodity. In 


the third stage the movement of capital consists of the con- 
version of commodity capital into money capital (C^-M 1 ). 
The main task of the industrialist is the production of sur- 
plus value, and the function of the final realisation of the 
commodity, i.e. its passage into consumption, is subsidiary 
for him. It therefore becomes separated off and becomes the 
sphere of activity of a special group of capitalists engaged 
exclusively in the realisation or sale of commodities. The 
separation of commercial capital helps speed up the turn- 
over of industrial and total social capital and consequently 
increase of profit. 

Commercial capital takes no direct part in the produc- 
tion of value and surplus value; but, by looking after the 
realisation of the commodity capital of many production 
undertakings at a time, the commercial capital reduces the 
amount of capital that must remain in the sphere of circula- 
tion and increases the amount of capital employed in pro- 
duction, which, ceteris paribus, leads to growth of the mass 
of profit. The commercial capitalist encourages expansion of 
the market, specialisation of production, and the social divi- 
sion of labour. He realises commodities more rapidly since 
he is more familiar with the sphere of circulation than the 
industrial capitalist. All this promotes a considerable reduc- 
tion of time of circulation and speeding up of the turnover 
of capital. 

The industrialist could himself sell his commodities to 
consumers but in that case he would have to invest addition- 
al capital in carrying out operations connected with the 
realisation of commodities and that, with the same amount of 
capital, would inevitably lead to a cut in the scale of produc- 
tion or to periodic halts in production during the time of 
realisation. In every case there would be a fall in the rate 
of profit. It is more profitable, therefore, for the industrial- 
ist to hand over the function of realising commodities to the 
commercial capitalist. 

The industrialist sells the commodity to a commercial capi- 
talist, and the latter sells it to consumers and finally converts 
the commodity capital into money capital. 



The Participation of Commercial Capital 
in the Distribution of Surplus Value 

Neither surplus value nor value is created in circulation. 
Where, then, does the profit of commercial capitalists come 
from? Bourgeois economists try to show that it arises in cir- 
culation. In reality, the surplus value falling to the share of 
commercial capital in the form of average profit is part of 
the surplus value created by wage workers in production. 
Industrial capitalists concede the capitalist merchants attend- 
ing to the sphere of circulation part of the surplus value for 
realising the commodities created in production. 

The commercial capitalist must receive the same rate of 
profit as other capitalists who have invested their capital in 
some sector of material production. If commercial capital 
brought in a lower rate of profit, merchants would try to 
invest it in production. 

Interindustry competition leads to transfer of capital from 
one sector of the economy to another, including from the 
sphere of production to that of circulation and vice versa, 
which means that surplus value breaks down into industrial 
and commercial profit in proportion to the amount of capi- 
tal participating in the production and realisation of 

Karl Marx illustrated the process of the dividing up of 
surplus value and the participation of commercial capital in 
levelling up the average rate of profit by the following exam- 
ple. Suppose the total industrial capital advanced and func- 
tioning in the sphere of material production in the course 
of the year equals 720c -f- 180u = 900 monetary units. With 
a degree of exploitation of 100 per cent (s') and, on the con- 
dition that all the value of the constant capital is trans- 
ferred to the product, the value of the year's output will be 
720c 4- 180u -f 180s = 1,080. Without taking account of the 
capital employed in realisation of the commodity, the average 
rate of profit will be : 

p ' = 72 oT?T 8 oZ>< 100 = 20 per cent. 

But realisation of the commodities necessitates the advanc- 
ing of additional capital. Let us assume that 100 units of com- 



mercial capital are added to the 900 of industrial capital. 
Then the total social capital will be 900+100=1,000 and the 
average rate of profit for the total social capital will be: 

p’ = X 100 = 18 per cent. 

This rate of profit becomes the general index of the prof- 
itability (yield) of both industrial and commercial capital. 

The mass of profit received by the industrial capitalists, 
corresponding to the capital advanced by them, consists of 

p = — =162 monetary units, and profit on commer- 

J QQ W j g 

cial capital will be — ^ — = 1 8 monetary units. 

The industrial capitalists sell the commodities to merchants 
at a price of 720c+180y+162p=l,062 monetary units, i.e. 
at less than value. The merchants then sell these commodi- 
ties directly to consumers at the social price of production, 
equal to the value of the social product: 720c+180u4-162p+ 
+18/z=l,080 monetary units, where p is industrial profit and 
h is commercial profit. 

Commercial profit arises as a result of the purchase of 
commodities by commercial capitalists at a price below their 
value and their sale at a price coinciding with their value. 
Thus, the class nature of the commercial and industrial capi- 
talist is one and the same. These groups of the bourgeoisie 
exist thanks to capitalist exploitation of workers. 

The source of both industrial and commercial profit is the 
same-the surplus value created in production. Intensifica- 
tion of the exploitation of the workers employed in the 
sphere of material production therefore corresponds to the 
interests of both groups of the bourgeoisie. The exploitation 
of wage workers is the basis of the class solidarity of the 
industrial and commercial bourgeoisie. 

Costs of Circulation 

The realisation of commodities requires corresponding 
expenditure, the costs of circulation. Marx drew a distinc- 
tion between two types of costs of circulation: (a) addi- 
tional and (b) net or genuine costs. 



Additional costs ot circulation are the outlays necessitated 
by extension of the process of production into the sphere of 
circulation: such as the finishing and packing of goods, the 
storage of stocks of commodities, and the transportation of 
commodities from the place of production to the selling po- 
ints. These functions are of a productive character. The work- 
ers employed on these operations transfer to the commodi- 
ties, by their labour, the value of the means of production 
consumed and add new value to the value of the commodity. 
Additional costs, which do not in essence differ from costs of 
production, are also met from this value. The specific feature 
of the productive labour employed in commodity circula- 
tion is that it does not create new use value, but maintains 
and raises the availability of the products of labour already 
created for consumption. 

Net or genuine costs of circulation are more characteristic 
of capitalist trade than additional costs. They include expen- 
diture connected mainly with the conversion of the commodi- 
ty form of value into the monetary form without which 
commodities cannot be realised. 

Net costs of circulation include outlays connected with the 
calculation of commodity prices, with the operations of the 
purchase and sale of commodities, the book-keeping, the 
calculation of money receipts and expenditure, the costs of 
advertising, etc. Net costs of circulation are non-productive 
and are paid for from the surplus value created in produc- 
tion. Under contemporary capitalism, when monopolies in- 
flate prices significantly above values, the net costs of circu- 
lation are transferred en masse to consumers and, above all, 
to the working people. 

In capitalist countries as a whole, costs of circulation 
amount to 30 or 50 per cent of the value of retail turnover. 
Over two-thirds of all costs of circulation are net costs, 

A tendency for the level of costs of circulation to rise is 
inherent in the capitalist system of economy and is an inevi- 
table result of the deepening of the contradictions of capi- 
talism. Particularly large amounts are spent in all capitalist 
countries on advertising in its diverse forms. In the USA, for 
example, expenditure on advertising rose nearly 12-fold be- 
tween 1939 and 1970 to 19,700 million dollars, which was 
more than the national income of Brazil, the second biggest 



country in the Western Hemisphere, with a population of 
around 100 million. 

As the difficulties of marketing increase and competition 
becomes keener, many of the additional costs of circulation 
increasingly turn into non-productive net costs. 

The Exploitation of Commercial Employees 
and Small Commodity Producers 
by Commercial Capital 

Commercial employees do not create surplus value, but 
they, like all wage workers employed in the sphere of mate- 
rial production, are exploited by capital. The labour power 
of commercial workers is also a commodity and their wages 
are a transmuted form of value and the price of labour power. 
The working day of commercial workers is also divided into 
necessary and surplus labour time. 

However, the form of exploitation of commercial workers 
and employees has its own particular features. In the course 
of necessary labour time, workers employed in trade realise 
for the commercial capitalist the mass of surplus value 
created in production and needed to cover expenditure con- 
nected with the purchase of labour power. During surplus 
labour time, the part of the surplus value that the commer- 
cial capitalist obtains in the form of commercial profit 
is realised. “Just as the labourer's unpaid labour directly 
creates surplus-value for productive capital," Marx 
wrote, “so the unpaid labour of the commercial wage- 
worker secures a share of this surplus-value for merchant's 
capital." 1 

The greater the unpaid labour of commercial workers, the 
higher the degree of their exploitation, the lower the net 
costs of circulation and the greater the surplus value appro- 
priated by commercial capitalists in the form of commercial 

As capitalism develops there is an increase in the degree 
of exploitation of commercial workers, which is achieved 
mainly by lengthening the working day, increasing the inten- 

1 Karl Marx, Capital, Vol. Ill, p. 294. 



sity of labour and reducing wages below the value of labour 
power. Even bourgeois economists acknowledge the diffi- 
cult working conditions in trade, where the working day is 
longer than in other sectors of the economy and wages are 

Commercial firms make considerable profits from the ex- 
ploitation of petty commodity producers. The main form of 
exploitation of peasants and artisans in the sphere of circula- 
tion is non-equivalent exchange through selling them com- 
modities at artificially high prices and buying raw materials, 
foodstuffs and finished goods from them at prices below 
value. The considerable differences in prices that result from 
this (known as the discrepancy or "price scissors") are 
appropriated by commercial capitalists. 

Today commercial monopolies rob the whole working 
population, including the peasantry, by the extension of 
speculative consumer credit. When buying on instalment, the 
purchaser pays out a special supplement in addition to the 
price of the commodity and also the interest on the credit 
of 40 per cent of normal retail price. This form of trade is 
thus a special method of increasing the profits of merchants 
and bankers. 

As a result of the development of consumer credit, the 
degree to which the population of capitalist countries are 
in debt has risen enormously. In the USA, for example, 
arrears due to consumer credit rose from 7,200 million dol- 
lars in 1939 to 188,000 million in 1974, i.e. by 26 times. That 
does not include other forms of credit, in particular credit 
advanced to consumers to buy houses or flats, or credit ob- 
tained by mortgaging land, houses, or other real estate. 

Forms of Capitalist Trade 

Depending on the sphere in which commercial capital 
functions, the capitalist trade is divided into home and 
foreign trade. 

Home trade serves the economic links on the national 
(home) market. In realisation of the social product in eco- 
nomically developed capitalist countries it occupies the lead- 
ing place in volume (up to 80 per cent). 


Wholesale trade must be distinguished from retail trade. 

Wholesale trade is primarily trade between industrial and 
commercial capitalist businesses. It is characterised by bulk 
transactions, and specialisation in the purchase and sale of a 
single commodity or group of commodities (grain, timber, 
coal, and so on). Only the big bourgeoisie engage in whole- 
sale trade, determining market and credit conditions and 
receiving the larger share of commercial profit. As it has 
developed, wholesale trade has taken different forms (fairs, 
special wholesale markets, sample trade, commodity ex- 
changes, etc.). 

Retail trade is the realisation of commodities directly to 
consumers. Two special features distinguish it from whole- 
sale trade: (1) retail businesses usually sell a varied assort- 
ment of commodities; and (2) goods are sold for personal 
consumption and therefore in small lots. In retail trade, 
business is concentrated in the hands of the owners of big 
department stores and specialised shops, shops with stan- 
dard prices, and multiple shops or chain stores. 

In the post-war years self-service shops have become com- 
mon in capitalist countries. 

In connection with the increasing difficulties of market- 
ing, monopolies are using new forms of trade, e.g. instalment 
selling (hire-purchase), mail-order selling, and so on. Such 
measures cannot, however, eliminate capitalism s inherent 
contradiction between production and the low effective de- 
mand of the masses. 

A characteristic of the capitalist mode of production is the 
increase in exchange between countries through foreign 
trade. Thus, between 1960 and 1974 inclusive, the foreign 
trade of capitalist and developing countries increased from 
230,000 million dollars to 1,544,000 million dollars in cur- 
rent prices, or by 570 per cent, which far exceeded their 
growth of production. 

Foreign trade consists of import and export of commodi- 
ties. The results of a country's foreign trade are reflected in 
its balance of trade, i.e. the ratio (in prices) between the 
exports and imports in a specific period of time (quarter or 
year). The balance of trade shows the difference between sum 
total of prices of the commodities exported and imported. 
It is called favourable or active when exports exceed im- 




ports; when imports exceed exports it is passive or unfa- 

With an unfavourable trade balance, a state is compelled 
to cover the difference with gold or foreign exchange, or 

to resort to requesting credit. Every country therefore strives 
to export more commodities and import fewer, in order 
to have an active trade balance. 

The countries finalise their claims and debts not on the 
basis of the balance of trade, but on the basis of the balance 
ot payments, which is the ratio between the total payments 
coming into the country from abroad and the total of those 
it itself makes to other countries over a certain period of 
time. The balance of payments includes transfers connected 
with foreign trade, capital investments, payments for ser- 
vices, expenditure on foreign tourism, and so on. A country 
can have an unfavourable balance of trade but not be a debtor 
if it has a favourable balance of payments and vice versa. 
In the past, Britain often had an unfavourable balance of 
trade, but, at the same time, a favourable balance of pay- 
ments, since payments coming in from abroad (from capital 
investments, the charter of ships, etc.) completely made up 
for the negative balance of trade. 

The character of the economic links between countries in 
the world capitalist system also determines their foreign 
trade policy, which has its own specific features in each 
period of history. In the period of pre-monopoly capitalism, 
two basic types of foreign trade policy took shape: (1) the 
policy of protection for the development of home industry 
or protectionism; and (2) the policy of free trade. In the im- 
perialist period, the policy of free trade gives way to impe- 
rialist protectionism, i.e. the trade policy of financial tycoons 
aimed at monopolising the home market and capturing 
foreign markets in order to cream off high monopoly profits 
under the protection of the bourgeois state. 

The Role of Commercial Capital in Sharpening 
the Contradictions of Capitalism 

Commercial capital, occupying the dominant position in the 
sphere of commodity circulation, reduces the time of circu- 


lation of all capital, furthers the expansion of the home and 
foreign markets, the specialisation of production and growth 
of the social division of labour, and encourages acceleration 
of the reproduction of total social capital. 

At the same time, commercial capital sharpens and deep- 
ens the contradictions of capitalism. Above all, it aggravates 
the contradiction between production and consumption. 
Being separate from and seemingly moving independently of 
capitalist production, commercial capital increases com- 
modity stocks above the necessary level, expands stock- 
market speculation, and creates a fictitious demand for goods 
that far exceeds the real effective demand of the consumers. 
This 1 masks the basis of crises of overproduction and 
increases their destructiveness. 

Difficulties of marketing and slowing down of the rate 
of turnover of commercial capital give rise to a growth of 
net costs of circulation and lead to an increase in the prices 
of consumer goods. That intensifies the degree of exploita- 
tion of the working people, which, in turn, intensifies the 
class struggle of the proletariat and peasantry against the 

Commercial capital serves as an instrument for enslaving 
and plundering the peoples of developing states by impe- 
rialist monopolies, which inevitably deepens the contradic- 
tion between the handful of imperialist powers and the coun- 
tries that have won political independence. 

The socialisation of production and labour in industry 
and agriculture is complemented by socialisation in trade, 
which still further aggravates the basic contradiction of 

The Genesis of Loan Capital 

Loan capital is interest-bearing capital. The initial form of 
money capital bearing interest was usurer's capital, which 
existed as an independent form of capital in both the slave- 
owning and the feudal systems. One of the characteristics of 
usurer's capital was the excessively high rate of interest 

15 * 



(40, 50, 100 per cent, and higher). Usury, by entangling 
slave-owners, feudal lords, and peasants in debt, led to 
undermining of their economies and a decline in the pro- 
ductive forces of the slave-owning and feudal modes of pro- 

The rising industrial and commercial bourgeoisie required 
credit to carry on its commercial operations, but industrial- 
ists and merchants were unable to make use of usurer's 
credit with its excessive interest rates, which often ex- 
ceeded the amount of industrial or commercial profit. Because 
of that, a stubborn struggle of the growing industrial bour- 
geoisie developed against usury, for lower rates of 

Industrial capital and the credit system created by it grad- 
ually squeezed usurer's capital into second position. For 
small commodity producers, particularly for peasants, loan 
capital typical of capitalism is not always available even 
today. Large capitalist banks often refuse to extend credit to 
small producers, since they are not considered credit-worthy, 
so they continue to be cruelly exploited by usurer's capital, 
particularly in the developing countries. 

Loan Capital 

Loan or interest-bearing capital is engendered by industrial 
capital itself. Its sources are formed during the movement 
of industrial capital. 

Industrial capital, as noted above, passes through three 
stages in its circular movement. Some of it is released periodi- 
cally over longer or shorter periods of time in money form. 
Depreciation allowances on renovation of fixed capital, above 
all, become free for a certain time. While the elements of 
fixed capital continue to serve in production, depreciation 
allowances accumulate year by year. Some of the surplus 
value that the capitalist uses to expand production also proves 
to be temporarily free. While the surplus value intended 
for capitalisation is below a certain amount, it is accumulated 
in the form of money. Part of the surplus value destined by 
the capitalist for his own personal consumption also accu- 
mulates in the form of money. 



Temporarily free money capital also comes into capital- 
ists' hands when they receive cash from the sale of their 
output before the time has come to pay workers their wages 
and to buy raw materials, fuel, etc. 

Thus, the circular movement of industrial capital leads 
inevitably to the formation of temporarily free money capital. 

While some capitalists have free money capital, which they 
cannot use for the time being, others, on the contrary, require 
additional loan capital, for example, to expand produc- 
tion, to buy seasonal raw materials, or for other needs. The 
temporarily free money capital of some capitalists can there- 
fore be put out on loan, i.e. for the temporary use of other 
capitalists who need it. The monetary form of industrial 
capital thus becomes separated off as a special form of capi- 
tal-as interest-bearing or loan capital. 

Capital put out on loan is used by the borrower to extract 
profit through exploitation of wage workers. It manifests the 
relationship between money capitalists and functioning capi- 
talists, i.e. industrialists and merchants or traders. 

How are transactions made between creditors and borrow- 
ers, and what is the object of the transaction? 

When a functioning capitalist is granted a loan, a particu- 
lar kind of sale of money as a special commodity, capita!, 
takes place. In addition to its use value as money, as a 
means of purchase or payment, money acquires another, spe- 
cial use value under capitalism consisting of its ability to 
become capital and to yield profit. It is this special use value 
of money that the functioning capitalist buys for a specific 
time and that the loan capitalist sells. Thus, money capital 
becomes a commodity sui generis with a specific use value. 
The interest on the loan acts as the price of capital as a 

The Essence of Interest 

Money capital is only handed over for a time and must 
be returned to the owner with the payment of interest. The 
movement of loan capital is expressed by the formula: 
M-M'. The impression is created that money itself possesses 



the property of bearing profit. In reality, interest is only 
received on loan capital because, in the hands of the borrow- 
er, the capital goes through its proper circuit, i.e. is converted 
from money capital into productive capital and absorbs the 
surplus value created by wage workers in production. 

Interest is payment for the use of the use value of loan 
capital, and a kind of price of capital as a commodity. If a 
certain sum of money, e.g. 1,000 dollars, is lent out at an 
annual rate of interest of 4 per cent, the price of the thou- 
sand dollar capital will be 40 dollars. It is quite obvious 
that, in this case, price is not an expression of value; and 
this is why Marx called interest the irrational price of loan 
capital. Interest, in its essence, is nothing other but part of 
average profit that the functioning capitalist pays to the 
owner of the capital for the use value of the capital granted 
as a loan. Loan interest is a special form of surplus value 
created by the labour of wage workers in the process of 
production and appropriated by the loan capitalist. 

The Rate (Level) of Interest 
and Factors Determining It 

The rate of interest is the ratio of the amount of the 
annual income received on loan capital to the sum of the 
capital granted as a loan. For example, on 100,000 dollars 
lent as capital, a yearly income is received in the form of 
interest to the amount of 5,000 dollars, the rate of interest is 

5,000 dollars X 100 
100,000 dollars 

= 5 per cent. 

The rate of interest on the loan depends on the average 
rate of profit and is determined by the ratio between the 
supply and demand for loan capital. If there is a lot of free 
money capital and the demand for it is small, the rate of 
interest will fall. If, on the contrary, demand for loans is 
high but the amount of capital offered on loan diminishes, 
the rate of interest will rise. The average rate of profit can 
be taken as the upper limit of the rate of interest. The mini- 
mum limit of interest, as Karl Marx pointed out, cannot be 


defined at all. It can fall to a level close to zero. Between 
these limits, fluctuations of its rate are possible. 

The ratio between the supply of and demand for loan capi- 
tal by which the rate of interest is determined, itself depends 
on the movement of real industrial capital. It is different, for 
example, in the different phases of the capitalist cycle.. A 
significant increase in the rate of interest takes place during 
the boom. In the crisis phase, the rate of interest also rises 
sharply and reaches its maximum, since demand for ready 
cash grows to the limit when many enterprises are. threatened 
with a bankruptcy. The minimum rate of interest is observed 
during depression when, after the crisis, production 

The general historical tendency of the rate of interest is 
for it gradually to fall. First, there is the tendency observed 
for the rate of average profit, of which interest forms a pat , 
to fall. Second, the rate of interest falls because, as. capital- 
ism develops, the supply of loan capital grows, since the 
amount of free capital is constantly rising This comes, about 
both through an increase in the number of money capitalists 
or rentiers, and through the development of the capitalist 
credit system, which concentrates the free money r^rces 
of the other strata of bourgeois society m banks and turns 
them into loan capital. 

The Division of Profit into Loan Interest 

and Profit of Enterprise 

The part of profit that remains at the disposal of the func- 
tioning capitalist after the payment of interest comprises 
vtofitoi enterprise. Since the use of loans is a common phe- 
nomenon under developed capitalism, the division of profit 
into interest and profit of enterprise is also usual Any profit, 
regardless of whether it is obtained as a result of using one s 
own or borrowed capital, begins to be divided into two 

^This strengthens the impression that interest is the result 
not of production, but of the ownership of capital as such 
while the profit of an enterprise appears as the wages of 

the capitalist. 



In connection with the development of loan capital, an 
ever greater separation ot capital as property from capital 
as a iunction takes place. The loan or money-lending capi- 
talist operates exclusively as the owner of capital, and the 
application of capital in production, i.e. its real functioning, 
takes place in the hands of another capitalist. Loan capital is 
the most parasitic form of capital. The owners of money 
capital share equally with industrial capitalists in the exploi- 
tation of wage labour and in the distribution of surplus value. 

In loan capital, which completes its movement 
according to the formula M-M' , the production relations of 
bourgeois society are misrepresented and concealed even 
more than in ether forms of capital. In order to embellish 
capitalism, its apologists camouflage the exploitative nature 
of interest in every way and claim that it results from pure- 
ly psychological factors. The English economist John May- 
nard Keynes, for example, argued that interest was the re- 
ward for foregoing liquidity (in other words, ready cash). In 
reality, loan interest, as we said above, is a special form of 
surplus value, created in production and appropriated by 
the loan capitalist. 

Joint-Stock Companies and Share Capital 

As the scale of production increases, capitalism comes up 
against the limitations of individual capitals. The size of in- 
dividual capitals proves insufficient for such enormous under- 
takings as railways, canals, sea ports, huge mills, power 
stations, and so on. The problem of combining (or centralis- 
ing) many individual capitals into a single large one was 
solved by the organisation of capitalist undertakings in the 
form of joint-stock companies. 

Joint-stock companies, corporations first came into being 
in the seventeenth century and only became common in the 
second half of the nineteenth century. They now occupy the 
dominant position in the capitalist economy. In the United 
States, for example, the share of joint-stock companies in 
the gross industrial product exceeds 90 per cent. 

A joint-stock company is an undertaking in which the 
capital not of a single capitalist but of a group of capitalists 



who have bought its shares is invested. A share is a security 
certifying the investment of a certain amount of capital in a 
joint-stock company. The owner of a share has a right to 
receive part of the profits of the undertaking, in proportion 
to the capital invested by him or the number of shares pur- 
chased. The income paid out on shares is called a dividend. 
Everyone buying a share is formally considered a copartner 
of the undertaking and has the right to participate in the 
general meeting of shareholders, which is the highest organ 
of the company. 

In addition to ordinary shares a joint-stock company may 
sometimes issue bonds that give the right to a fixed income 
in the form of interest. These are issued for a specific period 
of time and after its expiry are bought out by the joint-stock 
company. The holders of bonds are not copartners but credi- 
tors of the company. 

Share Quotations 

Shares are bought and sold on special security markets- 
stock exchanges-and also in banks. Price of shares, known 
as quotation, is determined at any given moment by the ratio 
of the rate of dividend to the rate of interest. Let us assume 
that an annual dividend of 10 per cent is paid out on a share 
with a nominal or face value of 100 dollars, while the rate 
of interest which the banks pay on deposits is 5 per cent per 
annum. The stock-exchange price of this share will be 200 

^ dividend X 100 10X100 

Quotation - ratc of interest on the loan “ 5 ~ 

= 200 dollars. 

The share price is thus directly proportional to the dividend 
and inversely proportional to the rate of interest on loans, 
and in spite of the fact that the share has a face value of 
100 dollars, its price or quotation may be 200, 300, or 75 
dollars, depending on the dividend being paid on it and on 
the rate of loan interest at the given moment. 

Fluctuations of share prices are caused by changes in the 
ratio of supply to demand which, in turn, are determined 
by expected changes in the level of dividends. Strong flue- 



tuations in share prices are caused by the cyclic character 
of capitalist production: they rise significantly during in- 
dustrial booms, and they fall sharply during crises. During 
the economic crisis of 1929-33, for example, shares in the 
United States depredated by approximately 85 per cent or 
a grand total of 85,000 million dollars. Between December 
1972 and December 1974, share prices quoted on the New 
York Stock Exchange alone fell by 587,000 million 

Promoters’ Profit 

Promoters' profit is received by the founders or promoters 
of joint-stock companies, i.e. the big industrialists and bank- 
ers heading them. It is based on the difference between the 
dividends of the given company and the average rate of in- 
terest on loans. Since the excess of the dividend rate over 
the rate of interest also determines share prices, promoters' 
profit is quantitatively equal to the difference between the 
total price of the undertaking's shares at the current stock- 
exchange rate and the real capital invested in it. 

There are different ways of drawing promoters' profit. Let 
us consider the most important ones. Let the capital invested 
in an undertaking be 100,000 dollars and the number of 
shares 1,000, i.e. the nominal value of one share is 100 dol- 
lars. If the dividend of the undertaking is 10 per cent and 
the rate of interest 5 per cent, then the stock-exchange price 
of a share will rise to 200 dollars. Consequently, promoters 
investing 100,000 dollars will be able at the expiry of the 
first year when a dividend of 10 per cent is paid, to sell all 
their shares for a sum close to 200,000 dollars. The difference 
of 100,000 dollars is the promoters' profit. In Imperial- 
ism, the Highest Stage of Capitalism, Lenin cited an actual 
example of a similar type. The Deutsche Bank, before releas- 
ing shares of the Siberian Commercial Bank onto the Berlin 
market, kept them in its portfolio for a whole year and then 
sold them at the rate of 193 for 100, i.e. nearly twice their 
nominal value, and "earned" about six million rubles of pro- 
moters' profit. 1 

1 See V. I. Lenin, Collected Works, Vol. 22, p. 232. 



A much more common means of obtaining promoters' 
profit is as follows. On the basis of an expected dividend of 
10 per cent when the rate of interest is 5 per cent, the pro- 
moters immediately, when floating the company, issue shares 
for sale to a sum of 200,000 dollars, although the actual 
outlay in organising the undertaking is only 100,000 dollars. 
Having sold 2,000 shares at their nominal price of 100 dol- 
lars each, the promoters collect 200,000 dollars from the 
purchasers of shares and appropriate 100,000 of promoters' 
profit. The operation is known as the watering of capital. 

Promoters do not necessarily sell all the shares issued, but 
keep some themselves in order to control the company, to 
have them at their disposal, and to receive dividends on them. 
In this case, they also appropriate enormous sums of pro- 
moters' profit while ordinary shareholders receive dividends 
on their shares approximately at the rate of interest. 

The Controlling Block of Shares 

The joint-stock form of undertaking increases the concen- 
tration and centralisation of capital and enables the big 
bourgeoisie to make use of the capital of the petty capitalists 
and even the savings of workers to raise their own profits. 
Daily experience shows convincingly that it is the big 
capitalists who run things in joint-stock companies. The fact 
is that although decisions are taken by majority vote at the 
general meeting of shareholders, each shareholder has as 
many votes as he has shares. A small group of major capi- 
talists always holds a sufficient number of shares to ensure 
themselves a majority vote. This number is known as a 
controlling block of shares. Its holders in fact determine all 
decisions, elect the board of directors of the company, ap- 
point the managing directors, decide the size of dividends, 
and in general determine the whole commercial and in- 
dustrial policy of the company. In practice, in order to have 
control of the affairs of a company, it is generally not neces- 
sary to hold more than 50 per cent of its shares. Usually, 
small shareholders do not attend general meetings, and if 
shareholders owning 20 or 30 per cent of the shares be- 
tween them attend the meeting, then only 10 or 15 per cent 
of the total shares may be needed for a controlling block. 



Fictitious Capital 

Shares, bonds, and other securities have no value in them- 
selves, but are only certificates of property, giving the right 
to receive an income, and are therefore called fictitious capi- 
tal. The real capital of a joint-stock company operates in 
production and trade, and is embodied in means of produc- 
tion, cash funds and commodities produced. Alongside it, 
however, there is fictitious capital, as the sum of the prices 
of all shares and bonds. Since the quotations of shares and 
other securities alter to a certain degree independently of 
the movement of real capital, fictitious capital can be several 
times greater than the capital functioning in production. 

Share capital thus has a sort of dual existence. On the one 
hand, it operates as real capital in production and circula- 
tion and, on the other hand, as fictitious capital, as the total 
price of all the shares and bonds in which real capital finds 
distorted reflection. The illusory nature of fictitious capital 
is seen particularly clear during stock-exchange crashes, 
when the prices of securities collapse. Their total price falls 
steeply in the course of only a few days or even hours, but 
the nation is no poorer as a result. The nature of securities 
as fictitious capital is all the more evident in government 
bonds which are the expression of previous bourgeois govern- 
ments' spending (as a rule non-productive) rather than of a 
real functioning capital. 

The enormous increase in fictitious capital (including gov- 
ernment bonds), and the growth of a stratum of rentiers 
living exclusively on income from securities, is evidence of 
the growing parasitism and decay of modern capitalism. 

Capitalist Credit — a Form of the Movement 
of Loan Capital 

Loan capital completes its movement through the medium 

! of credit. Capitalist credit is a form of the spontaneous move- 
ment of loan capital. It exists in two main forms : (a) of com- 
mercial credit, and (b) of bank credit. Commercial credit 
comprises the basis of the credit system, since it is directly 
linked with the turnover of industrial capital. It is the mutual 



credit extended to each other by industrialists and traders in 
the process of realising commodities. Since times of the pro- 
duction and circulation of capital are different in different 
sectors of production, some capitalists appear on the mar- 
ket as sellers before others can appear as buyers. In these 
circumstances the need arises to sell commodities on credit, 
i.e. with payment deposed for a specific period of time. If 
commodities were only sold for cash, the continuity of capi- 
talist reproduction would inevitably be disrupted at a num- 
ber of stages. Commercial credit, in commodity form, elimi- 
nates such difficulties and speeds up the realisation of com- 
modities and the whole reproduction process. 

Capitalists lend each other commodities as a rule on 
promissory notes or bills of exchange, which are based on 
commercial credit (see Section 5 in Chapter Three). 

In spite of the wide use of commercial credit, its sphere 
is limited. (1) Commercial credit can only be extended within 
the bounds of the commodity portion of the capital of indi- 
vidual functioning capitalists, i.e. industrialists and traders. 
(2) Since commercial credit is extended in commodity form, 
it can only be employed between buyers and sellers in inter- 
connected sectors of production. 

The limited nature of commercial credit is overcome by 
the existence along with it and development of bank credit, 
which is credit extended by money capitalists and banks to 
functioning capitalists, in the form of money loans. 

Bank credit is not limited by the size of individual capitals 
and can be extended in larger amounts to any capitalist for 
any period of time. It is the movement of loan capital as 
the part of industrial capital that has been released, and is 
inherent in the more developed stages of capitalism. 

Special capitalist enterprises-bmi&s-act as intermediaries 
between the capitalists in credit and payments. They accu- 
mulate the temporarily free money capital of functioning 
capitalists, the capitals of money capitalists, rentiers, the 
incomes and savings of the other classes of bourgeois society, 
the resources of pension funds, state budgets, and public or- 
ganisations, and transform them into loan capital extended 
as credit to other capitalists. 

Banks, wrote Lenin, "transform inactive money capital 
into active, that is, into capital yielding a profit; they collect 



all kinds of money revenues and place them at the disposal 
of the capitalist class ". 1 

Bank Operations 

Bank operations are distinguished as passive (liabilities) or 
active (assets). Passive operations are those by which resources 
are drawn into banks. They include, above all, the forma- 
tion and accumulation of the bank’s own capital (sale of the 
bank's shares, banker's profit, and so on). The bank's own 
capital, however, usually comprises only a small part of 
the resources that it has at its disposal. The attraction of 
other people's resources in the form of deposits is therefore 
of much greater significance. 

Depending on the period of withdrawal, cash deposits 
are divided into fixed deposits, which the depositor can only 
withdraw after a previously established period, and non- 
fixed deposits, which he can withdraw at any time in whole 
or in part. The second type are current account deposits. 

Active operations of banks are those dealing with the allo- 
cation of the resources at their disposal. The granting of 
credit (advancing of loans) by banks is done in various 
forms. One is the discounting of bills of exchange . A capi- 
talist, on selling his commodity on credit and receiving a 
promise to pay, often cannot wait for payment of the debt on 
the bill of exchange, since he needs ready cash. In such cases, 
the bank helps and buys the bill of exchange for cash, but 
deducts a certain interest for the time left until the bill falls 
due. The operation is known as the discounting of bills. 

A common form of bank credit is that of loans on the 
security of commodities, valuables and securities, and on 
the mortgaging of land and other real estate (so-called 
credit on mortgage). 

In addition to loans on some guarantee, banks also extend 
loans without security (bank credit). This is usually only ad- 
vanced to very big capitalists whose credit rating is beyond 

1 V. I. Lenin, “Imperialism, the Highest Stage of Capitalism", Col- 
lected Works, Vol. 22, p. 210. 



Banks are involved in stock-market operations on a very 
broad scale, through the purchase and sale of stocks, shares 
and bonds, the distribution of loans, the promotion of joint- 
stock companies, and so on. In the period of imperialism, 
bank operations in government securities have become an 
ever increasing proportion of all dealings. The scale of such 
business can be judged from the fact that in the United States 
alone, at the present time, about half the total assets of 
all commercial banks are invested in government bonds. 

Banker’s Profit. Types of Banks 

For extending a loan, the bank charges a rate of interest 
higher than it itself pays out to depositors. Banker's profit 
is formed from the difference between the interest the bank 
charges and that it pays out. Although this difference is not 
usually great, banker's profit, in relation to his own capital, 
is never below the average rate of profit for industry. Bank- 
er's profit is a form of surplus value. Its source, like that of 
all other profit, is the surplus value created as a result of the 
exploitation of wage labour. 

By the nature of their activities, banks can be divided into 
three basic types: banks of issue, commercial banks, and 
mortgage banks. 

A bank of issue is usually the central bank of a country (a 
state or private joint-stock bank) to which the state has given 
the monopoly of issuing bank notes. As a rule a bank of issue 
does not deal with individual entrepreneurs, but grants credit 
to other banks. Such a bank is a sort of bankers' bank. 

Commercial banks are those concerned mainly with grant- 
ing credit to industry and trade, but alongside their short- 
term credit operations, they are increasingly switching to 
granting long-term credit and financing investment connected 
with the construction of new enterprises and the extension of 
old ones. Banks take into their own hands the promotion of 
joint-stock companies, and the issue and distribution of 
shares, and appropriate vast promoters' profit. 

Mortgage banks mainly extend credit on the security of 
immovable property or real estate (land and houses). Their 
activities lead to broad masses of peasants, farmers, and 



small houseowners becoming ensnared in debt and 

Along with the banks, which play the main role in the 
credit system of bourgeois society, other credit institutions 
also exist (savings banks, credit co-operatives, insurance com- 
panies, and so on) and participate in the mobilisation of tem- 
porarily free money resources. 

The Role of Credit in Capitalist Society 

Credit plays an extremely important role in capitalist socie- 
ty. First, it helps speed up the flow of capital from one in- 
dustry to another and the averaging of various profits. 
Second, it promotes an increase in the production of surplus 
value and significantly reduces costs of circulation, since it 
speeds up the circulation of commodities and shortens the 
turnover time of capital. By substituting bills of exchange, 
cheques, bank notes, and clearings for gold money in its 
functions of a medium of circulation and means of payment, 
credit eliminates large non-productive expenditure connected 
with the currency of gold. Third, credit is a powerful means 
of concentrating and centralising capital, and in so doing 
speeds up the expropriation of small capitalists by big ones. 
And all this stimulates the development of capitalist 

At the same time, credit encourages the development and 
sharpening of all the contradictions of capitalism. By speed- 
ing up the socialisation of production, it leads to sharpening 
of the basic contradiction of capitalism, that between the 
social character of production and the private capitalist form 
of appropriation. By furthering the development of produc- 
tion and the concentration of tens of thousands of workers 
in giant undertakings, credit helps intensify their exploita- 
tion and sharpening of the class contradiction between labour 
and capital. 

By accelerating the process of capitalist production and 
circulation, credit promotes a more rapid onset of crises of 
overproduction, conceals the beginnings of crises, and in- 
creases their destructiveness. 



International credit is one of the imperialist states' most 
powerful weapons for exploiting and enslaving developing 

With the help of credit, imperialists seize markets, sources 
of raw materials, and the spheres of the application of 
capital, and strive to subordinate other states both economi- 
cally and politically. Thus, the development of international 
credit deepens the contradictions of the world capitalist 


Chapter 8 



Apart from the different groups of capitalists (industrial- 
ists, traders and bankers), a special class of exploiters, big 
landowners, share in the distribution of surplus value under 
capitalism, receiving unearned incomes in the form of rent of 
land. In general, rent of land is a form of surplus labour 
and surplus product appropriated by landowners. In capi- 
talist society, it is one of the forms of surplus value created 
by the labour of hired agricultural workers. 

Marx's theory of rent of land, later developed by Lenin, 
reveals the reactionary role of big private landed property 
as a factor holding back development of the productive forces 
in agriculture, and substantiates the need for revolutionary 
transformation of agriculture and elimination of the para- 
sitic class of landowners. It shows that the bourgeoisie, in 
company with big landed proprietors, exploits not only the 
working class but also the labouring peasantry which, as a 
result, becomes a revolutionary, anti-capitalist force. The 
theory of rent gives a scientific substantiation of the need for 
an alliance of the working class and the peasantry in the 
revolutionary struggle, and serves as the theoretical basis of 
the agrarian programmes of the Communist and Workers' 


Capitalist landed property was preceded by that of feudal 
lords and capitalist rent by feudal rent. 


Forms of the Bourgeois Agrarian Evolution 

The process of liquidating feudal relations in agriculture 
and establishing bourgeois ones took different forms in dif- 
ferent countries. Lenin showed that two paths were most 
typical in the capitalist evolution of agriculture. 

The first, the so-called Prussian or landowner type of de- 
velopment, consists in the old manorial farming typical of feu- 
dalism, through limited agrarian reforms gradually being 
transformed into capitalist farming. Along with the develop- 
ment of capitalist relations in agriculture, survivals of feu- 
dalism remain for a long time, e.g. enserfment of the peas- 
ants by the landowners in the form of labour rent, share 
cropping and so on. This tortuous course of capitalist agrari- 
an evolution was followed in Prussia, tsarist Russia, Japan 
and a number of other countries. 

The second path Lenin called the American or peasant 
type. It is followed when there is no landed proprietorship 
or it has been destroyed by the bourgeois revolution. On 
some conditions, the land is distributed among the small 
peasants whose holdings then develop freely and more rapid- 
ly along the road of capitalist farming. This took place, 
for example, in the United States, where significant land 
areas seized during colonisation were granted to the Euro- 
pean settlers for a small payment. The numerous small farms 
formed as a result were based at first on personal labour 
and were not capitalist in nature. With the development of 
commodity production, however, many of the small farmers 
were rapidly ruined and became wage workers while the up- 
per stratum of farmers who enriched themselves began to 
make use of hired labour. After the bourgeois revolution of 
1789-93, French agriculture followed approximately the 
same path of capitalist development. 

The Transformation of Feudal Rent 
into Capitalist Rent 

Feudal rent, as has already been pointed out, took three 
forms: labour rent, rent in kind and money rent. Money 
rent was characteristic of the period of the disintegration 
of feudalism and of the rapid development of commodity- 

10 * 



money relations. In that period differentiation of the peas- 
antry proceeded more intensively. Individual groups of 
peasants got the opportunity to buy their freedom from the 
feudal lords and to become independent small commodity 
producers. At the same time, the bulk of the peasants began 
to be ruined and deprived of their implements of labour 
and cattle. 

In many countries, this process was significantly speed- 
ed up by the so-called primitive accumulation of capital, i.e. 
by forced expropriation of the land worked by the peasants 
and of other means of production. This was the case, for 
example, during the period of the “enclosures" in England, 
at the time of the "liberation" of the serfs in Russia, and 
so on. 

Relations between the landowners and the peasants who 
had bought or been "given" their freedom at first took the 
form of a one-sided agreement on leasing land, mainly in 
order to meet the needs of the peasant family. Later, groups 
of well-to-do peasants evolved who became tenant-farmers, 

i.e. they leased land from the landed proprietors, worked it 
using hired labour, and produced agricultural products as 
commodities for sale on the market. When he sold his 
produce, the tenant-farmer received a certain profit, part 
of which he had to pay to the owner for the land leased. 
This part of surplus value that exceeds the average profit 
and is paid to the landowner for use of the land is called 
capitalist rent. 

The difference between feudal and capitalist rent can be 
summed up by the following major points. 

1. Feudal rent was based on relations of non-economic 
compulsion and on personal dependence of the peasant on 
the lord of the manor. Capitalist rent is based on relations of 
capitalist exploitation, taking the form of "free" commodity- 
money relations. 

2. With feudal rent, the direct producer owned instruments 
of labour and a plot of land. With capitalist rent, the direct 
producer is deprived of both land and instruments of labour. 
He is not only "free" personally, but is also "liberated" from 
the means of production. 

3. Feudal rent was connected basically with a natural, sub- 
sistence economy, while capitalist rent is associated with a 


commodity-money economy, producing agricultural produce 
mainly for the market. 

4. Feudal rent reflected the relations between two classes, 
feudal lords and peasants, while capitalist rent reflects the 
relations between three classes, landowners, capitalists and 
hired workers. 

5. Feudal rent included the whole of the surplus product, 
capitalist rent includes part of the surplus product or a part 
of surplus value exceeding the average profit. 

In spite of these differences, both feudal and capitalist 
rents have a common basis : both represent an economic form 
of the realisation of landed property. In both cases, big 
landowners live a parasitic way of life through exploitation 
of the direct producers, peasants and hired agricultural 

Under capitalism, big landowners do not, as a rule, con- 
cern themselves directly with the organisation of agricul 
tural production, but lease the land to capitalist tenant- 
farmers. Land ownership, therefore, exists separately 
from agricultural production. Two types of monopoly 
are formed in agriculture: (1) the monopoly of large 
private property in land and (2) the monopoly of capi- 
talist management of the land. The two are the cause of the 
formation of two basic types of capitalist rent-absolute and 

Survivals of Feudal Relations 

Having established their dominance, the bourgeoisie do 
not destroy feudal-serf relationships, but in many cases re- 
tain them and adapt them to their own interests. Under 
capitalism, therefore, various forms of feudal rent survive 
alongside purely capitalist rent. Describing agrarian relations 
in Russia on the eve of the 1905-07 revolution, Lenin wrote 
in his work "The Agrarian Programme of Russian Social- 
Democracy": "To use Marx's terminology, labour rent, rent 
in kind, money rent, and capitalist rent are all most fan- 
tastically interlinked in our country." 1 This intertwining of 
the different forms of rent is still characteristic of many 
countries, in particular, of the developing countries. 

i V. I. Lenin, Collected Works, Vol. 6, p. 116. 


The numerically predominant form of farming in the 
agriculture of the capitalist world even today remains small- 
scale commodity peasant farming with survivals of feudal- 
ism, but, since the predominant relations in agriculture too 
under capitalism are bourgeois relations, it is these pre- 
dominant relations that Marx analysed in his theory of rent, 
abstracting, for the sake of clarity, from small-scale peasant 

Rent and Rental 

Rent is paid to the landowner in the form of rental for 
the land. Rental should not, however, be confused with 
capitalist rent. Rental, apart from rent, can also include 
other components, e.g. the depreciation of buildings and 
structures erected on the land; interest on capital previously 
invested in the land; part of the wages of agricultural work- 
ers ; and m certain conditions, a portion of the average 
profit of the tenant-farmer. When the land is leased to small 
aimers, the rental may include not only the whole surplus, 
but also part of the necessary product of the peasant tenant 
Rental is die whole income of the landowner from a par- 
ticular plot of land. Rent is simply payment for the right to 
use the land itself, or the excess of surplus value over the 
average profit on the capital of the tenant. 

The question arises as to how this surplus is formed. 
Analysis of differential and absolute rent provides the 


We already know that industrial capitalists who intro- 
duce the latest techniques and technology, temporarily re- 

Wd e on a a SU ;& 1US V3 ! Ue ° r super 'P rofit - Differential (i.e. 
based on a difference) rent is similar to super-profit in 

chaiacter, but m agriculture, in contrast to industry, it is a 
constant phenomenon and is appropriated not by the capi- 
talist, but by the landowner. y 



Monopoly of the Land as the Object of Farming 
and Specific Features of Price Formation 
for Agricultural Produce 

In agriculture, the most important role is played by a 
specific means of production, land. Land differs from other 
means of production (machines, equipment, raw materials, 
etc.) in that it is not the product of labour, that its area is 
limited and cannot be increased at will, and that in every 
country, there is a certain amount of good, average and poor 
land. Differences in the natural fertility and location of plots 
of land cultivated give rise to inevitable differences in 
the results of production too. With an equal expenditure 
of capital, the ~ yield from the richest soil will always 
be higher and the value of a unit of output (a bushel 
of grain, for example) lower than from average or poor 

The limited amount of land and its use by capitalist farm- 
ers result in a kind of monopoly oi the land as the object 
of: capitalist farming. The essence of this monopoly is that 
other capitalists cannot enter this sector of production un- 
hindered by creating an unlimited number of new agricul- 
tural undertakings on rich or average land. They can only 
draw poor, as yet uncultivated land into production. Capi- 
talists will only invest capital in the cultivation of such land 
if the prices of agricultural products make it possible for 
them to cover production costs and receive average profits. 
Since, however, identical commodities are sold all at the 
same * price on the market, the prices of products from the 
poorest land also apply to products produced on average 
and rich land. The social price of production of agricultural 
products, therefore, unlike the products of the manufacturing 
industry, is determined not by the average conditions of pro- 
duction, but by the conditions of production on the poorest 
land. If agricultural products were sold at the price of pro- 
duction on the average land, the capital invested in poor land 
would not bring in an average profit to the capitalists and 
its cultivation would become impossible; but such a situation 
would lead to a shortage of agricultural produce, to an ex- 
cess of demand over supply and to a rise of prices, i.e. it 
would become profitable to cultivate the poor land too. 



In view of the fact that social demand for agricultural 
produce cannot be satisfied by production on the best and 
average land, the social price of production for these prod- 
ucts will inevitably be determined by the conditions of pro- 
duction on the poorest land cultivated. 

The Formation of Differential Rent 
and Its Sources 

Differential rent is a type of extra surplus value. Like all 
surplus value, it is created by the labour of hired workers. 
Capitalist farmers renting the richest and average plots of 
land receive, for the same expenditure of capital, a larger in- 
come than from poor plots. So they constantly draw off super- 
profit equal to the difference between the social and in- 
dividual prices of production. This extra profit, however, does 
not remain with the capitalist tenant-farmers. The owners of 
the rich and average land appropriate it in the form of dif- 
ferential rent. The cause of the formation of differential rent 
is monopoly of the land as the object of farming, and private 
ownership of the land only causes it to be transferred from 
the capitalist tenant-farmer to the landowner. 

The impression is created that the generator of rent is not 
labour but the fertility of the soil and natural conditions. If 
no labour was applied to the soil, then, however fertile it 
was, it would remain barren. The sole source of rent, there- 
fore, is surplus labour. The fertility of soil is one of the natu- 
ral conditions determining the productivity of the labour 
of those who work it. 

Two types of differential rent are distinguished: differen- 
tial rent I and II. 

Differential Rent I and Its Two Forms 

Differential rent I is connected with differences in the natu- 
ral fertility and location of plots of land in relation to the 

First let us consider the mechanism of the formation of 
differential rent I according to fertility, taking a concrete 



example. Let us assume that there are three plots of land, the 
same in size and location, but of different fertility. 

of soli 

<c+ n) 









price of 
(in dollars) 

Social price 
of production 
(in dollars) 

(in dol- 

all 1 




all 1 






























With the same expenditure of capital, the labour applied 
to each of these plots gives a different efficiency of produc- 
tion: the tenant on the first plot receives ten quintals of out- 
put, the second 12 quintals and the third 15 quintals. As a 
result, the individual prices of production (costs of production 
plus the average profit) of one quintal from the first (poorest) 
soil will be the highest, i.e. 12 dollars, from the second 
(average) soil 10 dollars, and from the third (richest) soil 
8 dollars. 

The market, however, does not recognise these differences 
and similar products of similar quality will be sold at one 
market price, determined by the conditions of production on 
the poorest soil, i.e. at 12 dollars a quintal. Under these con- 
ditions, the tenant-farmers renting rich and average land, 
whose individual prices of production per quintal are lower 
than the social price, will constantly receive super-profit of 
24 and 60 dollars, respectively, and pay it to the owner of the 
land as differential rent I. 

Thus, differential rent I according to fertility comprises 
the difference between the social price of production of agri- 
cultural products and their individual prices of production 
on the more fertile soil. 

Differential rent I can also arise as a result of differences 
in the location of the land in relation to the market. Since 
the cultivation only of land close to the market does not 
satisfy the social demand for agricultural produce, the general 



regulating price of production of agricultural produce in- 
cludes the transportation costs of the most distant land sup- 
plying the given market. A farm situated closer to the sales 
outlet and selling its output at the same social price of pro- 
duction will receive extra profit, forming differential rent 1 
according to location. 

The two different bases of differential rent I-fertility and 
the location of the land-can operate in different directions. 
A farm, for example, may be fertile but distant from the 
market. The general rule under capitalism, however, is that 
the social price of production of agricultural products is de- 
termined by the individual price of production on land 
where, with an average level of technology and organisation 
of labour, the total cost of production and transportation 
per unit of output is maximum, on the condition that culti- 
vation of this land is necessary to meet the demand of the 

Differential Rent II 

When studying differential rent I, we started from the 
position that equal amounts of capital are invested in the 
land differing in fertility and location. This presupposes ex- 
tensive development of agriculture, when production in- 
creases through an extension of the area sown. But a growth 
of agricultural production is also achieved through more 
intensive use of land already under cultivation. Intensifica- 
tion is achieved by introducing new methods of working the 
soil, new machines, fertilisers, through irrigation, land recla- 
mation and so on, for which additional investments of capital 
are necessary on the same land, investments that may have 
very different productivity (the same as previous investments, 
higher or lower). As a rule, additional investments are made 
on rich and average soils, since there they can provide a higher 
productive effect than on poor soil. And while such in- 
vestments give more output than equal expenditures on the 
inferior soil that determine the social price of production, 
they will bring in extra profit, which will then be turned into 
differential rent II. The process by which it is formed can be 
illustrated by the following table : 


Type of c o,l 

(c -f 0 ) 

(in dol- 

(in quin- 

price of 
(in dol- 

price of 
tion (in 

tial rent 

(in dol- 





"3 -2 

ft c 

s'? <u '3 

ta O ftcr 

1 11 





120 12 

120 12 

— — 

Ill — first in- 

vestment . . 




120 8 

180 12 

60 - 

Ill — second in- 

vestment . . 




120 6 

240 12 

— 120 

Let us assume that 100 dollars of additional capital is in- 
vested on the third of the plots of land in our table. As a 
result of the additional investment of capital, we see, its 
fertility rises steeply. While the first investment of capital 
gave 15 quintals of output, the second raised the yield to 35 
quintals, i.e. gave an additional 20 quintals of output. Selling 
these at the social price of production (12 dollars a quintal), 
the tenant will receive, in addition to the 60 dollars super- 
profit from the first investment of capital (which was the 
source of differential rent I), another 120 dollars from the 
second, additional investment. 

Thus, differential rent II, equal to 120 dollars, arises as a 
result of the greater productivity of the second outlay of 
capital on the third (richest) land, compared with an equal 
capital outlay on the first (poorest) soil, which does not bring 
in differential rent, but determines the social price of 

How is the super-profit received as a result of additional 
capital investment converted into rent, into revenue for the 
landowner, seeing that the capital investment was made by 
the capitalist tenant-farmer? 

Land is leased for a specific period of time, say, for six 
years. During that period, the tenant investing additional 
capital in it will himself receive the super-profit, and not 
hand it over to the landowner. When the lease runs out, 
however, and it becomes necessary to conclude a new agree- 
ment, the owner of the land will take the whole income from 



the additional capital investment into account (the efficiency 
of which is not yet exhausted) and raise the rental. As a re- 
sult, the extra profit of the capitalist tenant-farmer will be 
transformed into differential rent II, income for the land- 
owner. Capitalist tenant-farmers, therefore, strive to lengthen 
the life of leases, while the landowners, on the contrary, try 
to shorten it. The struggle over the length of leases is, in es- 
sence, a struggle between the bourgeoisie and the landed 
proprietors for division of the surplus value created by agri- 
cultural workers. 

Critique of tHe “Law of Diminishing Returns” 

Bourgeois economists claim that all successive outlays of 
labour and capital in agriculture are inevitably accompanied 
by a fall in their productivity, i.e. give an increasingly smal- 
ler returns than previous, equally large expenditures. This 
happens, in their opinion, through operation of an eternal, 
natural law of diminishing fertility of the soil. 

To substantiate this “law" the scholastic claim was made 
that, if additional investments of capital were to be more 
efficient than initial ones, there would be no need to extend 
arable land and all the agriculture of the world could be 
accommodated on one hectare. In the relative fall in the pro- 
ductiveness of the soil, bourgeois economists see both the 
cause and origin of differential rent, the increasing shortage 
of agricultural produce, and the rise in its prices. Ricardo 
claimed that more and more was paid to nature for producing 
less and less. Keynes considered the “law of diminishing 
returns" to be the evil spirit of humanity. 

The fundamental mistake of the authors and defenders of 
this "law" is that they ignore scientific and technical prog- 
ress in agriculture. Additional investment of capital in ag- 
riculture does not in fact mean pointless repetition of the 
same methods of cultivating the land, but, as a rule, involves 
the introduction of new machines, improvements in farming 
techniques, the application of fertilisers, irrigation and so on. 
Such purposeful additional expenditure of labour and re- 
sources, actively affecting the quality of the soil, may be 
more productive than all previous, equally large outlays. 

The theory of "diminishing returns” is refuted by capitalist 



reality. In spite of rapacious exploitation of labour power and 
natural resources, agricultural production has considerably 
outpaced the growth in crop acreage and number of people 
employed in agriculture. In the USA, in the period from 
1946 to 1967, the area sown to crops fell by 17 per cent, the 
number of workers in agriculture halved, and gross output 
rose by 50 per cent. 

The ideologists of capitalism need the fantasy of the "law 
of diminishing returns" to justify their reactionary conclusion 
that there is no future in the struggle of the proletariat for 
the victory of socialism, because a change of social system, 
in their view, would not cancel the effect of this "universal 
law" and make it possible to ensure high living standards for 
all workers. Exposing the apologetic nature of the theory of 
"diminishing returns", Lenin wrote in his The Agrarian 
Question and the "Critics of Marx": "It has not become 
more difficult to produce food; it has become more difficult 
for the workers to obtain it because capitalist development 
has inflated rent of land and the price of land, has concen- 
trated agriculture in the hands of large and small capitalists, 
and, to a still larger extent, has concentrated machinery, im- 
plements, and money, without which successful production 
is impossible. To explain the aggravation of the workers' 
condition by the argument that Nature is reducing her 
gifts can mean only that one has become a bourgeois apol- 
ogist." 1 

The reactionary nature of the "law of diminishing re- 
turns" is seen particularly clearly in the fact that it is now 
widely used by bourgeois ideologists together with neo- 
Malthusians to justify the necessity of destructive imperialist 
wars as a means of "restoring the balance" between the 
growth of population and "increasingly shrinking" oppor- 
tunities for raising production of food. 



When considering differential rent, we started from the 
position that farmers renting the poorest plots of land and 

1 V. I. Lenin, Collected Works, Vol. 5, p. 111. 



selling their output at the price of production, received no 
extra profit. But landowners do not lease even the poorest of 
their land for nothing. 

Monopoly of Private Property in Land— 

the Cause of Absolute Rent 

Having a monopoly in landed property, big landowners 
allow lease-holders to apply capital to any bit of it only if 
they pay rent. In these circumstances, of course, the output 
of agricultural produce is limited and the increase in demand 
for food results in the market prices of agricultural products 
rising above the social price of production. It then becomes 
profitable to rent even the poorest land, because the price of 
its output will not only cover production costs and make it 
possible to obtain an average profit, but will also bring in an 
extra profit, which can be paid to the landowner as rent. The 
rent arising even on the poorest plots of cultivated land 
(and, consequently, on all other land regardless of its fertil- 
ity and location) is called absolute rent. Absolute rent in 
capitalist agriculture was one of Marx's theoretical 

Marx disproved Ricardo's assertion that there was no rent 
on the poorest cultivated land. Ricardo proceeded from the 
assumption that, if there were rent from the poorest land, it 
would mean that agricultural products were constantly being 
sold at prices above their values, i.e. in violation of the law 
of value. Marx showed, on the basis of his discovery of the 
organic composition of capital and the difference between 
value and price of production, that the existence of absolute 
rent did not disprove the law of value. 

The source of absolute rent is the excess of surplus value 
over average profit, formed as a consequence of the lower 
organic composition of capital in agriculture than in the 
manufacturing industry. In agriculture more living labour is 
used for the same amount of capital, than in industry, and a 
larger mass of value and surplus value is created. But capital 
cannot flow freely in agriculture since it comes up against 
the monopoly of private property in land. A condition of ap- 
plying capital in agriculture is the necessity of paying abso- 
lute rent to the landowner. Agricultural products cannot. 



therefore, be sold at their prices of production and must, as 
a rule, be sold at their values. 

The process by which absolute rent is formed can be 
illustrated by the following table (s' = 100 per cent) : 

of capital 

Mass of 

(in dollars) 

Value of 

Rate oi 
(in per 

Distribution of 
surplus value 

Average Absolute 

proiit rent 

Manufacturing industry 

80 c 4- 20 D | 

20 | 


| 20 

| 20 


00 c 4- 40 v 






In contrast to manufacturing industry, the output of agri- 
culture is not realised at the social price of production (120), 
but at its value (140). The extra surplus value created here, 
because of the monopoly of private property in land, is not 
subject to intersectoral redistribution, as is the case within 
industry, but is appropriated by the landowners in the form 
of absolute rent. 

The source oi absolute rent is thus the excess of the value 
of agricultural produce above the social price of production, 
or of surplus value above average profit. The reason for its 
existence is the monopoly of private property in land. 

In fighting against distortions of the Marxist theory of 
absolute rent, Lenin emphasised: ''It is not true to say that 
according to Marx absolute rent results from the low com- 
position of agricultural capital Absolute rent arises not 

from the low composition of agricultural capital, but from 
the monopoly created by the private ownership of land, 
which prevents competition from levelling the profits of Tow 
composition' capital.'' 1 

1 V. I. Lenin, "The Agrarian Programme of Social-Democracy in 
the First Russian Revolution 1905-1907", Collected Works. Vol. 13, 
pp. 301, 302. 



If the organic composition of agricultural capital were 
raised to the level of industrial capital, landowners would 
continue to receive rent for all their land, including the poor- 
est, the only difference being that absolute rent would, in 
that case, become a form of monopoly rent. 

Monopoly Rent 

Apart from differential and absolute rent, which Marx 
considered to be the usual forms of capitalist rent, there is 
also monopoly lent, which arises when a monopoly price 
exceeding value is set on a specific type of product. There 
are, for example, wines of exclusive quality, made from va- 
rieties of grape grown under rare soil and climatic conditions. 
Since these wines are produced and marketed in strictly 
limited quantities, their market price rises not only above the 
social price of production (which is characteristic of all ag- 
ricultural products), but also above their value. The resulting 
difference between the monopoly market price of this prod- 
uct and its value forms monopoly rent, appropriated by the 
owners of the rare land. The source of the monopoly rent is 
found outside agriculture. It is received by a redistribution 
through the price mechanism of the surplus value created in 
other sectors of production. Its size depends in the final 
analysis on the purchasing power of the buyer. 

Rent in the Mining Industry 

Private ownership under capitalism extends to all land. So 
not only landowners leasing their land for agricultural pro- 
duction receive rent, but also the owners of land bearing 
minerals. The process by which differential rent is formed 
in the mining industry is the same as in agriculture; the 
richer the deposits of ore, oil, gas, coal and so on, and the 
closer they are both to the surface and to the market, the 
lower (other conditions being equal) the individual price of 
production of the mined raw material. On the market, how- 
ever, it is sold at the price of production determined by the 


worst mining conditions. The super-profit on average and 
rich workings resulting from this is appropriated by the 
owners of the land (mineral rights) in the form of differen- 
tial rent. 

Absolute rent in the mining industry, as in agriculture, is 
the excess of value over the general price of production. The 
existence of this excess is explained by the fact that the or- 
ganic composition of capital is lower in the mining industry, 
than in the manufacturing industry or in industry as a whole, 
as a consequence of the low level of mechanisation and the 
absence of expenditure on the purchase of raw materials. The 
owners of land with rare minerals like uranium, diamonds 
and so on, receive monopoly rent. 

The rent from quarries, mines and oil fields prevents ra- 
tional use of mineral resources and leads to a significant rise 
in the price of output. 

Rent from Building Sites 

Rent is also received by the owners of sites on which in- 
dustrial enterprises, railways and houses are built. A feature 
of the building site rent is that no such factor as soil fer- 
tility actually operates in it, so that the location of sites 
acquires primary significance. For land located close to areas 
of large-scale use of labour, recreation areas, or main trans- 
port lines, a much higher rent is levied than for land in un- 
favourable areas far from roads and railways. Building site 
rent slows down housing construction, raises house rent and 
fares and, consequently, lowers the standard of living of the 
working people. 

Rent from Small Peasant Holdings 

As there arc differences in the fertility and location of the 
land belonging to peasants, differences are also inevitable 
in peasants' individual expenditures of labour and resources 
on the production of the same products. Peasants sell some 
of their produce on the market at a single price so that a sur- 
plus must inevitably be formed in the price of produce from 




: ! 

the richest and better-situated holdings, in comparison with 
the poorest ones. This part of the price constitutes a differen- 
tial rent appropriated by peasants working under more 
favourable natural and transportation conditions. 

In contrast to capitalist rent, however, the rent from small 
peasant holdings does not appear as a separate form of sur- 
plus value, since the peasant owner of the land does not pay 
rental to anyone. This rent is additional profit which, as is 
generally the case with all returns from selling the products 
of labour, is obtained by the peasant. The existence of dif- 
ferential rent was a most important economic prerequisite for 
the differentiation of the peasantry and the emergence of 
capitalist relations. 

In countries with highly developed capitalism in agricul- 
ture, and those in which foreign monopoly capital predomi- 
nates, it is difficult for the small peasantry to realise and 
appropriate differential rent. This is explained by the fact 
that expenditures of labour and resources on a small peasant 
holding are higher as a rule than on the poorest land worked 
by big capitalist tenant-farmers by means of machines and 
hired workers. The small peasant, moreover, is compelled to 
sell his produce at extremely low prices to middlemen, 
the agents of monopolies. 

Absolute rent does not exist for small peasant holdings. 
For the peasant, there are no such limits on the application 
of labour to the land as the need to obtain profit or rent. 
Owning a small patch of land and primitive implements of 
labour, he works the land in order to provide his family with 
at least a meagre existence. 


Under capitalism, land is an object of purchase and sale. 
It has a price; but its price cannot be determined by value, 
since land as such is not the product of human labour and 
has no value. What then is the price of land and what deter- 
mines its level? 

In establishing the price for a plot of land, the owner starts 
primarily from the sum received from it as rent of land. 
When selling it, he endeavours to retain the previously 



guaranteed income. This type of unearned income, received 
without any entrepreneurial activity, is loan interest. For that 
reason, the price of land consists of that sum of money 
capital which, on being deposited in a bank, will bring 
the owner an annual income in the form of interest equal 
to the rent. 

Let us assume that the rent on a plot of land is 1,000 dol- 
lars and that the bank pays interest at 5 per cent per annum 
on deposits. In these circumstances, the price of the piece of 

land will be — — j ' - -- - A 1 -=20,000 dollars. The price oi 

land, consequently, is capitalised rent. The magnitude 
of the price of land is directly proportional to the amount 
of the rent and inversely proportional to the rate of 
interest on loans. The price of land fluctuates around 
this general level depending on the demand for and 
supply of land. 

With the development of capitalism, the price of land has 
a tendency to rise. This is explained mainly by the increase 
in rent and also by the objective tendency for the rate 
of interest on loans to fall, for the reasons given in the 
previous chapter. 

In the United States, for example, the average price of a 
hectare of land rose over the 60 years from 1900 to 1960 
from 22.5 dollars to 330 dollars, or nearly 15-fold. In later 
years, the price of land rose even faster. At present, in capi- 
talist countries, the expenditure on the purchase of land con- 
stitutes more than half of all the investment of fixed capital 
in agriculture. Prices of urban land are rising even more 
rapidly. In the six largest cities in Japan, for example, they 
rose by 500 per cent during the 1960s alone. 

The growth of rent and land prices means that society is 
paying increasing tribute to the landowning class, and the 
main weight of this is borne by the working masses. Work- 
ers are compelled to buy agricultural products at ever 
higher prices and to pay increasingly high house rents, 
while peasants have to pay landowners continuously ris- 
ing rentals for the lease of the land or a mounting price 
to buy it. 





Concentration of Production 
and the Ousting of Small Producers 

Karl Marx established that the economic laws of the de- 
velopment of capitalism are common to both industry and 

Lenin paid particular attention to theoretical analysis of 
the capitalist development in agriculture. Drawing on ex- 
tensive data from many countries-tsarist Russia, Germany, 
Denmark, the United States, and others-he showed that the 
same economic laws operated in capitalist agriculture as in 
industry and, in particular, the laws of competition, and the 
concentration and centralisation of capital, which brought 
about the ousting and ruin of small-scale production by large- 

Large-scale capitalist production has decisive advantages 
over small-scale production in agriculture, too. Big farms can 
make better use of achievements in science and technology 
and obtain bigger and more stable harvests. They enjoy all 
the advantages of co-operation of labour in cutting costs of 
production. Big farms sell their output in large consignments, 
often without using middlemen, make extensive use of bank 
credit, and so on. 

Having such advantages in the spheres of production and 
circulation, large capitalist agricultural undertakings squeeze 
small and medium peasant farms out in the course of com- 
petitive struggle. Concentration in agriculture is mainly re- 
flected in a concentration ot land as the basic means oi pro- 
duction into large farms. This is vividly confirmed by the 
changes in land distribution among different groups of farm- 



ers in the USA between 1950 and 1969 (according to post- 
war agricultural censuses, in per cent) : 

Groups of farmers 
according to the size of 
landed property 



of farms 



of farms 



Under 20 hectares 





20-40 hectares 





40-72 hectares 





72-200 hectares 





200-400 hectares 





Over 400 hectares 










It will be seen from the table that the decline in the pro- 
portion of small and medium-sized farms in the total number 
has been accompanied by an equally fast decline in the pro- 
portion of the land they own. Very large farms, comprising 
only 5.5 per cent of the total number of agricultural under- 
takings in the country, have concentrated more than half 
(54.4 per cent) of agricultural land in their hands. 

At the same time, a concentration oi the most up-to-date 
agricultural machinery, hired labour force and marketable 
produce is also taking place on large farms. On the eve 
of the Second World War, there were only 29,000 farms in 
the USA (less than 0.5 per cent) whose yearly proceeds from 
the sale of produce exceeded 40,000 dollars; their share in 
total agricultural marketable output was 8 per cent. In 
1971, there were 253,000 such farms (8.8 per cent of the 
total number) and their proceeds amounted to 59.3 per cent 
of marketable output. At the same time, farms with annual 
proceeds of less than 10,000 dollars, comprising two-thirds 
of all farms, sold only 10.6 per cent of the marketable out- 
put in 1971. Similar processes are also taking place in other 
capitalist countries. 

Through the concentration of landed property, capital 



and production, small commodity producers are ruined on 
a broad scale. In the USA, between 1940 and 1970, the num- 
ber of farms declined from 6.3 million to 2.9 million, mean- 
ing that over half the farms ceased to exist. Such farms are 
usually "swallowed" by their larger competitors. In 1940, the 
average size of a farm was 70 hectares; in 1970, it was 150 

In the Federal Republic of Germany, 779,000, or 40.1 per 
cent, of peasant farms ceased to exist between 1949 and 1971. 
In Great Britain, during the ten years from 1961 to 1971 
alone, the number of farms dropped by 33.6 per cent; after 
the country joined the Common Market, the process became 
even faster. In France, there were 2,200,000 peasant farms 
in 1955 and in 1970 only 1,500,000. During the post-war 
period, ruin of the peasantry and of small farmers has also 
taken on a mass character in Sweden, Denmark, Italy, Japan, 
Canada and other capitalist countries. 

Critique of Theories of the 
“Stability of the Small Peasant Farm” 
and of the “Family Farm” 

The processes now taking place in capitalist agriculture 
convincingly confirm Lenin's critique of the "theory of the 
stability of the small peasant farm". This "theory" was put 
forward by bourgeois economists and reformists to counter 
Marxist-Leninist teaching on the ruin and squeezing out of 
small peasant production by large-scale capitalist production. 
Its supporters-Bernstein, David, Hertz, Bulgakov and others- 
claimed that the concentration and centralisation of produc- 
tion inherent in industry did not extend to agriculture. In 
their opinion, this was due, first, to the natural specific fea- 
tures of agriculture, which allegedly hindered the use of 
machinery and development of large-scale production, and 
second, to the "inner harmony" of the small peasant farm 
(the absence of the owner-worker contradiction, the industri- 
ousness and thrift of the peasant, and so on), thanks to 
which, according to them, it had economic advantages over 
large-scale capitalist production. As proof of their "theory" 
they usually cited average statistics on the numerical pre- 



dominance and growth of small peasant farms that concealed 
the differentiation and ruin of the peasantry. 

Lenin showed that the actual obstacles to the introduction 
of machinery into agricultural production did not lie in its 
natural peculiarities, but in the social and, in particular, 
agrarian relations existing under capitalism. Drawing on ex- 
tensive facts, he showed that it was the big capitalist farms 
that were going over more and more to use of machines, and 
that a connected series of machines was beginning to take 
shape on them. This conclusion of Lenin's is confirmed par- 
ticularly clearly by present-day data. Over the three decades 
(from 1939 to 1970), the number of farm tractors in the USA 
increased from 1,447,000 to 4,790,000, or by 230 per cent. 
Over the same period, the number of farm tractors in Great 
Britain increased by 540 per cent, in Italy over 16-fold, in 
West Germany nearly 23-fold, and in France over 34-fold. 
The numbers of combine harvesters and other complex ma- 
chines increased just as rapidly. The latest machinery has 
been concentrated mainly on big and giant capitalist under- 
takings, which has made it possible for them to succeed in 
squeezing millions of small and medium peasant farms out 
of existence. 

When small landowners arc ruined, they are usually left 
with a meagre patch of land and a dwelling, which enables 
the capitalists to have a cheap labour force always at hand, 
ready for work of any kind. Bourgeois and reformist theore- 
ticians consider these wage workers with allotments as "in- 
dependent farmers" and so, on the basis of falsified data, try 
to "prove" the viability of the small peasant farm. 

The proponents of the "theory of stability" grouped farms 
by area alone. Lenin showed that such a grouping is not suf- 
ficient, as it misrepresents the true picture of the concentra- 
tion of production in agriculture, since it does not take in- 
tensification into account. It is possible for capitalist farms 
that are large in terms of production to operate on small 
areas of land. In his work "New Data on the Laws Govern- 
ing the Development of Capitalism in Agriculture", Lenin 
wrote: "The principal trend in capitalist agriculture is the 
conversion of small-scale enterprise, which remains small in 
terms of acreage, into large-scale enterprise in terms of out- 
put, in the development of livestock raising, the quantity of 


fertilisers, the scale on which machinery is used, and the 
like." 1 

As to the industriousness, thrift, and other elements of the 
"inner harmony” of the small peasant farm, it actually 
means excessive work and systematic underconsumption of 
the peasant and his family in order to avoid ruin, i.e. they 
result from the extreme economic instability of these farms. 

The "theory of the stability of the small peasant farm" has 
since developed into a new, modern variant, the " theory ol 
the family farm". Supporters of this "theory" claim that, as 
a consequence of living labour being replaced by machinery, 
agriculture is supposedly losing its capitalist nature and that 
the main position in agricultural production is being occu- 
pied more and more by the profitable "family farm”, with 
between 20 and 40 hectares of land, a tractor and a set of 
implements, either not using hired labour at all or employ- 
ing it only occasionally for seasonal work. According to this 
"theory", there is no process of differentiation in the coun- 
tryside but, on the contrary, a merging of the various social 
strata; the class struggle is dying out, and the social peace 
desired by the apologists of capitalism reigns. As proof of the 
"decapitalisation" of agriculture and the victory of the 
"family farm" over the capitalist farm, data are usually 
adduced on the absolute decline in the numbers of hired 
workers in agriculture. 

This "theory" too, however, does not stand up to criticism. 
Experience shows that tractors, combine harvesters, electric 
motors and other machinery are used more efficiently on big 
capitalist farms than on medium ones. In West German agri- 
culture, for example, in 1970, there were 1.4 million tractors; 
but, if all the farms in the country had 100 hectares of land, 
400,000 to 450,000 would be sufficient. 

Making use of the higher labour productivity and other 
advantages of large-scale farming, capitalist agricultural un- 
dertakings ruin medium-sized mechanised farms, including 
"family farms" as well as small commodity producers. It is 
not long since American economists included all faims with 
an annual marketable output of above 10,000 dollars among 
the thriving. They were the pride of capitalist America. The 

1 V. I, Lenin, Collected Works, Vol. 22, p. 69. 



1964 census, however, showed that the number of farms with 
a cash output between 10,000 and 20,000 dollars had not 
only not risen, but had, on the contrary, actually fallen, and 
that these farms were going bankrupt. In the twenty years 
from 1950 to 1969, the number of farms in this group de- 
clined by more than 50 per cent, while the number of farms 
with a cash output of more than 20,000 dollars fell by nearly 
25 per cent during this period; the majority of the latter, 
however, cannot be classed as family farms. Now only farms 
with an output of 40,000 dollars or more, i.e. capitalist farms, 
are considered stably prosperous and "successful". 

The drop observed in the numbers of permanent agricul- 
tural workers counted in the statistics in some capitalist 
countries since the Second World War, has taken place as 
a consequence of the rapid mechanisation of labour, particu- 
larly on capitalist farms. In a number of countries, moreover, 
the number of seasonal ("migratory") workers, and of work- 
ers with small holdings, who are not officially counted as 
hired agricultural workers but are most ruthlessly exploited 
on capitalist farms, has risen significantly. In these condi- 
tions, the concept of the "family farm" in the writings of 
the apologists of this "theory" begins to be transformed into 
the "farm of a family”, by which is understood any farm, 
including big capitalist undertakings, belonging to a single 
family. No mention is made any longer of absence or occa- 
sional use of hired labour as the definitive sign of the family 
farm. This "modernisation" of the theory means its actual 

The apologetic content of the "theory of the stability of 
the small peasant farm”, which is now gaining currency 
mainly in developing countries, consists in spreading the 
illusion among the masses of the peasantry that their farms 
can be stably prosperous within the framework of capital- 
ism and in proving that, in the class struggle between the 
proletariat and the bourgeoisie, the peasantry should side 
with the latter. 

The theory of the "family farm”, while a variant of the 
"stability theory", at the same time has an openly anti- 
peasant trend. It defends the interests of the rich peasants 
(kulaks), and in areas of intensive farming, the interests of 
the capitalist farmers, and serves as an ideological screen to 



the policy being carried out by imperialist states of driving 
the peasants en masse from the land. 

Specific Features of Capitalist 

Development in Agriculture 

The basic laws of the development of capitalism are com- 
mon for industry and agriculture, but that does not exclude 
that they have certain specific features in agriculture. The 
most important of these features are the lagging of the 
development of agriculture behind that of industry, deepen- 
ing of the antithesis between town and country, and the in- 
creasing exploitation of the village by the capitalist town. 

Since the Second World War, there has been a radical or- 
ganisational and technical reconstruction in agriculture in the 
economically developed capitalist countries, which has con- 
sisted basically in a steep increase in the infiltration of mo- 
nopoly capital into agriculture, the winning of absolutely 
dominating positions in agriculture by large-scale mecha- 
nised farming, exceptionally rapid mechanisation and elec- 
trification of production processes and the application of 
chemicals. Even so, agriculture still lags behind industry 
not only in the capitalist world as a whole, but also in the 
developed countries. This finds concrete expression mainly 
in the much lower degree oi concentration in agricultural 
production than in industry. Even the capitalist agricultural 
undertakings of the USA and Great Britain, based on wage 
labour, are several times smaller than the average industrial 
enterprises, both in terms of the numbers of workers em- 
ployed and of the volume of output. In most developing 
countries following the capitalist road, small peasant farms 
or farms of the kulak type, using hired labour only for 
seasonal field work, still predominate. 

In spite of the technical revolution in agriculture in the 
developed capitalist countries, farming on the whole still 
lags behind industry in terms of the organic composition oi 
capital, too. US agriculture, for example, according to the 
amount of fixed capital, including machinery and equip- 
ment per worker, exceeded the level in industry by 34 per 
cent at the end of the 1960s, and West German agriculture 
by 46 per cent, But that does not signify by any means that 



it had overtaken industry in terms of the technical and or- 
ganic composition of capital, as some economists suggest. 
Because of the seasonal character of farming, the period of 
productive use of equipment in agriculture is several times 
shorter than in industry. Whereas, say, more than 4,000 
hours of living labour are employed on a machine tool in 
industry, with two-shift working and a forty-hour week, a 
tractor of the same value is used 605 hours a year on aver- 
age in the USA. In West Germany, where there is one trac- 
tor for every 9.7 hectares of arable land, a tractor is used 
only about a third as much as in the USA. As for combine 
harvesters, seed drills, and grain cleaners, these are em- 
ployed for only tenths and hundredths of the time machine- 
ry and equipment is used in industry. Furthermore, owing 
to its spatial dispersion, motors, power installations and 
transport have much greater weight (compared with indus- 
try) in the instruments of labour in agriculture, and work- 
ing machinery a correspondingly smaller one. In order to 
catch up with industry in terms of real technical equipment 
per worker and consequently in terms of the organic com- 
position of capital, agriculture has to have much more ma- 
chinery and equipment (of similar value) at its disposal, use 
more raw and other materials, and electricity per worker 
than is actually the case in the USA or FRG at the present 
time. Neither must the fact be ignored that in the develop- 
ing countries of Asia, Africa and Latin America, and on the 
millions of small peasant farms in economically developed 
countries, agricultural production is still based mainly on 
manual labour. The statistics indicate that, in the whole 
capitalist world, out of 350 million families engaged in agri- 
culture, at least 250 million still use a hand hoe or a 
primitive wooden plough-and that two centuries after the 
industrial revolution. 

The lag of agriculture behind industry is seen, finally, in 
its lower rate oi growth. This pattern, which was always 
observed under capitalism, still operates today. It is the case 
even in developed capitalist countries, where investment in 
agriculture has reached an unprecedented scale. Thus, be- 
tween 1965 and 1972, the mean annual growth rate of agri- 
cultural output in the developed capitalist countries was 
2.2 per cent, while industrial production rose each year on 



average by 5.1 per cent. In developing countries, agriculture 
expanded at still slower rates, and sometimes even lagged 
behind the growth of population. According to the data of 
the Food and Agricultural Organisation, per capita produc- 
tion of foodstuffs dropped by 2.9 per cent between the mid- 
1960s and 1973 in Latin America, by 5.6 per cent in the 
Middle East, and by 13 per cent in Africa. In 1974, about 
800 million of the world's people were suffering from 

The reasons for agriculture's lag lie in the system of so- 
cial relations existing under capitalism, and above all, in 
the fact that the monopoly of private property in land is 
still maintained. 

A significant share of the surplus value created in agri- 
culture and transformed into rent is used not to develop 
production, but for the parasitic consumption of big land- 
owners and enrichment of the financial oligarchy. The mo- 
nopoly of private property in land limits additional invest- 
ment of capital in agriculture, since the results of such 
investment, and sometimes even the invested capital itself, 
become the property of the landowner once the lease has 
expired. The tenant is only interested in investments in the 
land that will bear fruit before expiry of his lease. This not 
only holds back the introduction of fundamental improve- 
ments in agriculture, but also prompts tenants to exploit 
the land in a predatory way. 

Vast resources are spent on buying land, resources that, 
in other social conditions, might also be used to improve 
agricultural production. 

Private property in land acts as a brake on the organisa- 
tion of large-scale farming. Nationalisation of the land, i.e. 
its transformation into property of the bourgeois state, 
would put an end to the appropriation by a parasitic class 
of landowners of a significant part of the surplus value 
created in agriculture in the form of rent and would facili- 
tate the flow of capital into agriculture. In turn, that would 
help speed up growth of production and a lowering of the 
prices of agricultural produce, a drop in the value of labour 
power, and a rise in the average rate of profit in society as 
a whole. 

Nationalisation of the land does not abolish differential 



rent since it is engendered not by private property in land 
but by the monopoly of farming it. The extra profit obtained 
from the rich and average land and the more productive 
investment of capital, however, would then be appropriated 
not by landed proprietors but by the bourgeois state and 
by the capitalists functioning in agriculture. 

The question, therefore, arises as to why the bourgeoisie, 
having the power, do not nationalise the land, in spite of 
the obvious economic expediency of such a measure. 

(1) The monopolistic bourgeoisie are bound up with 
landed property, having acquired landed estates, as a result 
of which their interests are interwoven with those of the 

(2) The bourgeoisie does not dare to liquidate large-scale 
private property in land since it fears that, with growth of 
the revolutionary movement of the proletariat, this might 
shake the foundations of private property in general. 

(3) The bourgeoisie frequently, particularly in develop- 
ing countries, seeks support from the feudal lords in the 
struggle against the growing democratic movement and 
against the worker-peasant alliance. 

The reasons why agriculture lags behind industry are not 
only to be found in private property in land, but also in 
the capitalist mode of production itself. The pursuit of profits, 
anarchy and competition do great harm to the rational 
use of natural resources, which play a much more important 
role in farming than in industry. 

The development of capitalism in agriculture is accom- 
panied with an absolute drop in demand for labour power 
and an increase in latent overpopulation. Agricultural capi- 
talists, therefore, have the very cheapest labour power at 
their disposal and this delays the introduction of new ma- 
chinery. Another brake on the development of agricultural 
production is monopoly of the land as an object of capitalist 
farming. If the cultivation of land does not ensure an 
average profit, this land will not be used by capitalist tenant- 
farmers. When all the land is taken, then, as Lenin pointed 
out, "an increase in the number of agricultural enterprises 
is possible only when existing enterprises are broken up; 
the free formation of new enterprises alongside the old is 
impossible. The monopoly of land ownership is a drag on 


the development of agriculture, and this monopoly retards 
the development of capitalism in agriculture, which, there- 
fore, is unlike industry in this respect." 1 

As for the agriculture of developing countries, the main 
reason for its extreme backwardness is the heavy legacy of 
colonial rule. The imperialist states have not given up trying 
to make use of the food shortages in countries that have 
thrown off colonial dependence, shortages for which they 
themselves are responsible, in order to consolidate their 
hold on these countries. 

Agriculture's lag behind industry is closely linked with 
the antithesis between town and country under capitalism, 
the economic basis of which is the exploitation of the 
peasantry by industrial, commercial and banking capital, 
concentrated mainly in the towns. 

Agricultural production has a number of specific features 
compared with other sectors of material production. It is 
dispersed over a large area and situated at varying distances 
from the market. Many of its products are perishable and 
then there is the seasonal character of the production pro- 
cesses, the dependence on weather conditions, and the rela- 
tively long turnover period of capital, necessitating credits to 
a greater extent, and so on. Capitalists make wide use of 
these special features to bring small farm commodity pro- 
ducers into economic dependence. One of the main forms 
of exploitation of the village by the capitalist town is non- 
equivalent exchange, the purchase of produce from the 
peasants at lowered prices and the sale of industrial articles 
to them at prices above value. 

As capitalism develops, the spread of the "price scissors" 
widens, i.e. the prices of industrial goods rise, while the 
market prices of the produce of peasants (farmers) fall rela- 
tively. Thus, if we take the ratio of the indices of the prices 
received by US farmers for farm produce and of those they 
paid for manufactured goods from 1910 to 1914 as 100, the 
figure for 1960 was 80, and for 1972 it was 74. In other 
words, the farmer of 1972 could buy 26 per cent fewer manu- 
factured goods for an equal quantity of farm produce 
than in the y ears 1910-14. 

1 V. I. Lenin, "New Data on the Laws Governing the Development 
of Capitalism in Agriculture", Collected Works, Vol. 22, p. 94. 


But low market prices for agricultural products do not 
mean that they are cheap for the urban consumer. On the 
contrary, the prices of foodstuffs and other articles made 
from agricultural raw materials are continuously rising in 
retail trade. Retail food prices as a rule exceed the prices 
received by farmers for similar products by a wide margin. 
For example, while the delivery price of wheat is 55.8 dol- 
lars a ton in the USA, the retail price of wheat flour is 
288.5 dollars a ton. Thus, through the price mechanism, the 
industrial-commercial (now monopolistic) bourgeoisie ap- 
propriates a significant share of the value created in agri- 
culture and, by fixing high prices for manufactured goods, 
intensifies exploitation of the workers as consumers. 

The exploitation of the peasantry by industrial and com- 
mercial capital by means of non-equivalent exchange is sup- 
plemented by their exploitation by banks and insurance 
companies through usury based on the extension of credit 
at high rates of interest. The total indebtedness of farmers 
in the USA increased from 12,400 million dollars in 1950 
to 66,900 million dollars in 1972 and more than exceeded 
twice the annual value of the end-product of American 

"Those who control the banks directly control one-third 
of America's farms, and indirectly dominate the lot," 1 Lenin 
wrote more than half a century ago. In 1969, about 50 per 
cent of the overall property (in money terms) of all farms 
in the USA was mortgaged. The same is observed in other 
capitalist countries. The indebtedness of West German peas- 
ants to the banks rose eightfold between 1950 and 1972 and 
reached 31,700 million marks; the indebtedness of French 
peasants increased 48 times over in the same period to 
82,400 million francs. 

The tax system of bourgeois states plays an important role 
in exploitation of the peasantry. At present, due to milita- 
risation of the economy, direct and indirect taxes in the USA 
amount to around a third of the total income of farmers 
and in West Germany, to a quarter of the income from 

Exploitation, poverty, unemployment and ruin bring the 

1 Ibid., p. 100. 



broad masses of the peasantry into struggle not only against 
the big landowners, but also against the bourgeoisie and the 
bourgeois state. 

In defending peasants' interests. Communist and Work- 
ers' parties demand, in their agrarian programmes, the 
elimination of the monopoly of private property in land and 
transfer of the land to those who work it, abolition of the 
"price scissors", a lowering of taxes on peasants and of 
rentals, the granting of credit on favourable terms and other 
help for them. Complete emancipation of the peasantry, as 
of all working people, from exploitation is only possible 
through joint revolutionary struggle of workers and peas- 
ants against capitalism and through socialist revolution. 

Chapter 9 


In his theory of reproduction of social capital and eco- 
nomic crises, Karl Marx generalised and rounded off the 
y whole of the foregoing analysis of the process of production 
and circulation under capitalism and, at the same time, 
solved a number of separate important problems. In his 
theory, the capitalist mode of production is looked at from 
two aspects. 

(1) It is considered from the point of view of its most 
general laws as an economic system with a highly developed 
social division of labour and the predominance of large-scale 
machine industry. In doing so, Marx abstracted from the 
contradictions of capitalism and showed the ideal conditions 
under which the reproduction of social capital could pro- 
ceed unhindered. 

(2) Marx drew the true picture of the process of capitalist 
reproduction, exposed its deep antagonistic contradictions 
and conflicts, developed the theory of economic crises of 
overproduction and disclosed the historical transiency of 

Study of his theory of reproduction and crises has acquired 
special significance under contemporary conditions, when 
capitalism is in conflict with the growing and strengthening 
world socialist system. 


The basis of the existence of capitalist society, as of any 
other society, is the production of material wealth. The goods 

IS— 1076 





produced are continuously consumed and that necessitates 
continuity of the process of production. The process of pro- 
duction which is continuously renewed on the scale of society 
is social reproduction. In any society, the process of repro- 
duction includes reproduction of the aggregate social prod- 
uct, labour power, and the corresponding relations of 

Capitalists organise the production of material wealth for 
the sake of a continuous increase in surplus value through 
exploiting wage labour. This means that reproduction of the 
social product under capitalism is, at the same time, repro- 
duction of capital as a social relation. 

Marx considered the reproduction of individual capitals 
in connection with his analysis of the process of accumula- 
tion in Volume I of Capital and in the first two parts of 
Volume II. 

Individual capitals, however, do not exist in isolation, in- 
dependently of one another. The development of the social 
division of labour brings the various industries and under- 
takings into increasingly close contact with one another and 
strengthens their interdependence. With private ownership of 
the means of production, this complicated interconnection is 
achieved spontaneously through the market. "The circuits of 
the individual capitals intertwine,” Marx pointed out, "pre- 
suppose and necessitate one another, and form, precisely in 
this interlacing, the movement of the total social capital." 1 

Consequently, social capital is the sum total of all indivi- 
dual capitals in their interconnections and interdependence, 
i.e. in their movement. 

When looking at the reproduction of social capital, we 
have to take account not only of the value but also of the 
natural or physical form of the product. Without that it 
would be impossible to explain who will buy the output 
produced, where the workers and capitalists will get the 
consumer goods they personally need, where capitalists will 
get the means of production they need, and how the con- 
ditions necessary for the renewal of production in society as 
a whole will be created. 

1 Karl Marx, Capital, Vol. II, p. 357. 

Before dealing with how replacement of the product by 
value and in physical terms takes place, we must first explain 
what the aggregate social product is and what is its composi- 

The Aggregate Social Product 
and Its Components 

The aggregate or total social product is the whole mass of 
material goods (means of production and consumer goods) 
produced during a certain period, for example, a year. In 
value terms the social product, like an individual commodity, 
is divided into three parts: (1) constant capital (c), or the 
value of means of production consumed in society,- (2) vari- 
able capital (u), or the wage fund reproduced in the pro- 
duct; (3) the surplus value (s) produced in the course of the 

How, then, is social capital value reproduced? The value 
of the means of production (c) consumed in the course of the 
year and transferred to the product is the source from which 
they are reimbursed. The other two parts of the aggregate 
product (u + s) are value newly created during the year, or 
the national income ot the society. The equivalent of variable 
capital (y) reproduced in the product returns to the capitalists 
once the goods are sold and is used again to hire labour 
power. Surplus value (s) is appropriated in its entirety by 
capitalists and is spent by them on satisfying their require- 
ments and expanding production. 

In its natural form the aggregate product is divided into 
means of production and consumer goods. Marx was the 
first to show that all social production breaks down into two 
major divisions, according to the purpose for which the goods 
produced are intended : 

Department I-production of means of production,- 

Department II-production of articles of personal con- 

This break-down is based on the fact that the main ex- 
change in society takes place between these two departments. 

18 * 



The product of Department I is, in physical terms, ma- 
chinery and equipment, materials of various kinds, fuel and 
electricity, consumed productively. The product of Depart- 
ment II (food, clothing, footwear, housing, luxury items and 
the like) can only be used for personal , non-productive 

The clear distinction between personal and productive con- 
sumption and the division of the aggregate social product 
into two major departments gave Marx a chance to show 
under what conditions realisation of the aggregate social 
product and replacement of all its components, both in value 
and physical terms, take place, conditions without which the 
process of the reproduction of social capital would be im- 
possible. The problem of social reproduction was thus put on 
a scientific basis. Lenin wrote that Marx's division of the 
total social product in value and physical terms made more 
theoretical sense than all the verbiage of bourgeois political 
economy on the problem of realisation. 

For his analysis of the reproduction of social capital, Marx 
employed the scientific method of abstraction, i.e. left aside 
a number of factors that do not alter the general laws of 
capitalist reproduction, but would complicate elucidation of 
the essence of the matter. 

He considered capitalist production in its pure form, i.e. 
he assumed that the whole of society consists of only two 
classes, capitalists and workers. 

Marx abstracted foreign trade, since the laws of repro- 
duction remain the same regardless of whether they are 
analysed within the limits of a single country or of several 
countries interconnected by the market. 

Marx assumed that all commodities, including labour 
power as a commodity, are bought and sold at their value, 
meaning thereby that existing divergences of prices from 
values are levelled out and have no effect on the laws of 
motion of the aggregate social capital. He began from the 
assumption that the organic composition of capital and the 
rate of surplus value remain unchanged in the process of 
reproduction (although, in reality, they continually undergo 

Scientific abstraction enabled Marx to look at the move- 
ment of capital in its most general form, to reveal the inner 



laws of the reproduction of social capital and to disclose its 
basic trends. 

The reproduction of social capital, as of individual capi- 
tals, is either simple or extended, simple reproduction being 
the basis of extended reproduction. For that reason, Marx 
began analysis of the process of social reproduction with 
simple reproduction. 


Simple Reproduction 

Simple reproduction is repetition of the process of pro- 
duction on the same scale as before, with surplus value used 
up in its entirety by the capitalists for their personal con- 
sumption. In its pure form simple reproduction is not charac- 
teristic of capitalism. Marx subjected it to thorough analysis, 
however, since the capitalist form of movement of the social 
product is revealed in it and several important conditions of 
reproduction in general, regardless of its social form, become 
clear. "As far as accumulation does take place," he wrote, 
"simple reproduction is always a part of it, and can therefore 
be studied by itself, and is an actual factor of accumulation." 1 

To analyse simple reproduction, Marx took the following 
scheme for the composition of the aggregate product both 
in value and physical terms : 

Department I 
Department II 

4.000 c' + 1 ,000 v + 1 ,000 s = 6,000 \ 

2.000 c+ 500 u + 500 s = 3,000/ 


From this scheme it can be seen that, in Department I, in 
the course of a year, 4,000 units of constant capital (in, let 
us assume, millions of dollars, francs, marks, etc.) and 1,000 
units of variable capital are expended and, with 100 per cent 
degree of exploitation, 1,000 units of surplus value are creat- 
ed. The total annual product is thus 6,000 and consists of 
output for production purposes-equipment, machinery, raw 
materials, fuel, production buildings and so on. 

i Karl Marx, Capital, Vol. IL P- 399. 



In Department II, constant capital of 2,000 units and 
variable capital of 500 units are expended and, with the same 
degree of exploitation, 500 units of surplus value created. 
The total annual product is 3,000 and consists of articles of 
personal consumption-food, clothing, footwear, housing and 
the like. The aggregate product is 9,000. 

In what way will the social product be realised and the 
right conditions created for the process of production to be 
repeated on the same scale in the following year? 

Since the total product of Department I consists of means 
of production, part of it, equal to 4,000c, is realised within 
this division. The capitalists in Department I buy the means 
of production they require from each other and, in this way, 
replace them in both value and physical terms. 

The product of Department II consists of articles of per- 
sonal consumption. Part of it equal to 1,000 is realised within 
the division; with the 500 units received as wages (500y), 
the workers buy the means of subsistence they need from 
the capitalists of this division, and the capitalists obtain 
consumer goods and luxuries for themselves by way of ex- 
change with each other. 

In Department I, 2,000 units of means of production 
remain unsold, and in Department II, 2,000 units of consum- 
er goods. The workers and capitalists of Department I buy 
the consumer goods they need, to the tune of 2,000 units, 
from the capitalists of Department II; and the capitalists of 
Department II, in turn, buy means of production to the same 
amount from the capitalists of Department I. As a result of 
all these acts of exchange, the components of capital are 
equally reimbursed in value and physical terms. But the 
workers, however hard they work, remain proletarians, as 
before, for whom sale of their own labour power is unavoid- 
able, while the capitalists, although they did not work, re- 
tain ownership of the means of production. Realisation of 
the annual product, consequently, creates the necessary con- 
ditions for completing the next yearly production cycle. The 
capitalist class and the working class are preserved, i.e. the 
relations of the exploitation of wage labour by capitalists 
are reproduced. 

Marx showed that certain conditions and a certain pro- 
portion or balance between the two departments are needed 



for the aggregate social product to be realised in simple 

These conditions are the following. 

(1) The sum of the variable capital and surplus value in 
Department I must be equal to the value of the constant 
capital in Department II consumed in the course of a year: 

I (v 4 . S ) = lie, or I (1 ,000 u + 1 ,000 s) = IT (2,000 c). 

(2) The value of the product of Department I must be 
equal to the sum of the constant capital in both departments: 

I i c 4 v 4 s ) = ] c + II c, or 

I (4, 000 c+ 1,000 v-\- 1,000s) = I (4,000 c) -f II ( 2,000 c). 

(3) The value of the product of Department II must be 
equal to the newly-created value in both departments, since, 
with simple reproduction, the whole of the national income 
is used for personal consumption : 

II (c + i> + s)=I (c-4-s)-|-II (u + s), or 
II (2,000 c -j- 500 v + 500 s) = I ( 1 ,000 u + 1 ,000 s) 4- 
-f II (500 0 + 500s). 

If any of these conditions are broken, and that is m evita- 
ble, given the anarchy of capitalist production, the result will 
be that some of the output remains unrealised and the whole 
process of reproduction is thus upset. 

Extended Reproduction 

Extended reproduction of social capital is characteristic of 
capitalism. Extended reproduction is renewal of the process 
of production on an increasing scale. In order to increase the 
scale of production, some surplus value must be accumulated 
in money form and then reconverted into additional pro- 
ductive capital. The reconversion of part of the aggregate 
surplus value into social capital is only possible if society 
has additional means o£ production surplus workers and 
additional articles of consumption for the newly-hired 

workers • , 

There are always surplus workers in capitalist society in 

the form of the industrial reserve army created in the process 



of accumulation of capital. As for the additional means 
of production and consumer goods, they increase every year 
by the amount of the surplus value created by the workers. 

How does capitalist extended reproduction take place, and 
under what conditions? 

Marx gave the following basic scheme of extended capi- 
talist reproduction : 

Department I 4,000 ? c -f 1 ,000 v + 1 ,000 s = 6,000 1 
Department II 1,500 c-f 750u+ 750 s = 3,000 f = 9 ’ 000 - 

The organic composition of capital (c-.v) in Department I 
is 4:1 and in Department II, 2:1. 

The existence of additional means of production, i.e. of the 
material elements of constant capital, is of decisive signifi- 
cance for any extension of production. Analysis of the pro- 
cess of realisation must consequently start with Depart- 
ment I. 

With the given balance between Departments I and II, the 
capitalists spend only half of the 1,000s in Department I or 
500s, on private consumption, i.e. as revenue, while they 
convert the other 500s into additional capital, i.e. accumulate 
it Since it is assumed that the organic composition of capi- 
. r ^ ma ^ ns unchanged (4:1), 400 of the 500s accumulated 
will be used to obtain additional means of production and 
100 on the hire of extra workers. As a result, the annual 
product for Department I (in value) will take the following 
form : 

4,400 c-}- 1, 100p -{-500 s (revenue) = 6,000. 

ITie amount of accumulation in Department II depends 
on how much means of production are produced in Depart- 
ment I above its own requirements. In Marx's scheme, the 
capitalists of Department II are only able to increase their 
constant capital by 100 units (6,000-4, 400cI-l,500sII=100). 
In addition, on the basis of the organic composition of capi- 
c 1 j D ?P artment II (2:1), they will advance 50s on the hire 
of additional workers. The annual product of Department II 
will therefore be arranged as follows: 

1 ,600 c + 800 v -f- 600 s (revenue) = 3,000. 



Realisation of the aggregate product, as in simple repro- 
duction, takes place through commodity exchange within 
each department and between them. So as to be able not only 
to renew, but also to extend production, the capitalists of 
Department I buy means of production from each other not 
for 4,000, but for 4,400 units. Their consumed constant capi- 
tal is not only replaced, but grows by 400c. The remaining 
1,600 units of means of production in Department I can only 
be realised by exchange with Department II. 

Within Department II, 1,400 units of output are realised, 
the workers buy 800u of the consumer goods they need from 
the capitalists, and the capitalists exchange consumer and 
luxury goods worth 600s with each other. The remaining con- 
sumer goods to the value of 1,600 units are bought by the 
workers and capitalists of Department I from the capitalists 
of Department II. The capitalists of Department II buy 
means of production from the capitalists of Department I 
for the same amount. The exchange between the two depart- 
ments enables the workers and capitalists of Department I 
to satisfy their personal requirements and the capitalists of 
Department II to replace the material elements of constant 
capital and add another 100 units of means of production 
to them. 

The whole process of exchange between the two depart- 
ments under extended reproduction can be represented 
like this : 

I 4,400 c -f 1,100 v + 500 s =6,000. 


II 1,600 c + 800 v -j- 600 s = 3,000. 

The next year, production will already have taken place 
on an extended scale: 

I 4,400c4- l,100t>4- 1 , 1 00 s = 6,600ft 

II 1,600 c 4- 800 c 4- 800 s = 3,200 f 

= 9,800. 

The overall sum of the year's social product will increase 
from 9,000 to 9,800, more surplus value will be produced, 
and the conditions created for a further expansion of pro- 
duction. Along with growth in the volume of material 



production, the number of wage workers will rise and cap- 
ital and the scale of the bourgeoisie's parasitic consumption 
will also increase. In other words, along with an extension of 
reproduction of the social product, the two classes- 
proletarians and bourgeoisie-and the production relations of 
the exploitation of wage labour by capital will also be repro- 
duced on an extended scale. 

It can be seen from the schemes that the aggregate prod- 
uct is only realised for extension of reproduction under 
conditions, which differ from those of simple reproduction 
and can be formulated as follows : 

(1) The sum of the variable capital and surplus value of 
Department I must be greater than the amount of constant 
capital used up in Department II : 

I (u-fs)>IIc, or I (1,000 1 ; + 1,000 s)> II 1,500'c. 

Without this, an increase in constant capital is not pos- 
sible, nor consequently is expansion of production in the two 

(2) The whole of the product of Department I must 
be greater than the constant capital used up in the two 
departments : 

I (c-|- c-J-s) > Ic-j- lie, or 

I (4,000 c -j- 1 ,000 v + 1 ,000 s) > I 4,000c + II 1,500c. 

If this condition is not observed it means there will not 
be the additional means of production in the aggregate 
product needed to increase constant capital in the two de- 

(3) The newly-created value in both departments (society's 
national income) must be greater than the product of Depart- 
ment II: 

1 (°+s) + H (0 + s)>II (c-j— u-fs), or 

I (1,000 u+ 1,000s) +11 (750 v -f- 750 s) > 

>11 (1,500 C+ 750 p-}- 750 s). 

Given these conditions, it becomes possible to use some 
of the national income to expand production and, in particu- 
lar, to increase the constant capital of society as a whole. 


In reality, of course, in capitalist society, the necessary 
balance only asserts itself through numerous disturbances of 
proportions, and that inevitably leads to enormous waste of 
material and human resources. 


The Marxist theory of reproduction of social capital reveals 
the pattern of the production and distribution of the national 
income under capitalism and explains its social and economic 
nature. National income, as we saw above, is part of the 
aggregate or gross social product and is the value newly 
created in the course of the year, or the yearly result of the 
expenditure of living labour of workers in material 

National income has both a value and a material form. 

By value, it is the aggregate expenditure of living labour, 
expressed in variable capital ( v ) and surplus value (s) or the 
sum total of the value newly created in all the branches of 
material production. 

By use value, or in material terms, national income con- 
sists of consumer goods and that part of the means of pro- 
duction intended for extending production. In the phase of 
final utilisation they respectively form the consumption and 
accumulation funds. 

In industrialised capitalist countries, most of the national 
income is created by the labour of wage workers,- but since, 
in bourgeois society, in addition to capitalists and workers, 
there are also small commodity producers (peasants and 
artisans), their labour also creates a certain share of the 
national income. 

In its movement national income passes through three 
stages: (1) the production stage; (2) the stage of distribution 
and redistribution, and (3) the stage of utilisation (see the 
diagram on page 286). Under capitalism, this movement takes 
place spontaneously, on the basis of capitalism's inherent an- 
tagonistic contradictions. 



Production of National Income 

National income is created only in the sphere of material 
production, i.e. in industry, construction and agriculture. In 
transport, trade and communications, national income is only 
created to the extent that material production continues into 
these spheres. 

The entire employed population in capitalist society can 
be divided into two groups: (1) workers employed in ma- 
terial production, and (2) people employed in the non- 
productive sphere, that is to say in state administration, the 
army, education, the health services and so on. This break- 
down is of fundamental significance both for determining of 
the actual size of the national income and for revealing the 
class character of its production and distribution. The labour 
of people employed in the non-productive sphere docs not 
create national income. 

National income grows under the influence of two factors: 
(1) an increase in the mass of labour used in the sphere of 
material production, and (2) a rise in the productivity of 
labour. The amount of labour employed rises both through 
the drawing of additional workers into production and 
through an increase in the intensity of labour and in the 
length of the working day. With a rise in the productivity of 
labour, the amount of use value in society increases and so, 
consequently, does the physical volume of the national in- 
come. The capitalists naturally strive to make as much use 
as possible of both factors, while at the same time achieving 
as great an increase as possible in the proportion of surplus 
value in the national income and a relative fall in the part 
of it that constitutes the product of necessary labour. 

With the development of capitalism, the amount of labour 
employed in the non-productive sphere grows steadily, a 
greater and greater proportion of the able-bodied population 
are withdrawn from production for military service, the state 
machine rapidly expands, the parasitic strata of the popula- 
tion grow in numbers, and the number of people serving the 
whims and fancies of the exploiters increases. The number 
of people deprived of the opportunity to work-the uncm- 
ployed-also mounts. At the same time, the amount of idle 
production capacity, i.e. unused machinery, machine tools 


and equipment, increases. As a result, there is a slowing down 
of the rates of growth of the national income in capitalist 
countries. In the USA, for example, the mean annual rate of 
growth of the national income for the last 30 years of the 
nineteenth century was 4.7 per cent, but between 1951 and 
1971 was only 3.3 per cent. 

Distribution and Redistribution 
of the National Income 

The mode of distribution is always determined by the 
mode of production. The distribution of the national income 
in capitalist society cannot take place in any other way than 
in the interests of the exploiting classes. 

The national income of capitalist society is divided into 
two parts: (1) the wages of wage workers and (2) the sur- 
plus value received in various forms by the exploiters, i.e. 
the owners of the means of production. In addition, the ex- 
ploiting classes appropriate a significant part of the national 
income created by the labour of small commodity producers. 

The incomes of workers, in the form of wages, and the 
incomes of peasants, based on personal labour, are earned 
incomes; the incomes of the exploiting classes, based on 
exploitation of the labour of others, are unearned incomes. 
The national income created in capitalist enterprises is first 
distributed between the three main classes of bourgeois 
society, namely capitalists, landowners and wage workers. 
This initial distribution ensures that industrial and commer- 
cial capitalists receive average profits and landowners-rent 
of land. When entrepreneurs use borrowed capital, they 
relinquish a share of average profit to money capitalists in 
the form of interest on loans. At best, workers receive only 
the value of their labour power. Already at this stage, deep 
antagonistic contradictions are to be observed in capitalist 
distribution. In striving to obtain the largest possible profits 
and rents, the exploiting classes, at the same time, reduce the 
share of the national income going to the workers and in- 
crease exploitation of them. The diminution of the share of 
the national income received by the working class and the 
peasantry is accompanied with a sharpening of the class 
struggle between the exploited and the exploiters. 

I Production II Distribution Redistribution III Final 




After the initial distribution of the national income, it is 
redistributed, as a result of which derived incomes are formed. 
These include the incomes of those strata of society 
that arc employed in the non-productive sphere-civil servants, 
doctors, teachers, servicemen, bank employees, lawyers, the 
clergy and the like. The main incomes named above are the 
source of derived incomes. The redistribution of the national 
income and the formation of derived incomes takes place pri- 
marily through payments for various services performed by 
workers in the non-productive sphere and also through the 
price-and-credit mechanism. 

State budgets are becoming increasingly a most important 
lever by which the national income is redistributed. In 1913, 
only 6.5 per cent of the US national income was redistributed 
through the state budget; the figure is now more than 38 per 

The chief source of revenue in capitalist budgets is taxes. In 
the USA and in France, for example, taxes bring in 95 per cent 
of budget revenue, in Great Britain 97 per cent, and in Italy 
94 per cent. Direct and indirect taxes on the population com- 
prise, as a rule, about two-thirds of all budget revenues. In 
the 1971/72 US financial year, the total taxes paid by an 
American family reached 4,520 dollars, compared with 2,546 
dollars in 1961/62. In 1975 alone, taxes rose by 34 per cent 
in Great Britain, 27 per cent in Italy and 12.5 per cent in 

A role of some importance in the search for sources of 
revenue to cover increasing budget expenditures is played by 
state loans and the emission of money. An excessive issue of 
paper money into currency leads to inflation, which, as we 
know, is an additional way of robbing the working 

The financial resources mobilised in the state budget are 
spent on military and other government orders, on support- 
ing the parasitic organs of the bourgeois state and on paying 
interest on loans, etc. In the USA, in 1974, military expen- 
diture constituted 31 per cent of the federal budget, in France 
17.4 per cent, in West Germany 21.6 per cent, in Great 
Britain 20.1 per cent. Most of the resources spent on mili- 
tary needs go in one way or another to the biggest capitalist 
corporations. Only a small share of budget appropriations 



are used for education, health services, welfare and other 
social needs. 

The budgets of capitalist states are thus an instrument for 
redistributing the national income in the interests of the 
ruling classes to the detriment of the workers,, a 
means of increasing exploitation of the working class 
and peasantry. 

Use of the National Income under Capitalism 

After distribution and redistribution, the national income 
of capitalist society is used in the final analysis for the fol- 
lowing: (1) the personal consumption of workers in the 
sphere of material production; (2) the consumption of work- 
ers in the non-productive sphere; (3) the private consump- 
tion of the exploiting classes; (4) to cover non-productive 
military expenditure; (5) to cover net costs of circulation; 
(6) capitalist accumulation, i.e. expansion of production. 

The share of the national income going on the private 
consumption of workers in the sphere of material production 
is steadily being reduced through operation of the general 
law of capitalist accumulation. At the same time, the share 
of income used for the consumption of workers in the non- 
productive sphere is getting bigger and bigger, and has al- 
ready reached the level of the incomes of workers in the pro- 
ductive sphere. 

Less than half the national income, however, is spent on 
the private consumption of all working people, employed 
either in the productive or the non-productive spheres, who 
comprise nine-tenths of the population of capitalist countries. 

The private consumption of the exploiting classes, which 
acquires an increasingly parasitic and extravagant nature, 
comprises a fairly high percentage of the whole national in- 
come and exceeds the accumulation fund. 

An ever growing share of national income is spent on the 
arms race, on the army, on the swelling state machine, on 
the growing army of the unemployed, and on advertising, 
stock-market speculation and other non-productive 

The tendencies in the utilisation of the national income 


under capitalism, like the laws of its production and distri- 
bution, provide evidence of the ever increasing parasitism 
and decay of the bourgeois system. 


Study of the schemes of simple and extended reproduction 
shows that the normal course of reproduction is only pos- 
sible when there are certain proportions between the dif- 
ferent parts of social production, between Departments I and 
II, within each department, between industries, between pro- 
duction and consumption, and so on. Under the conditions of 
the capitalist mode of production, however, these proportions 
are constantly disrupted. In the article ''Once More on the 
Theory of Realisation”, Lenin wrote: "The abstract theory of 
realisation assumes and must assume the proportional distri- 
bution of the product between the various branches of capi- 
talist production. But, in assuming this, the theory of realisa- 
tion does not, by any means, assert that in a capitalist society 
products are always distributed or could be distributed 
proportionally.” 1 

There are deep antagonistic contradictions inherent in 
capitalist reproduction arising from the basic contradiction 
of capitalism, that is between the social nature of produc- 
tion and private capitalist appropriation. Let us take a brief 
look at the most important of these contradictions. 

The Contradiction between 
Production and Consumption 

Concern for satisfying the needs of the workers is alien 
to capital. All the designs of capitalists are directed toward 
ensuring extraction of the maximum profit. The impression 
is created that production develops independently of con- 
sumption; moreover, when there is a wide market, it can 

t v. I. Lenin, Collected Works , Vol. 4, p. 77. 




expand rapidly, within certain limits, as a result of an in- 
crease in demand for the means of production. But, in the 
final analysis, capitalist production is linked with private 
consumption and depends on it. 

Can capitalists, in fact, receive surplus value if workers 
do not reproduce their labour power, i.e. do not consume? 
Of course not. Capitalist production is linked with the con- 
sumption of the workers not only by the conditions of the 
production of surplus value, but also by those of its 

In order to receive surplus value, commodities must first 
be realised. The conditions of production and realisation, as 
Marx pointed out, not only do not coincide in time and place, 
but are also different in essence. The chief purchasers of 
consumer goods under capitalism are the working masses. A 
fall in the proportion of variable capital in the national in- 
come means, at the same time, a drop in the purchasing 
power of the masses and a lag in the effective demand of 
workers behind the expansion of production. The low pur- 
chasing power of the workers acts as a direct brake on reali- 
sation of the product of Department II, so that the capitalists 
of Department II prove to be in no position to purchase the 
means of production of Department I. Consequently, with a 
gap between production and consumption, the cycle of capi- 
talist reproduction is upset. 

The Contradiction between Expansion 

of Production and Increase of Value 

In order to increase the production of surplus value, capi- 
talists introduce new equipment and technology into their 
enterprises, which, as we know, raises labour productivity. 
Technical progress, however, leads to an increase in the or- 
ganic composition of social capital and a relative fall in the 
share of variable capital, and gives rise to the tendency for 
the average rate of profit to fall. So, the production of sur- 
plus value-the "self-expansion” of capital-as the dominant 
aim and driving motive of capitalist production, is in insolu- 
ble conflict with the means by which this self-expansion 
takes place, i.e. with development of the productive forces 
of society. 


The contradiction between the expansion of production 
and growth of value is also seen in the fact that a rise in the 
productivity of social labour reduces the value of the com- 
ponents of the capital already functioning in production, i.e. 
of buildings, installations, machinery and equipment, and 
leads to significant losses through the moral depreciation of 
this capital. The faster technical progress takes place, the 
more significant these losses become. This phenomenon pro- 
duces extreme irregularity in the demand for means of pro- 
duction, causes periods of steep expansion of demand to 
alternate with periods of equally sharp cut-backs, introducing 
ever greater chaos into the process of capitalist reproduc- 
tion. The contradiction between the growth of production and 
the "self-expansion" of capital shows that capitalist produc- 
tion relations are an increasing drag on growth of the pro- 
ductive forces, which is evidence of the historical transiency 
of capitalism. 

The Contradiction between the Organisation 
of Production in Individual Enterprises 
and the Anarchy of Production in Society 

The contradiction between social production and capitalist 
appropriation, Engels wrote in Anti-Diihring , recurs as " an 
antagonism between the organisation oi production in the 
individual workshop and the anarchy oi production in so- 
ciety generally" A 

Whereas, in individual enterprises, production is subject 
to the will of a single person, the capitalist, and is organised 
by him with a specific aim in view, in society as a whole 
there is an absence of any kind of planned organisation of 
production and, with the predominance of private ownership, 
there can be none. Under capitalism, anarchy of social pro- 
duction becomes the general form of development of the 
economy, and because of this, the production of individual 
commodities never, or hardly ever, corresponds to the social 
need for them. 

1 Frederick Engels, Anti-Diihring, Moscow, 1969, p. 324. 
19 * 



Disturbance of the necessary proportions between Depart- 
ments I and II of social production, and between the dif- 
ferent industries within each department, becomes an objec- 
tively inevitable and permanent phenomenon. Under such 
conditions, the realisation of commodities encounters con- 
siderable difficulties and the normal cycle of reproduction is 
systematically upset. The disproportionality of the capitalist 
economy has become particularly pronounced in the present- 
day phase in connection with militarisation of the economy, 
which gives rise to one-sided development of the arms in- 
dustry and allied industries. 

The Contradiction between 

Production and Circulation 

Realisation of the total social product is also complicated 
in capitalist society by the contradiction between production 
and circulation. Commodity circulation mediates the link 
between production and consumption. The realisation of 
value and the distribution of surplus value take place in 
circulation and in it the conditions are created for the re- 
newal and expansion of production; but, since commercial and 
loan capital are separate from industrial capital, the sphere 
of circulation is isolated from both production and consump- 
tion and is counterposed to them as an independent branch 
of the capitalist economy. In periods of high market activity, 
when commodity prices rise, the commercial capitalists strive 
to buy up as many commodities as possible on credit, in or- 
der to receive the maximum possible commercial profit from 
the price difference. This situation creates fictitious demand 
for commodities, accelerates growth of production, and in- 
creases the gap between it and the real basis of the consump- 
tion of the working masses. 

While effective demand is in fact already exhausted, more 
and more new commodities continue to flow into the sphere 
of circulation and stocks of unsold commodities snowball, 
which leads, finally, to deep disturbances of the whole pro- 
cess ot capitalist reproduction. 



The Contradiction between 
Proletariat and Bourgeoisie 

The basic contradiction of capitalist reproduction appears 
in social life as an antagonism between labour and capital. 
As Engels put it, "the contradiction between so- 
cialised production and capitalistic appropriation mani- 
fested itself as the antagonism of proletariat and bour- 
geoisie." 1 

In pursuit of maximum profit, as we said previously, capi- 
talists develop technology, rationalise production, raise the 
intensity of labour and strive to lower production costs in 
every possible way. All these measures are taken at the ex- 
pense of the working class. 

The tendency for the rate of profit to fall also prompts 
capitalists to expand production and to increase exploitation 
of the workers. The operation of the general law of capitalist 
accumulation and the process of concentration and centrali- 
sation of production cause a rise in unemployment, relative 
and absolute deterioration of the condition of the workers, 
and the ruin of petty commodity producers. 

The exploitation of the working class in production is 
supplemented by robbery of the working people in the 
spheres of circulation and services and through the tax 
system. The capitalists' drive to increase exploitation is 
opposed by the workers' ever growing class struggle for 
deliverance from capitalist oppression. The irreconcilability 
of the basic class interests of the proletariat and the bour- 
geoisie exerts a great influence on the whole course of 
capitalist reproduction. 

The sharpening of the contradictions of reproduction in 
their totality is evidence that the system of production rela- 
tions under capitalism is in sharp conflict with the contem- 
porary productive forces and with the social character of pro- 
duction, a conflict that gives rise to economic crises as a spe- 
cifically capitalist way of temporarily resolving the contra- 
dictions in reproduction. 

1 Frederick Engels, Anti-Diihring, p. 321. 



The Inevitability of 
Crises of Overproduction 
under Capitalism 

Economic crises in the form of sudden drops in the volume 
of production took place even before capitalism. But in the 
pre-capitalist formations they were sporadic and resulted 
from natural calamities, crop failures, epidemics, wars and 
the like. And they were crises of underproduction. 

Under capitalism, economic crises ot overproduction de- 
velop, when production is reduced because too many com- 
modities have been produced. This overproduction is relative. 
Everything produced could be consumed, but to be consumed 
it must first be bought, and far more commodities are pro- 
duced than the working people can buy. Production is there- 
fore markedly curtailed. The broad masses of the people are 
deprived of the most essential consumer goods, while ware- 
houses and shops are bursting with an excess of goods for 
which they cannot find customers. 

Economic crises of overproduction have taken place perio- 
dically since 1825 and are a complex phenomenon of the 
bourgeois system. In order to understand them, it is neces- 
sary first to explain how and why the possibility of crises 
arises and the reasons why they become inevitable under 

The general possibility of economic crises, Marx pointed 
out, lies in the contradictions between commodity and money. 
It arose when the transition took place from the direct ex- 
change of commodity for commodity to commodity-money 
circulation, to exchange through the medium of money. When 
money begins to operate as a medium of circulation, the pro- 
cess of the exchange of commodities is split into two op- 
posing acts, sale C-M and purchase M-C. The sale of one 
commodity does not mean, in these circumstances, the pur- 
chase of another. The purchase may be made later and in 
another place; and it is in this disruption between the acts 
of purchase and sale that the formal possibility of crises lies. 
It also lies in the function of money as a means of payment, 
in which there is also a disruption between the acts (a) of 
the purchase of commodities on credit and (b) the payment 
for them. 



With simple commodity production, however, the possibility 
of crises has not yet become a reality. Commodity producers 
sell their commodities on local markets. If difficulties arise 
in disposing of them, this does not upset the whole course 
of social reproduction. Only under capitalism, when com- 
modity production is the general form of the production of 
material wealth and money has been converted into capital, 
arc the necessary conditions created for crises not only to 
become possible, but also to be unavoidable. 

The inevitability of economic crises of overproduction lies 
in the very essence of the capitalist mode of production. 
The antagonistic contradiction between the social character 
of production and the private form of appropriation, i.e. the 
chief contradiction of capitalism, is their main cause, but it 
does not operate directly to make them inevitable, but 
through the concrete forms in which it is manifested, which 
we have already examined. Of primary importance among 
these is the contradiction between production and consump- 
tion. The lagging of national consumption behind production 
possibilities is characteristic of capitalism. The steady 
development of the modern productive forces requires them 
to be subordinated to meeting the needs of the people, which 
cannot be done with private ownership of the means of 

In many capitalist countries, attempts have frequently 
been made, with the help of the bourgeois state, to institute 
"planning" and "regulation" of social production, in order to 
iron out the contradictions of capitalism and stave off crises, 
but they are all inevitably doomed to failure, since they are 
unable to eliminate the anarchy of production or remove its 
basic contradiction. 




The Industrial Cycle and Its Material Basis 

The development of the contradictions and disproportions 
inherent in capitalism results in the expansion of production 
coming to a halt, after a certain period of time, in growth 




of production being replaced by a fall, and by the onset of 
a crisis. Capitalist production can only develop cyclically, 
i.e. by way of continuous alternations between periods of 
increasing production and periods of decline and stagnation. 
The period of time from the beginning of one economic crisis 
to the beginning of the next is called the industrial cycle. 

There are four different phases in this cycle, viz. crisis, 
depression, recovery and boom. Let us look at all of them in 
more detail. 

The chief phase of the cycle is the crisis. An economic 
crisis of overproduction sets in when the divergence between 
the growing level of production and the limited effective 
demand of the working people becomes acute in the extreme. 
It is observed mainly as a marketing crisis, when the sale 
of commodities at prices ensuring profit drops sharply. As a 
result, the stocks of commodities in warehouses grow, com- 
petition between capitalists to sell their output becomes 
more fierce and a rapid fall in prices sets in. Capitalists are 
forced to cut production or even to curtail it completely, 
since it ceases to be profitable. 1 The suspension of realisation 
and the cut in production result in businesses not paying 
banks and other creditors for loans previously granted and 
for commodities bought on credit. The pursuit of cash leads 
to mass withdrawal of deposits from banks and the sale of 
bonds and securities, the prices of which drop catastrophi- 
cally. Cut-backs in commercial and bank credit take place 
and, at the same time, the demand for credit grows, as a 
result of which the rate of interest on loans rises sharply. 
The crisis hits the monetary and credit systems as well as 
trade and industry. Thus, during periods of crisis, the whole 
system of social production, circulation and distribution is 

Many enterprises, trading firms and banks, especially 
small and medium-sized ones, go bankrupt. During the three 
crisis years of 1930-32 alone, for example, there were more 
than 20,000 bankruptcies in Great Britain. 71,000 in Ger- 
many and more than 86,000 in the USA. During the 1974-75 

1 At the present time the biggest monopolies cut production back 
in advance when the market situation is unfavourable, so as to pre- 
vent a fall in prices. 


crisis, more than 121,000 firms with a capitalisation of a 
million dollars or more went bankrupt in the ten leading 
capitalist countries. Masses of workers are thrown onto the 
street, unemployment rises disastrously, workers' earnings 
fall, and the living conditions of the working masses deterio- 
rate sharply, all of which further reduces their purchasing 
power and increases the difficulty of disposing of stocks on 
hand. To avoid further price cuts, capitalists often resort to 
destroying goods that have already been produced. The dif- 
ficult position of the working masses during crises gives capi- 
talists the opportunity to intensify exploitation and to dictate 
worse conditions of work. The crisis forcibly and sponta- 
neously adjusts production to the falling volume of effective 
demand and, at the level where the fall in production ceases, 
depression sets in. 

In the period of depression , industrial production stag- 
nates; it is no longer falling, but it is not growing cither. The 
prices for commodities remain low and trade is slack. The 
low demand for loan capital brings about a drop in the rate 
of interest. 

Production cannot stagnate indefinitely, however, and it 
gradually adjusts to the lowered prices. In order to make 
production profitable even at these prices, capitalists reduce 
cost price, i.e. expenditure of constant and variable capital 
per unit of output, which they achieve primarily by cutting 
the real wages of factory and office workers, lengthening the 
working day, intensifying labour, and so on. At the same 
time, fixed capital is renewed and new technology, techniques 
and organisation of production are introduced. 

It is quite clear that these cuts in the costs of production 
are more accessible to big capital; therefore, as a result of 
crises, the production of commodities becomes concentrated 
in the hands of the big capitalists who have withstood the 
blows of the crisis. New capital investment stimulates a rise 
in demand for means of production and then for consumer 
goods. The gradual fall in prices comes to a halt, demand for 
credit grows, and the level of interest rates begins to rise. 

A crisis dictates a need to renew fixed capital, which 
ensures a way out of the crisis and simultaneously creates 
the material prerequisites for the next crisis. The renewal of 
fixed capital is thus the material basis of the capitalist cycle. 


As Karl Marx wrote: "A crisis always forms the starting- 
point of large new investments. Therefore, from the point of 
view of society as a whole, more or less, a new material basis 
for the next turnover cycle." 1 Beginning in the depression 
phase, renewal of fixed capital continues into the phase of 
the recovery of production, in which capitalist production 
and circulation reach the level existing before the crisis. 
Once the process of new capital investment extends to the 
majority of industries, a transition begins from the phase of 
recovery to the boom phase. The pre-crisis level of production 
is exceeded to some degree or other and then, with incon- 
trovertible regularity, a new crisis sets in and the whole in- 
dustrial cycle repeats itself once again. 

It is impossible, in capitalist conditions, to overcome crises 
and the cyclical character of the development of production. 
The reasons for them are rooted in the irreconcilable con- 
tradictions of capitalist reproduction which, far from fading, 
arc becoming, on the contrary, more acute. Only the specific 
features of the cycle, its length and the forms in which its 
separate phases develop alter depending on the concrete his- 
torical conditions. 

Study of the history of economic crises indicates that crises 
occurred every ten or eleven years at first and involved the 
economies of individual countries, and then, beginning with 
the 1857 crisis, they began to repeat themselves every seven 
to nine years and took on the character of world crises. 
Since the Second World War, several fundamentally new 
features have arisen in the cyclical development of capitalist 
reproduction, which will be considered later in the chapter 
on the crisis of world capitalism. 

Agrarian Crises and Their Features 

Apart from industrial economic crises, there are also spe- 
cific agrarian crises, affecting agricultural production under 
capitalism. They are caused by the same irreconcilable con- 
tradictions of capitalism, but differ from industrial crises in 
certain special features. 


(1) Agrarian crises do not occur as regularly as industrial 
ones. (2) They are more protracted in nature and last for 
decades. These features are a result of the specific nature of 
agricultural production under capitalism and, in particular, 
of the existence of private property in land. During crises, 
when purchase prices of agricultural produce fall significant- 
ly, tenant-fanners are forced to pay the same large sums in 
rent as before to the landowners. In the USA, for example, 
between 1929 and 1932 the share of rent in the price of wheat 
rose from 30 to 50-54 per cent. This slows down the renewal 
of fixed capital in agriculture extremely, makes it more dif- 
ficult for farming to adapt to the lowered prices, and delays 
its recovery from the crisis. 

The existence of masses of small peasant farms in capi- 
talist countries also helps delay recovery from an agrarian 
crisis. In crisis years, when prices for agricultural products 
fall and profits are reduced, capitalist tenant-farmers cur- 
tail production and try to withdraw their capital; yet the 
peasant, in order to be able to feed his family and to pay 
his rent and taxes, continues to produce, even when prices 
are at their lowest, suffering great deprivation and working 
extremely hard. In agriculture, therefore, in contrast to in- 
dustry, no rapid and sharp cut in production takes place that 
could equalise the supply of agricultural produce to the 
effective demand for it. 

There have been three protracted agrarian crises in the 
history of capitalism. 

The first began during the world economic crisis of 1873, 
and was a crisis of grain farming in a number of countries 
in Europe and America. The development of transport had 
made it possible for cheap grain from Russia, India and 
America to appear on the world market, which led to a 
sharp drop in cereal prices, as a result of which the first 
world agrarian crisis set in in Western Europe and lasted for 
more than 20 years. 

At the beginning of the 1920s, world production of agri- 
cultural produce exceeded the effective demand and the capi- 
talist world was gripped by the second world agrarian 
crisis. It spread first to countries like the USA, Canada, Ar- 
gentina and Australia. In 1929-33, it became interwoven with 
the world industrial crisis and spread to nearly all countries 

1 Karl Marx, Capital, Vol. II, p. 189. 



of the capitalist world, hitting not only grain growing, but 
also cattle rearing, market gardening, industrial crops and 
other branches of farming. Purchase prices for agricultural 
produce and raw materials dropped sharply. Enormous 
stocks of produce were burned, dumped into the sea, or 
destroyed in other ways, at a time when millions of people 
in the world were dying from hunger. The crisis threw agri- 
cultural production far back, both as regards level of de- 
velopment of technology and level of production. It too 
lasted for some 20 years and only ended during the Second 
World War. 

Since the Second World War, a technical revolution has 
taken place in agriculture in the developed capitalist coun- 
tries and the transition has been completed from the tradi- 
tional manufacture stage to machine production. The subor- 
dination of agriculture to the domination of finance capital 
has vastly increased, which has led to the mass ruin of small 
and medium-sized farms. The substantial increase in the 
volume of farm produce far exceeded the public's effective 
demand, so that farm "surpluses" formed once more, first 
in the USA, and then in a whole number of other capitalist 
countries. In spite of various measures and programmes for 
state-monopoly control of farm production (the buying up of 
"surpluses" by the state, price support programmes, pay- 
ments to limit sowing, and the like), the crisis continued 
during the 1950s and most of the 1960s. This led to a sharp 
intensification of the struggle for markets for farm produce 
between the USA and the countries of the Common Market, 
and within the Common Market, with active state interven- 
tion operating in the interests of the monopolies. 

Crises and Exacerbation of 

the Contradictions of Capitalism 

The cyclical and spasmodic character of capitalist repro- 
duction and its periodic crises of overproduction show clearly 
that the bourgeoisie is not in a position to cope with con- 
temporary productive forces and that capitalism has long 
since ceased to be a progressive social system. The complete 
failure of capitalism is seen clearly during crises in the 



destruction of masses of productive forces, including labour 
force, and in rapacious destruction of material goods already 
produced and vitally needed by people. 

Thus, as a result of the 1929-33 crisis, industrial produc- 
tion in the capitalist world fell by 44 per cent and was hurled 
back more than 20 years. Only 20 to 30 per cent of pro- 
ductive capacity in the main branches of industry was being 
used and, at the same time, there were more than 26 million 
officially registered unemployed. In the main capitalist coun- 
tries alone, merchant shipping with a displacement of 
6,570,000 tons was destroyed and 202 blast furnaces were 
dismantled. In 1933 alone, in the USA, an area of ten million 
hectares of cotton was ploughed under, more than five mil- 
lion pigs were destroyed, and millions of tons of wheat were 
either burned or dumped into the sea. 

During the 1974-75 crisis, industrial production fell by 
11.6 per cent in developed capitalist countries and unera 
ployment more than doubled on 1973, and according to the 
International Labour Organisation reached 18,500,000. At 
the same time, prices of food and consumer goods for every- 
day use rose by 18.7 per cent. 

Being the result of intensification of the contradictions of 
capitalist reproduction, economic crises only momentarily 
enforce the proportions necessary in the economy for realisa- 
tion, thereby creating the conditions for ever greater distur- 
bance and for aggravation of the contradictions of capital- 
ism. Since fixed capital is renewed on a massive scale during 
and after a crisis, and, in the place of tens of thousands of 
ruined small and medium-sized undertakings, thousands of 
big mills and factories equipped with the newest technology 
appear, capitalist production acquires an even more social 
character. At the same time, ownership of the means of pro- 
duction becomes accessible to an ever diminishing number of 
big capitalists. Consequently, as a result of crises, the basic 
contradiction of capitalism, and all the forms in which it is 
manifested, considered above, become more acute. 

In particular, the contradiction between labour and capital 
becomes acute in the extreme. Capitalists, with the help of the 
bourgeois states, try to shift all the losses from crises onto 
the working people: workers are sacked from their jobs and 
evicted from their homes; the earnings of those who remain 



are reduced, labour is intensified, and tax oppression in- 
creased. Workers come to the conclusion that, under capi- 
talism, economic struggle alone cannot deliver them from 
poverty, unemployment and insecurity, and begin to take 
the path of political struggle against the capitalist system 
itself. In the article "The Lessons of the Crisis" in 1901, 
Lenin wrote: "The crisis shows that the workers should not 
confine themselves to the struggle for individual concessions 
from the capitalists. While industry is in upswing, such 
concessions may be won . . . but when the crash comes, the 
capitalists not only withdraw the concessions they made, but 
take advantage of the helpless position of the workers to 
force wages down still lower. And so things will inevitably 
continue until the army of the socialist proletariat over- 
throws the domination of capital and private property." 1 


After the appearance of Capital, Karl Marx's theory of 
reproduction and economic crises came under sharp attack 
both from the open enemies of Marxism and from revisionist 
theoreticians. Representatives of bourgeois, petty-bourgeois 
and reformist ideology, each in their own way, tried to "re- 
fute" this theory and, at the same time, after distorting its 
revolutionary sense, to use it as a basis for their own reaction- 
ary theories. Right at the outset of his revolutionary activity 
Lenin, therefore, had to devote much attention to defending 
the Marxist theory of reproduction and developing it further. 

Analysis of Production, Taking 
Growth of the Organic Composition 
of Capital into Account 

When analysing the process of extended reproduction in 
Volume II of Capital, Karl Marx, as pointed out above, ab- 


1 V. I. Lenin, Collected Works, Vol. 5, p. 92. 



stracted from growth of the organic composition of capital. 
The enemies of Marxism perceived in this a contradiction 
between the first and second volumes of Capital, and attempt- 
ed to prove that Marx's schemes of extended reproduction 
in Volume II "refuted" the conclusions Marx himself had 
drawn about the inevitability of the revolutionary overthrow 
of capitalism, in particular, in his analysis of capital accumu- 
lation in Volume I. 

In the article "On the So-Called Market Question" in 
1893, Lenin, continuing Marx's research, considered his 
schemes, taking growth of the organic composition of capital 
into account. 

Having analysed the process of realisation of the aggre- 
gate social product over four years, Lenin showed that, with 
technical progress and growth of the organic composition of 
capital, "growth in the production of means of production 
as means of production is the most rapid, then comes the 
production of means of production as means of consumption, 
and the slowest rate of growth is in the production of means 
of consumption". 1 Thus, basing himself on the theoretical 
premises of Capital, Lenin gave a scientific formulation and 
quantitative justification of the economic law ot predominant, 
i.e. more rapid, development of the production of the means 
of production over the production of consumer goods. This 
law operates objectively in any society that extends repro- 
duction on the basis of technical progress. Predominant 
growth of the production of the means of production is the 
most important condition for raising the productivity of 
social labour. 

Under capitalism, the law of priority development of the 
production of the means of production, like other economic 
laws, operates spontaneously, is subordinated to the extrac- 
tion of maximum profit, and thereby deepens the antagonistic 
contradictions of capitalist reproduction. 

When, however, the means of production become public 
property, society gets the chance to establish consciously 
the necessary balance between Departments I and II and 
between industries within these departments and to ensure 
continuous growth of production in a planned way to satisfy 

1 Ibid., Vol. 1, p. 87. 



the growing requirements of all its members. Lenin's theoreti- 
cal substantiation of the law of priority development of the 
production of the means of production was a major contri- 
bution to the Marxist theory of reproduction. 

In defending and developing the theory of reproduction 
and economic crises, Lenin waged a battle on two fronts: 
against the petty-bourgeois concept of reproduction of social 
capital propagated in Russia by the Populists (Narodniks), 
and against the bourgeois falsification of Marx's theory by 
Russian "legal Marxists”. 

Lenin’s Critique of 

Populist Views on Realisation 

Following the founder of petty-bourgeois political econo- 
my, the Swiss economist Simonde de Sismondi (1773-1842), 
Russian liberal Populists (Vorontsov, Danielson and others) 
considered the aggregate social product as the sum total of 
the revenue of all strata of the population (u+s) 1 and reduced 
the whole problem of the market, in essence, to that of 
personal consumption. From this position it was concluded 
that it was impossible, under extended reproduction and 
growing capitalism, to realise the surplus value intended for 
accumulation, for which "third persons", i.e. peasants and 
artisans, were essential. And since capital accumulation was 
accompanied by the ruin of small commodity production, the 
domestic market supposedly did not grow as capitalism de- 
veloped, but was constantly shrinking. The Populists also ar- 
gued that, since capitalists strove to accumulate more and 
more, they consumed less and less, a situation which led 
to a fall in demand for consumer goods and which meant, in 
their opinion, a contraction of the domestic market. 

The Populists saw a solution only in finding "third per- 
sons" on the foreign market. Russia, however, had come late 
onto the field and all the foreign markets had already been 
seized by other countries, from which they concluded that 
capitalism could not develop in Russia, since the domestic 

1 This argument was first put forward by Adam Smith, and Karl 
Marx dubbed it the "Smith dogma". 



market was shrinking and there were no foreign markets 
left for her. This was a reactionary, utopian theory, advocat- 
ing a retreat from capitalism back to small-scale cottage in- 
dustries, and the possibility of passing to socialism through 
the peasant commune. Of all the contradictions of capitalist 
reproduction, the Populists saw only that between production 
and consumption, without understanding any of the 

In his "A Characterisation of Economic Romanticism" 
(1897), The Development ot Capitalism in Russia (1899), and 
other works, Lenin demonstrated the complete inconclusive- 
ness of the views of the Populists on the problems of realisa- 
tion, and showed that the development of capitalism did not 
contract the home market but, on the contrary, expanded it. 

In ruining the mass of small producers, capitalism turns 
them into wage workers, who are no longer able to raise 
produce on their own farms, and who begin to live on their 
wages, spending them to buy commodities on the market. 

During the differentiation of the peasantry, a group of 
peasant capitalists was formed who, becoming richer, not 
only increased demand for consumer goods (better clothing, 
footwear, luxury goods, etc.) but also required additional 
means of production, manufactured industrially, in order to 
expand their undertakings so as to become even richer. 

Lenin further emphasised that all consumption should not 
be reduced to personal consumption and that, as capitalism 
developed, the market expanded mainly through productive 
consumption, i.e. capitalists' purchases from each other of 
the additional means of production needed to expand pro- 
duction. "Capitalist production," he wrote in The Develop- 
ment ot Capitalism in Russia, "and, consequently, the home 
market, grow not so much on account of articles of con- 
sumption as on account of means of production." 1 

The development of capitalism is accompanied by an un- 
precedented increase in the social division of labour, so that 
some branches of production become markets for other 
branches, which does not mean contraction of the market, 
but an enormous expansion. 

Realisation of the aggregate social product, including the 

1 V. I. Lenin, Collected Works , Vol. 3, p. 54. 




surplus product, is thus fully possible even under pure 

As' for foreign markets, capital strove to conquer them 
not because there was nowhere to realise surplus value, but 
in order to extend the possibilities of increasing its produc- 
tion. The question of the foreign market, Lenin pointed out, 
had nothing to do with that of realisation. The grabbing and 
utilisation of foreign markets did not solve the contradictions 
of capitalist reproduction, but made them more complex. 

Lenin’s Critique of “Legal Marxist” Distortions 
of the Marxist Theory of Reproduction 

Being apologists of the bourgeois system, the Russian 
"legal Marxists" (Tugan-Baranovsky, Struve, and others) 
argued that realisation of the aggregate social product could 
take place under capitalism without contradictions and crises, 
and that capitalist production could develop harmoniously, 
regardless of personal consumption, on the basis of expanded 
production of means of production alone. They denied that 
there was an antagonistic contradiction between production 
and consumption under capitalism, and endeavoured to prove 
that the capitalist mode of production could ensure a stable 
balance between Departments I and II. The imbalance ob- 
served during crises, they saw as a temporary and accidental 

In several articles ("A Note on the Question of the Mar- 
ket Theory", "Once More on the Theory of Realisation" and 
"Reply to Mr. P. Nezhdanov"), Lenin showed that the ob- 
jective necessity ot the proportions given in Marx's abstract 
theory of realisation still did not signify that harmonious 
development of capitalist production was possible in prac- 
tice. On the contrary, because of the irreconcilable contra- 
dictions inherent in capitalism, in reality these proportions 
were constantly upset, so balance was only temporary and 
relative in the capitalist economy, while imbalance was per- 
manent and absolute. The growing imbalance and, in par- 
ticular, the lag in the growth of people's consumption behind 
expansion of production led irrevocably to periodic crises of 



Production under capitalism, stimulated by pursuit of prof- 
it, grows at a rate impossibly fast for pre-capitalist forma- 
tions, and competition gives it a tendency to expand without 
limit. The volume of personal consumption, if it grows at all, 
does so only very weakly (the proletarian condition of the 
popular masses does not give any possibility of rapid growth 
of personal consumption), so that capitalist production pe- 
riodically comes up against the limited effective demand of 
the population. While the goal of production remains profit 
and the law of its development remains capitalist competi- 
tion, crises cannot be eliminated. 

Lenin showed that the market cannot expand infinitely 
under capitalism through the manufacture of the means of 
production alone, quite independently of the production of 
consumer goods and unlinked to it in any way. "It would be 
a mistake," he wrote, "to understand this 'independence' as 
meaning that productive consumption is entirely divorced 
from personal consumption: the former can and must in- 
crease faster than the latter (and there its 'independence' 
ends), but it goes without saying that, in the last analysis, 
productive consumption is always bound up with personal 
consumption ." 1 

Exposing the apologetic meaning of the "theory" of reali- 
sation of the "legal Marxists", Lenin showed that the antago- 
nistic contradictions of capitalist reproduction are closely 
interconnected and are a manifestation of the ever deepening 
conflict between the social character of production and capi- 
talist private property. It is only possible to eliminate them, 
and consequently to ensure the development of social pro- 
duction without crises, in a socialist society. 

1 V. I. Lenin, "The Development of Capitalism in Russia", Col- 
lected Works, Vol. 3, pp. 54-55. 


Imperialism — 
Monopoly Capitalism, 
the Highest Stage of 


The founders of Marxism analysed all aspects of the capi- 
talist mode of production in both its origin and its develop- 
ment The capitalism they studied was the capitalism or the 
era of free competition. At the turn of the century, however, 
fundamental changes took place in its economics and poli- 
tics. The practical revolutionary struggle of the proletariat 
urgently required these changes to be studied from the posi- 
tion of Marxism. This historical task was fulfilled by that 
brilliant continuer of the work of Marx and Engels, 
V. I. Lenin. Employing the Marxist dialectical method Lenin 
gave an exhaustive analysis of the new phenomena in the de- 
velopment of capitalism and, on its basis, created the scientific 
theory of imperialism and developed the Marxist theory of 
socialist revolution. He showed that, from the economic point 
of view, imperialism had the following five characteristic 
features- (1) the concentration of production and capital de- 
veloped to such a high stage that it had given rise to monopo- 
lies that played a decisive role in economic life; (2) the 
merging of monopolistic bank capital and monopolistic in- 
dustrial capital, and the rise of finance capital and a financial 
oligarchy (3) the export of capital as distinguished from the 
export of commodities had acquired paramount importance ,- 
(4) the formation of international monopolistic associations 
which divide the world among themselves; and (5) the com- 
pletion of the territorial division of the world among the big- 
gest capitalist powers. 1 

l See V I. Lenin, "Imperialism, the Highest Stage of Capitalism", 
Collected Works, Vol. 22, p- 266. 



All these features are only different forms of the basic 
characteristic of imperialism-the domination of monopolies. 
Therefore, imperialism is monopoly capitalism. 

Lenin disclosed the political essence of imperialism, show- 
ing that, while bourgeois democracy was politically inherent 
in free competition capitalism, the domination of monopolies 
in the economy could not avoid leading to monopoly in pol- 
itics, and to reaction and violence in all spheres of social 
life. "Politically," he wrote, "imperialism is, in general, a 
striving towards violence and reaction." 1 

Lenin was the first to give a scientific definition of the 
historical place of imperialism. He showed that it was not a 
new social and economic formation, but only a stage in the 
development of the capitalist mode of production. In com- 
parison with pre-monopoly capitalism, imperialism is the 
highest stage of capitalism. At the same time, it is the last 
stage in the development of capitalism, the eve of the 
socialist revolution. 

In defining imperialism as a special stage of capitalism, 
Lenin noted three distinctive features in it: imperialism is 
monopolistic, decaying or parasitic, and moribund capital- 
ism. Under its conditions, a gigantic socialisation of produc- 
tion takes place and so all the necessary material requisites 
for socialist revolution are prepared. This process 
is further strengthened by state-monopoly capitalism, 
which necessarily arises from the domination of monop- 

The development of imperialism and the emergence of 
state-monopoly capitalism enormously sharpen all the antago- 
nistic contradictions of capitalism that existed before, and 
give rise to a series of new irreconcilable contradictions. 
Lenin showed that, on the whole, the entire system of world 
capitalism was ripe for a socialist revolution but, because of 
the law of the uneven economic and political development 
of capitalism in the epoch of imperialism, victory of the 
socialist revolution in all countries simultaneously was 

1 V. I. Lenin, "Imperialism, the 
Collected Works, Vol. 22, p. 268. 

Highest Stage of Capitalism", 



In creatively developing Marxism, Lenin was the first in 
science to reach the conclusion that victory of the socialist 
revolution first in a few countries or even in one, was both 
possible and inevitable. "Having disclosed the law of the 
uneven economic and political development of capitalism at 
its imperialist stage," the Central Committee of the CPSU 
stated in connection with the centenary of his birth, "Lenin 
arrived at the conclusion that different countries would come 
to socialism at different times and that the imperialist front 
may be breached not necessarily in the country with the 
highest level of development." 1 

Lenin showed that the collapse of capitalism would occur 
as a result of revolutionary breach of the world capitalist 
system in its weakest links and the defection from it of more 
and more countries, and so built a new theory of proletarian 
revolution from analysis of imperialism. This was a major 
contribution to Marxist theory, an invaluable new ideological 
weapon for the working class in its revolutionary struggle 
against capitalism. 

Many economists had attempted to analyse new phenome- 
na in the development of capitalism at the beginning of 
the 20th century, but none was able to give a thorough 
scientific explanation of the essence of the new stage. Only 
Lenin succeeded in doing so, by consistently applying the 
genuinely scientific, Marxist method. 

As he noted, there were two trends in the bourgeois litera- 
ture of the time devoted to problems of imperialism. One 
trend, represented by Schulze-Gavernitz, Liefmann, Riesser 
and others, openly glorified imperialism (particularly that of 
their own countries), concealing the deep antagonistic con- 
tradictions inherent in it. The other trend was represented 
by Hobson, Agahd, Lansburgh and others, who adopted a 
critical approach to imperialism, but criticised it from a 
social-liberal, petty-bourgeois position. In defending the in- 
terests of the bourgeoisie, these writers simply called for a 
return to free competition and for monopoly capitalism to 
be cleansed of its "negative" aspects. Lenin subjected both 

1 On the Centenary of the Birth of V. I. Lenin. Theses of the Cen- 
tral Committee, Communist Party ot the Soviet Union, Moscow, 1970, 
pp. 13-14. 


views to penetrating criticism, showing them to be scientifi- 
cally unconvincing and politically reactionary. 

Lenin paid particular attention to criticising opportunist 
theories, and ruthlessly exposed not only the open apologists 
of imperialism, like Bernstein, David and Cunow, but also its 
hypocritical "critics” (like Karl Kautsky and kindred spirits). 
The latter feigned, on the surface, to be opponents of impe- 
rialism and even called for struggle against it, but in reality 
they distorted the true nature of imperialism and defended 

Lenin's teaching on imperialism, thus, organically unites 
thorough scientific research into the complex processes of 
monopoly capitalism with sharp criticism of bourgeois and 
opportunist "theories" of imperialism. He wrote his major 
work on the subject. Imperialism, the Highest Stage of Capi- 
talism, in 1916, but it was only published after the overthrow 
of tsarism in 1917. The book was originally written for pub- 
lication under conditions of tsarist censorship. The political 
conclusions and problems of the revolutionary struggle were, 
therefore, set out in it, in Lenin's own words, with "extreme 
carefulness", in a veiled parable form and Aesopian language. 
The ideas of the book are also developed in other works 
of Lenin's, like "Socialism and War", "Imperialism and the 
Split in Socialism", "On the Slogan for a United States of 
Europe", and "The Military Programme of the Proletarian 

Lenin's doctrine of imperialism and the socialist revolu- 
tion was a milestone in the development of Marxist thought. 
As the Central Committee of the CPSU emphasised in con- 
nection with the centenary of his birth: "Lenin's analysis of 
imperialism in Imperialism, the Highest Stage of Capitalism 
and in other works is direct continuation and further 
development of the ideas of Marx's Capital Z' 1 

Lenin's brilliant discoveries gave perspective to the de- 
velopment of the revolutionary struggle of the working class 
and were a call to decisive revolutionary action. They armed 
the proletariat with concrete methods of achieving their great 
goal of overthrowing capitalism and building communist 

1 On the Centenary ot the Birth of V. I. Lenin, p. 13. 


The Great October Socialist Revolution, the socialist revo- 
lutions in other countries, and the development of the world 
revolutionary process are a triumph of his teaching. 

Lenin's theory of imperialism has been further developed 
in the Programme of the CPSU, in the documents of the 
CPSU and other fraternal parties, and in documents of Inter- 
national Meetings of Communist and Workers' Parties. 

Chapter 10 





Concentration of Production and the Rise 
of Industrial Monopolies 

Free enterprise capitalism reached its apex in the 1860s 
and 1870s. At the end of the nineteenth century and begin- 
ning of the twentieth, the transition from pre-monopoly 
capitalism to monopoly capitalism was completed. The de- 
velopment of free enterprise capitalism into imperialism was 
prepared by the whole course of development of the pro- 
ductive forces and production relations of capitalism. 

A characteristic of the capitalist economy before imperi- 
alism was the predominance of free competition. Competition 
between capitalists led inevitably to the concentration and 
centralisation of capital and the consolidation of production. 
An ever increasing part of productive capacity, labour power 
and output became concentrated in big and very big under- 
takings, the victors in competitive struggle. 

The process of concentration of production was speeded up 
significantly, during the second half of the nineteenth and 
early twentieth century, by major scientific and technical 
discoveries and inventions. 

The discovery and practical application of new methods 
of making steel (the Bessemer, Thomas and open-hearth pro- 
cesses) led to the development of huge steel works. The in- 
vention of new types of metal-working machine tools (cap- 
stan lathes, milling machines, etc.), and the use of hard alloys 
promoted development of the engineering industries. New 
types of prime-mover were invented (the steam turbine, the 
internal combustion engine and the Diesel engine). On the 
basis of these, motor vehicles, aeroplanes, etc. were designed. 
An enormous force, revolutionising production, was the in- 
dustrial application of electricity. 



The biggest advances in production techniques gave rise 
tc structural changes in industry. Whereas earlier light in- 
dustries, notably the textile industry, with their relatively 
low organic composition of capital, predominated in capi- 
talist production, from the 1870s onwards the leading position 
began to be taken by heavy industry. 

The technical and structural shifts in capitalist industry 
led to changes in the scale of capitalist enterprises. The new 
productive forces necessitated large-scale production. The 
minimum amount of capital necessary for profitable invest- 
ment in production on the basis of the new technology rose 
to a considerable degree. The introduction of new means of 
production called for larger amounts of capital than even the 
biggest capitalists had at their disposal. In order to be suc- 
cessful, they had to use other people's capital on credit. The 
joint-stock form of company began to develop rapidly. 

The operation of the law of concentration of production 
led to a small number of big and very big undertakings 
coming to occupy a dominant position in every developed 
capitalist country. 

As enterprises became larger, competition became fiercer 
and more complex. The enormous costs involved in competi- 
tion between major capitalists, the loss of profit, the risk of 
utter ruin and the sharpening of the problem of marketing 
commodities in such conditions pushed the big capitalists 
into agreements and alliances. At the same time, concentra- 
tion of production and capital made such agreements easier 
since, as Lenin said, "a score or so of giant enterprises can 
easily arrive at an agreement", 1 particularly when such deals 
enable them to obtain monopoly super-profit. This transfor- 
mation of competition into its opposite, monopoly, under 
conditions of high concentration of capitalist production, took 
place inevitably, being the internal dialectic of its develop- 
ment. Lenin showed the historical process of the development 
of capitalism, namely, predominance of free competition 
leading inevitably to concentration of production and this, 
at a certain stage of development, giving rise to monopoly. 

Monopolies first arose in heavy industry, where large- 

1 V. I. Lenin, "Imperialism, the Highest Stage of Capitalism", Col- 
lected Works, Vol. 22, p. 197. 



scale production won its initial victories. As the concentra- 
tion of production increased, monopolies were also formed 
in the most important branches of light industry. 

The Essence and Forms of Monopoly 

Contemporary capitalist monopoly in the sphere of pro- 
duction involves very large enterprises or combines of enter- 
prises concentrating a significant part of one or more types 
of output in their hands and, thanks to that, being able to 
set monopoly prices and receive monopoly high profits. 

Monopolies achieve their main aim-high monopoly profits 
-by various methods, the most important of which is the 
setting of monopoly prices. This means that they sell their 
own output at monopoly high prices, but buy raw materials 
and other elements of production, as a rule, at monopoly- 
imposed low prices, and on this basis, they extract monopo- 
listically high profits. 

The forms of monopoly associations are extremely varied. 
The most developed forms of monopoly are cartels, syndi- 
cates, trusts and groups. 

A cartel is a monopolistic alliance of capitalists in which 
its members retain their production and commercial inde- 
pendence. At the same time, capitalists, on forming a cartel, 
agree on monopoly prices for their commodities, divide the 
market between themselves, determine quotas (shares) of 
production and sales for each member, establish conditions 
for the hire of labour power, exchange patents on new in- 
ventions and processes, and so on. 

A syndicate is a monopolistic union, the members of which 
retain production independence but give up commercial in- 
dependence. Sale of the commodities produced in the syn- 
dicate's enterprises takes place at monopoly prices through 
a special syndicate office that concentrates all orders in its 
own hands and distributes them according to established 
production quotas. Syndicates also often purchase raw 
materials for their members at, as a rule, low monopoly- 
imposed prices. 

A trust is a form of monopoly in which the enterprises 
belonging to it give up both production and commercial in- 


dependence. The capitalists joining a trust cease to be the 
owners of their enterprises and become shareholders. Trusts, 
as a rule, are joint-stock companies (corporations). 

A group is a more complex form of monopolistic combine. 
Its distinctive feature is that it is based on what is known 
as the holding system. The enterprises of the group are 
usually considered to be independent firms, but in practice 
they are subordinate to a head holding company, which has 
a controlling interest in the group's enterprises. 

Today syndicates and single industry trusts are seldom 
met in their pure form, and cartels include not only individu- 
al enterprises, as used to be the case, but major corpora- 
tions. The most typical and predominant form of monopoly 
has become the multi-industry concern or group. 

Let us consider some examples of the domination of con- 
temporary monopolies in imperialist countries. 

In 43 branches of US industry, the four largest monopoly 
associations in each industry concentrate 75 per cent or more 
of output and in 102 industries, between 50 and 74 per cent. 
At the end of the nineteenth century, there were 1,600 compa- 
nies in the US automobile industry; now fewer than ten 
remain. The "Big Three” (General Motors, Ford and Chrys- 
ler) had concentrated 42 per cent of all automobile produc- 
tion in the country in their hands in 1909 and 97.8 per cent 
in 1973. 

The oil industry of the USA is dominated by four monopo- 
lies: Standard Oil of New Jersey, Mobil Oil, Texaco and 
Gulf Oil. Their share in the turnover of the American oil 
industry at present is 55 per cent. Fifty giant monopolies 
produce more than a third of the whole output of the US 
manufacturing and extractive industries, which include about 
500,000 different enterprises in all. 

The largest US monopolies not only occupy the dominant 
position in the US economy, but also dominate the whole 
world capitalist system. Of the 164 largest monopolies in the 
capitalist world, 96 are American. 

Japan's economy is distinguished by a high degree of 
monopolisation. In each branch of industry, the five largest 
monopolies alone produce 97 per cent of computers, 98 per 
cent of motorcars, 90 per cent of copper, 73 per cent of 
ships, 86 per cent of pig iron, 84 per cent of locomotives, 82 



per cent of electricity, 71 per cent of steel, and so on. The 
biggest industrial monopolies are Mitsubishi (engineering), 

Hitachi (electrical equipment), Yawata Seitetsu (iron and 
steel), Tokyo Shibaura Denki (electrical engineering), Nissan 

More than half a century ago, Lenin remarked on the 
extremely high degree of the monopolisation of German 

At present about 200 of the major West German monopo- 
lies concentrate 85 per cent of all share capital. The nine 
biggest concerns (Thyssen, Krupp, Mannesman, Hoesch, 

Haniel, and others) produce 94 per cent of the steel in the 
Federal Republic of Germany. As before the war, the coal 
and steel concerns of the Ruhr still form the core of monopoly 
capital in West Germany. A dominant position in the West 
German chemical industry is occupied by the group of succes- 
sors to I. G. Farbenindustrie, each of which surpasses the 
whole of the pre-war concern, in terms both of scale of 
share capital and of volume of production. Together they y 
produce more than half of the chemical output of West 
Germany. The key positions in electric power engineering 
are held by two concerns, Siemens and AEG-Telefunken. In 
the motor industry, the "big three", Volkswagcnwcrk, 
Daimler-Benz and A. Opel, dominate producing about 90 per 
cent of all passenger motor vehicles. 

In the 60-odd years since the publication of Lenin's 
Imperialism, the Highest Stage of Capitalism, significant 
changes have taken place in the forms of monopolies and 
the way in which they dominate. The sphere of their dominion 
has considerably expanded. Whereas, at the beginning 
of the century, monopolies mainly exercised control in heavy 
industry, at present they are dominant in all spheres of the 
economy, heavy and light industries, transportation, con- 
struction, trade and communications; and monopoly capital 
is increasingly penetrating into agriculture. 

At the start of the century, Lenin noted that combined 
undertakings, huge because they included different branches 
of production, were mainly to be found in heavy industry. 

They are now typical of all branches of production. 

Alongside combination there has developed diversification 
of production. The essence of this is that enterprises of an 


increasingly wide range of branches of industry, transport 
and commerce, not technologically interconnected, have 
been brought together within monopolistic unions. 

The transformation of the biggest companies into multi- 
branch complexes is an inherent feature of contemporary 
monopoly capitalism, in contrast to imperialism at the 
beginning of the twentieth century. Cartel agreements, once 
the forerunners of trusts and concerns, are now beginning 
to be revived on a new basis. Such agreements are now made 
increasingly frequently between trusts and concerns. The 
modern cartel is essentially a new type of monopoly, since 
its participants are themselves large monopolies. Monopo- 
lies frequently dictate prices without even cartel agreements, 
by means of so-called price leadership, in which the biggest 
monopoly sets the price and the others follow suit. 

New forms of monopoly becoming increasingly common 
arc agreements between leading corporations on the joint 
construction of huge enterprises and expensive installations, 
and on scientific research and the like. 


The Relationship between Monopoly 
and Competition during Imperialism 

Monopolies, which grew out of free competition, are its 
absolute opposite. The domination of monopolies, however, 
does not lead to the disappearance of competition altogether, 
but simply limits its freedom. Like the previous stage in the 
development of capitalism, imperialism is based on private 
capitalist ownership of the means of production, so that the 
retention of competition is objectively inevitable. 

Imperialism does not and cannot reconstruct capitalist 
society from the foundations upward. Monopolies dominate 
the economy and hold key positions, but do not organisa- 
tionally direct all its links. Outsiders (not belonging to the 
monopolies) predominate in terms of numbers in almost 
every branch of production, this being the substratum of the 
old capitalism from which monopoly capital rises. 

In the economies of imperialist countries there are also 

21 — 1076 



industries in which competition has not yet resulted in a high 
concentration of production. Monopoly capital from other 
industries does not rush into these, owing to the unlikelihood 
of obtaining significant super-profit. This applies to those 
branches of production in which there are strong fluctuations 
of demand or where the production process is connected with 
a considerable risk, and so on. Non-monopoly capitalists count 
on their good knowledge of, and proximity to, the local mar- 
ket, their old and loyal customs, distinctive quality of their 
wares, use technical innovations with low capital intensity, 
and the like. 

It must also be kept in mind that it is not always in the 
interests of monopolies to destroy small and medium-sized 
businesses. Scientific and technical progress has made it pos- 
sible for the process of production to be broken down into 
numerous relatively isolated elements. The monopolies, there- 
fore, shift a number of subsidiary processes to subordinate, 
though formally independent, small and medium-sized enter- 
prises and avoid expending their own capital. Under favoura- 
ble market conditions, they actively extend their influence and 
control over an ever greater number of formally independent 
small and medium companies, giving them orders to fulfil. 
When the economic climate deteriorates, however, they leave 
these firms to their fate, condemning them to mass ruin. 

The existence of a vast number of unmonopolised capitalist 
enterprises thus creates the competitive situation within which 
monopoly capital operates. In addition the monopolies them- 
selves are in fierce competition with one another for the big- 
gest mass and rate of profit. 

The Character and Forms of Competition 
under Imperialism 

The domination of monopolies results in fundamental 
changes in the character, forms and methods of competition, 
which becomes more complex and extremely sharp, increas- 
ing in scale and destructiveness. 

Lenin noted that competition now meant unprecedentedly 
brutal suppression of enterprise, energy, and bold initiative 
and the substitution of "financial fraud, nepotism, servility 


on the upper rungs of the social ladder" for competition . 1 
Secret agreements of a few giants against the rest become the 
order of the day instead of open competition. 

Imperialism also engenders new forms of competitive 
struggle, including competition between monopolies and 
outsiders, between the monopolies themselves, and within 

Lenin mentioned a number of new methods by which mo- 
nopolies stifled outsiders: stopping supplies of raw materials 
or of labour by means of "alliances" (i.e. of agreements 
between the monopolists and corrupt leaders of trade unions) ; 
closing trade outlets; agreements with customers to deal only 
with the monopoly; charging monopoly prices, stopping 
credits and declaring a boycott . 2 The new methods the mo- 
nopolies use against outsiders also include the buying up of 
the land on which competitors' enterprises stand, bribery of 
influential persons and the exerting of pressure on competi- 
tors through government bodies. Advertising also plays a 
major role in competition in the era of imperialism. The 
press, radio and television, being in the hands of monopo- 
lies, are not only employed to advertise their products, but 
are also used to boycott the products of competitors. Anoth- 
er means of primary significance in competition is the buy- 
ing up by the monopolies of patents on new equipment, 
thereby depriving their competitors of the chance to use the 
achievements of technical progress. Monopolies set up their 
own research and development laboratories, design offices, 
and so on. 

In the struggle against outsiders, monopolies also employ 
well-tried old methods. The common means of competition 
is to reduce retail prices in order to gain control of the mar- 
ket. In order to "corner" the market from outsiders, monopo- 
lies may temporarily fix a price not only below value, but 
even below cost price. They are in a position to do this 
because they have the most advanced equipment and the 
reserves of capital to cover temporary losses. Outsiders can- 
not stand up to such competition and go bankrupt. Once the 

1 V. I. Lenin, "How to Organise Competition?'', Collected Works, 
Vol. 26, p. 404. 

2 See V. I. Lenin, "Imperialism, the Highest Stage of Capitalism", 
Collected Works, Vol. 22, p. 206. 

21 * 



market has been "cornered", the monopolies soon screw 
prices up to a monopoly high level. 

It is characteristic that monopolies rarely go as far as 
open price war in their competition with each other, since 
they would be risking big losses. Price competition is usually 
practised against weak competitors. 

Apart from economic methods, monopolies often resort 
to direct violence against outsiders: setting fire to their 
enterprises or planting bombs in them; murdering the most 
persistent opponents with the help of hired gangsters; 
blackmailing competitors and indulging in other refined 

The battle between monopolies is primarily for the domi- 
nant position in a particular branch of production. The 
exceptionally high profits obtained by the monopolies in any 
industry inevitably attract the capital of monopolies operat- 
ing in other branches, with the result that a fierce competi- 
tive struggle breaks out between them. This struggle also 
takes place within each industry for the dominant position 
in the market. The biggest monopolies fight particularly 
fiercely for military orders from governments since they 
bring in the highest and most stable profits. 

The competition between monopolies is even fiercer and 
more persistent than between monopolies and outsiders, since 
forces possessing enormous economic resources are up against 
each other. Each of the powerful rivals strives to stifle its 
opponent. Vast resources are squandered in this way. 

It is impossible to gain or consolidate a monopolistic 
position today without application of the results of scientific 
and technical progress. Only the monopolies that spend 
large sums on scientific research and acquiring patents on 
new inventions can expect to win under the present condi- 
tions of scientific and technical revolution. The monopolies 
are also striving to attract the most highly skilled labour 
from each other, especially research and engineering person- 
nel. Competition between monopolies is not usually connected 
with prices, but is competition through improvements in 
quality with prices held or raised slightly, or through the 
production of new, more attractive varieties of traditional 
products with more useful qualities, etc. 

This does not, however, imply that price competition has 



been completely eliminated. Discounts from the advertised 
price lists are made for big buyers. This is usually done 
secretly. When there is a sharp change in the balance of forces 
between corporations in highly monopolised industries, 
open price wars often break out; but this method is usually 
reserved for squeezing out outsiders. 

Monopolies prefer to respond to a change in the balance 
of supply and demand not by altering prices, but by chang- 
ing the load on production capacities. 

The outcome of the stubborn struggle of the giants depends, 
in the final analysis, on the balance of forces, but it often hap- 
pens that the grappling and skirmishing of monopolistic octopi 
are unable to overcome or completely ruin each other. The 
result is usually an agreement on dividing spheres of in- 
fluence, i.e. on joint domination by several monopolies, 
directed against other competitors and against the working 
people. These agreements do not in themselves signify the 
end of competition, but simply a change in its form. 

One of the forms of the inter-industrial monopoly competi- 
tion is struggle between the monopolies supplying commodi- 
ties and those consuming them. The former try to raise prices, 
while the latter try to lower them. Inter-industrial competi- 
tion also includes the struggle between monopolies producing 
substitutable products (the oil monopolies compete with the 
coal monopolies, railway monopolies with land transport and 
airline monopolies, and so on). 

An important form of competitive struggle in the era of 
imperialism is that within monopolies. 

The economic strength of the members of a monopolistic 
union, as a rule, is different, and the uneven development 
of capitalism tends to accentuate these differences. A change 
in the balance of forces between the members of a monopo- 
list combination inevitably gives rise to attempts by the 
strongest to alter the conditions of the agreement in their 
own favour, which are opposed by the other members. Com- 
petition within a monopoly can become so fierce that it 
sometimes leads to the break-up of the monopoly itself. 

The methods and the character of the struggle within mo- 
nopolies arc determined to a significant degree by the form 
of the monopoly. Within cartels, for example, the struggle is 
for the most profitable markets and over production quotas. 



since the higher a member's quota in the overall volume of 
production, the greater is its share of the profits. Within 
trusts and groups, the struggle is for possession of the control- 
ling interest, for a larger share of the distributed profits, for 
key posts on the boards and management, and so on. 

Alongside the domination of monopolies, free competition 
between non-monopolised enterprises remains under impe- 
rialism both within industries and between them. In both 
cases, however, it is under conditions of monopoly domina- 
tion, which is what distinguishes it from the free competition 
of pre-monopoly capitalism. And although, under imperialism, 
hundreds of thousands, even millions of small and medium 
capitalists arc involved in the competitive struggle, the share 
of the non-monopolised sector of the economy is rather small. 

Imperialism is thus a dialectical unity of two opposites, 
monopoly and competition. Monopolies dominate the econo- 
my, but far from eliminating competition, they make it fiercer 
and more complex, and alter its form. The combination 
of monopoly domination and competition gives rise to par- 
ticularly sharp contradictions in contemporary capitalism. 
Imperialism intensifies exploitation of the working masses; 
as Lenin emphasised, monopoly oppression of the broad 
masses of the people "becomes a hundred times heavier, more 
burdensome and intolerable ". 1 



The Concentration of Bank Capital 

and Its Causes 

The domination of monopolies not only permeates the 
sphere of production; capitalist monopolies also develop and 
spread in the other spheres of the operation of capital. As 
Lenin wrote, "we shall only have a very insufficient, in- 
complete, and poor notion of the real power and the signifi- 
cance of modern monopolies if we do not take into con- 
sideration the part played by the banks ." 2 

1 V. I. Lenin, "Imperialism, the Highest Stage of Capitalism" Col- 
lected Works, Vol. 22, p. 205. 

2 Ibid., p. 210. 



The concentration of production in industry initiated simi- 
lar processes in the banking sphere. Large industrial, com- 
mercial, railway and other undertakings were unable to in- 
vest their free resources in small banks, since the authorised 
capital of the latter was not sufficient to guarantee the safety 
of large deposits, and small banks did not have adequate 
resources to grant credit to large undertakings. The position 
of the big banks in the economy, therefore, strengthened 
while that of small banks weakened. 

In England, the process of the consolidation of big banks 
at the expense of small ones took an unconcealed form of the 
swallowing of small banks by large ones. In 1890, there were 
104 joint-stock banks in England and Wales, by 1910, the 
number had declined to 45, and by 1970, only eight remained. 
At the same time, there was a rapid increase in the number 
of branches of large and very large banks. Their network of 
branches in colonics and foreign countries became particularly 

Both in number of branches and share of total assets, the 
"Big Four" English banks (Barclays, National Westminster, 
Midland, and Lloyd's) are the undoubted masters in this 
important sphere of activity of British imperialism. The "Big 
Four" hold more than 90 per cent of the total of assets, 
deposits and advances of all British' banks and have 12,820 
branches in England and Wales. 

As American capital developed relatively rapidly and the 
need for credit institutions rose, the number of banks increased 
from ten thousand at the beginning of the century, to thirty 
thousand in 1920. Later their numbers dropped to 24,000, and 
in 1967 there were only 13,700. However, the independence 
of the majority of local banks has been illusory for a long 
time, and they are, in fact, controlled by the most powerful 
banks, as can be seen from the fact that 50 banks possess 42 
per cent of all the assets and do 44 per cent of all the credit 
transactions in the country. 

The biggest private bank in the United States is the Bank 
of America, whose assets in 1971 were 33,900 million dollars 
and net profits 183,100,000 dollars. After it come the Chase 
Manhatten Bank, the Morgan Guarantee Trust, and others. 
The law of 32 states prohibits major private banks from 
having branches. The process of subordinating smaller banks 


political economy-, capitalism 

is done more secretly through a holding system, through 
correspondents and so-called banking chains (when small 
banks receive loans from big ones on security of a certain 
number of their shares, and so come under the control of the 
bigger banks). 

The Formation of Banking Monopolies 

The concentration and centralisation of banking had led 
by the end of the nineteenth century to the same result as in 
industry. "Among the few banks which remain at the head 
of all capitalist economy as a result of the process of con- 
centration," Lenin noted, "there is naturally to be observed 
an increasingly marked tendency towards monopolist agree- 
ments, towards a bank trust." 1 - Thus, alongside industrial 
monopolies, banking monopolies evolved, of which there are 
several kinds. 

A banking cartel is an agreement between several banks 
on the temporary or permanent co-ordination of common 
interests (mutual responsibility for liabilities, the mainte- 
nance of single rate of interest on deposits and advances 
[loans], of dividends paid to shareholders, and so on). 

A banking syndicate or consortium is a guarantee agree- 
ment among a group of banks to carry on certain profitable 
operations, the scale of which is so great that no one bank 
is able to do it alone. The operations include the floating of 
large government loans, the promotion of joint-stock compa- 
nies with a large capital, and so on. 

In some cases, as a result of the bankruptcy of many small 
and medium-sized banks, giant banks emerge. The shares 
of the ruined banks are bought up by one of the big banks 
and their offices are converted into branches of the latter. In 
this way, banking monopoly evolves, similar to the biggest 
trusts in industry. 

A banking group is a monopolistic banking association 
established by a head bank through a controlling interest in 
other banks and financial institutions, i.e. through the "hold- 
ing system". 

1 V. I. Lenin. "Imperialism, the Highest Stage of Capitalism" Col- 
lected Works , Vol. 22, p. 219. 


The New Role of Banks under Imperialism. 
The Merging of Monopoly Bank Capital 
and Monopoly Industrial Capital 

A truly scientific explanation of the new position of banks 
in the system of monopoly capitalism was first given by Lenin, 
whose works devoted to analysing imperialism showed that 
the change in the role of banks was only one aspect of the 
historical process of the monopolisation of production and 

In the era of free competition, industrialists and merchants 
could turn to many independent banks for loans, but in the 
new conditions, their freedom of choice v/as severely limited. 
A big bank demanded that its clients deal only with it or with 
banks controlled by it. In practice, an industrial company 
could not raise a loan from one bank and have its deposit 
account in another, independent bank. For their part, indus- 
trial monopolies were also interested in firm links with large 
reliable banks. 

In the pre-monopoly period, the major banking operations 
dealt with the process of circulation, while bank credit was 
primarily short-term. Contacts between banks and indus- 
trialists or merchants were, therefore, irregular. 

Technical advances in industrial production led, at the 
beginning of this century, to a significant rise in expenditure 
on fixed capital, which necessitated new relationships between 
industry and banks. Long-term credit began to occupy an 
increasingly important place in banking operations. 

Connections between the biggest banks and industrial and 
railway companies became increasingly stronger and more 
permanent since long-term credit, especially in large amounts, 
could only be extended by major banks. For long-term credit, 
moreover, a bank required more solid security for loans; so 
banks had to study the position of the industrial companies 
to whom they granted credit more carefully, to watch their 
assets and liabilities and to put representatives on the boards 
of debtor companies to observe what use was made of the 
extended credit. The desire for easy profits urged some bank- 
ers, making use of their detailed knowledge of the affairs of 
a number of companies, to invest their own capital in the 
shares of joint-stock companies yielding a big income, thus 



ensuring themselves higher profits than from purely banking 

At the same time, industrial monopolies were not content 
to remain the passive partners of the giant banks. They also 
become the co-owners of the banks, which was made simpler 
by the banks becoming joint-stock enterprises. Many major 
industrial monopolies set up their own banks and established 
personal links with the monopolist banks in which they were 
most interested, introducing their own directors onto the 
supervisory councils and boards of these banks. 

The result was a close interweaving of bank and industrial 
capital. Bankers do not remain simply bankers, i.e. money 
capitalists, but become banker-industrialists, and industrialists 
become industrialist-bankers. 




The Essence of Finance Capital 

Finance capital is the result of the interweaving or coales- 
cence of the capital of major banking monopolies with that 
of industrial monopolies. Consequently, it is monopoly indus- 
trial capital merging with monopoly banking capital. Describ- 
ing its essence Lenin wrote: “The concentration of produc- 
tion; the monopolies arising therefrom; the merging or 
coalescence of the banks with industry-such is the history 
of the rise of finance capital and such is the content of that 
concept ." 1 

Lenin's definition of finance capital differed funda- 
mentally from that given by Rudolf Hilferding in his book 
Finance Capital. According to Hilferding, finance capital was 
capital controlled by banks and employed by industrialists, 
a definition that did not distinguish finance capital essen- 
tially from banking capital. It was a consequence of a 

1 V. I. Lenin, "Imperialism, the Highest Stage of Capitalism", Col- 
lected Works , Vol. 22, p. 226. 



mistaken assumption of the primacy of circulation over pro- 

Finance capital is neither banking capital nor industrial 
capital, but a new type arising in the period of imperialism. 

The Financial Oligarchy 
and the Way It Dominates 

With the formation of finance capital, a financial oligarchy 
also emerged-a relatively small group of financial magnates 
completely dominating the economic and political life of 
imperialist states. The degree of their domination and the 
scale of their influence on the home and foreign policy of a 
country depends primarily on the development of finance 
capital. The financial oligarchy is not a formal union, 
although it is often referred to as the “Council of the Gods", 
the "Multimillionaires' Club", and so on. In reality, it con- 
sists of a small number of groups of major financiers who 
are closely interconnected through interlocking directorships, 
the “holding system” and other forms of economic, political 
and family ties. 

In the USA, there are now 26 major financial monopoly 
groups, 18 of which control industrial, construction, trans- 
port, trade, credit and banking, and other American corpo- 
rations with total assets of 1,250,00 0 million dollars. Among 
them are the Morgan, Rockefeller, California, Chicago, Texas, 
and other groups. The biggest financial oligarchy group-the 
Morgan group-controlled total industrial, banking and other 
assets of 410,000-420,000 million dollars in 1973, six times 
more than ten years earlier. 

There are similar financial oligarchy groups operating in 
other imperialist spheres. 

For a long time, these groups were under the personal con- 
trol of their founders or of their heirs. This type of control, 
however, gradually weakened and the family groups became 
coalitions controlled not by a single individual or family, but 
a small group of financial magnates. This is the type of group 
that now operates, though some are still called after their 

In studying the methods by which the financial oligarchy 



established its domination over the economy, Lenin singled 
out the "holding system" method as the most common one. 

A necessary condition for the development of the "holding 
system" is the joint-stock form of enterprise in which each 
shareholder has the same number of votes as shares. The 
"holding system" is a method, by which monopoly financial 
groups bring the capitals and enterprises of others under 
their control by obtaining the controlling interest in these 

The domination of major shareholders under the "holding 
system" is reinforced by the creation of a chain of connections 
between the principal or head company and other companies 
and undertakings under its influence. The head (or "mother") 
company has the controlling interest in several "daughter 
companies”. These, in turn, have the controlling interest in a 
further group of companies, which are then the "grandchil- 
dren" of the head company. Thus there are holdings of the 
first, second, third and higher degree, or a multi-storeyed 
pyramid of dozens of joint-stock companies. The total capital 
of all the companies in the pyramid is often dozens of times 
greater than that of the "mother company". Originally, 50 
per cent of a corporation's shares were needed in order to 
exercise control over it. In the course of time the size of 
controlling blocks of shares has fallen considerably. The prac- 
tice of issuing a large number of small shares has resulted in 
10 to 15 per cent of a joint-stock company's shares being 
enough nowadays to give control over it; in some instances 
1 or 2 per cent suffices, when the majority of the share- 
holders have only a few shares. Small shareholders, receiving 
dividends on them, are officially counted as co-owners of the 
company, although they can exercise no influence on how it 
is run, and they usually hand over their votes to the corpora- 
tion's board. In the USA, for example, there are more than 
30 million shareholders, but control of the economy is in the 
hands of a small group of financial magnates. In spite of the 
assertions of bourgeois scientists, there has been no "demo- 
cratisation of capital". On the contrary, the domination of the 
financial oligarchy is increasing. At the beginning of the 
1970s, 57 and 61 per cent of the national wealth of the United 
States and Great Britain respectively was concentrated 
in the hands of the richest 3 per cent of the population. 


Financial tycoons seek control of the whole pyramid of 
companies for a particular purpose. It enables them to bring 
pressure to bear on competitive monopoly groups, to wring 
high monopoly profits from all the subordinate enterprises 
and to accumulate vast amounts of capital in the form of 
reserve funds. Bourgeois economists cynically, but at the 
same time aptly, called this the "milking" of "daughter 

The holding system is reinforced by personal union , i.e. 
reciprocal representation of the directors of banks and corpo- 
rations or groups on their boards of directors, management 
boards, and other directing bodies. An obvious example of 
such a "personal link-up" is the personal representation of 
the directors of the "Big Four" London banks in other finan- 
cial monopoly groups and companies. About 150 directors of 
these banks hold more than 1,000 directorships in other 

Thus, the "holding system" and interlocking directorships 
ensure financiers the most favourable positions for control- 
ling other people's capital and the highest monopoly profits. 
The financial oligarchy also use other methods to increase 
their wealth: the system of monopoly prices, stock-market 
speculation, the extraction of promoters' profit and profit 
from the issue of bank notes, the grabbing of government 
orders (especially military ones), land speculation, and 
so on. 

After the Second World War, a number of new forms and 
methods by which the financial oligarchy increase their 
wealth began to develop. So-called sell-financing developed 
and spread rapidly; this is the financing of capital invest- 
ment, including investment in new enterprises, not on the 
basis of bank credits or issue of securities (shares and 
bonds), but primarily from the profits and depreciation al- 
lowances of the enterprises belonging to the monopolies them- 
selves. This can be explained by the enormous growth of 
monopoly profits and by an artificial increase in the rate of 
depreciation of fixed capital widely practised by the monopo- 
lies to conceal profits from the tax authorities. Firm long- 
term links between monopolies and banks are not, however, 
weakening. Finance capital is expanding and becoming 
firmly established. 




Further changes have also taken place in the activities 
and role of banks, which still remain the main financial 
institutions of contemporary capitalism. Long-term credit to 
industrial, transportation, commercial and other companies 
has been developed even widely. American banks, for example, 
now extend enormous loans to functioning monopolies for 
periods of eight to ten years, mainly because the banks have 
accumulated enormous credit resources which they cannot 
place solely by granting short-term credit. Furthermore, 
with self-financing being common, it is only profitable for 
industrial monopolies to take long-term credit and in large 
amounts. Operations with long-term credit naturally lead 
to further merging of monopoly banking and industrial 

A new form of this is known as trust or proxy operations 
by banks. Banks accept capital, property and securities from 
representatives of the monopolistic bourgeoisie for "manage- 
ment by proxy", i.e. for profitable use. Up to 30 or 40 per 
cent of the shares of major US industrial concerns arc con- 
centrated in the main private commercial banks. Managing the 
securities of millionaires and billionaires is not, of course, 
the same thing as owning them. The banks, however, have 
wide powers to use these means in order to penetrate deeper 
into the production sphere. 

Insurance companies have become serious competitors of 
banks in recent decades. The considerable expansion of in- 
surance is connected with the increasing insecurity the popu- 
lation feel about their future. The assets of life insurance com- 
panies in the USA alone exceed 220,000 million dollars. The 
total assets of all insurance companies have increased 13-fold 
over the past 40 years and are now worth 285,500 million 
dollars. The enormous resources of insurance companies are 
largely used to buy government bonds and to extend credit to 
industrial corporations. Thus, the insurance monopolies are 
becoming merged with the industrial and banking monopo- 
lies and form the most important link in the contemporary 
system of finance capital. 

Investment trusts began to appear in the USA as early as 
the 1920s. They are special institutions in the sphere of circu- 
lation, the purpose of which is to mobilise free cash resources 
in the interests of the financial oligarchy. Trusts issue their 



own small shares for sale among broad strata of the popu- 
lation. With the resources received in this way, the trusts in 
turn buy the shares of major corporations. The difference 
between the overall dividends received by trusts and those 
paid to the trusts' small shareholders constitutes their income. 
Investment trusts are usually under the control of the largest 
banking monopolies. 

As a result of the development of fictitious capital, the need 
arose with monopolies for new organisational forms, making 
it possible to manage the vast quantities of securities, particu- 
larly since dealing in them brings in large profits. One of 
these forms is the holding company. Holding companies are 
set up by the financial oligarchy in order to obtain controlling 
blocks of shares in corporations. Their field of activity is 
stock exchanges and the capital markets. The shares of the 
holding companies themselves are owned by the monopolistic 
bourgeoisie. Holding companies have developed particularly 
extensively in the USA and in certain other imperialist 

A new field being subordinated to finance capital is private 
pension hinds. The resources of these funds are formed from 
deductions from workers' wages and from the profits of corpo- 
rations on which the latter arc not obliged to pay taxes. 
Although pension funds are the result of a persistent struggle 
and are a gain obtained by the workers, they are widely used 
by the financial oligarchy to increase their wealth. Since the 
assets of pension funds are many times greater than the sum 
of the pensions paid out, banks or trustees managing these 
funds by proxy use their resources to buy shares and bonds 
and so finance the capital investment of corporations. Private 
pension funds in the USA rose from 500 million dollars in 
1929 to 100,000 million dollars in 1971. 

Taking all these new phenomena into account, contempora- 
ry finance capital must be defined as the capital ot monopo- 
listic financial and credit institutions {not only banks), 
merged with the capital oi industrial monopolies. 

The entire ramified mechanism of financial exploitation is 
used by the monopolistic bourgeoisie for its own enrichment 
and for strengthening its domination over the economy and 
policies of capitalist countries. 



The Reactionary Role of the Financial Oligarchy 

The concentration of actual control over social production 
and over national wealth in the hands of a few close-knit 
groups leads to the domination of several hundred financial 
magnates over the economic and political life of the country, 
irrespective of the type of government in the given capitalist 
country (whether republican, monarchical, or other). 

Changes, of course, take place in the composition of the 
financial oligarchy. Old financiers die, handing on their 
property to their descendants. Some groups disintegrate 
under the blows of competition and new ones take their place, 
but control over the predominant section of industry, trans- 
port, commerce and banking in imperialist countries invari- 
ably remains in the hands of a small number of financial 

The omnipotent financial oligarchy grow in strength through 
their expanding connections with the state apparatus and its 
numerous organs dealing with home and foreign affairs, A 
fierce struggle goes on between the major financial groups 
for the most responsible posts in government and for places 
in the legislative organs. 

All the major organisations designed to mould "public 
opinion" (the biggest publishers, newspaper and magazine 
trusts, radio companies and television companies) arc in the 
hands of the financial oligarchy and indoctrinate the working 
people in the interests of the bourgeoisie. A high degree of 
monopolisation of the mass media facilitates the task of 
subjugating the ideological life of capitalist countries to the 
dictates of the financial oligarchy. 

The reactionary role of the financial oligarchy is par- 
ticularly clearly manifested in preparations for war and 
unleashing of imperialist wars, in the use of the whole power 
of the state to strengthen its domination and its exploitation 
of the workers. 

Chapter 11 



The Possibility and Need for Export of Capital 
in the Era of Imperialism 

The spread of the omnipotent monopolies beyond the 
boundaries of the imperialist states and their drive to gain 
control of the whole world find expression primarily in the 
export of capital. Export of capital from one country to 
another also took place in the pre-monopoly stage of the 
development of capitalism, but it only began to play a role 
of paramount importance in international economic relations 
at the end of the last century and the beginning of this. 
"Typical of the old capitalism," Lenin said, "when free compe- 
tition held undivided sway, was the export of goods. Typical 
of the latest stage of capitalism, when monopolies rule, is the 
export of capital.” 1 

Lenin showed that these changes were the result of the 
general laws governing the growth of capitalism into impe- 
rialism. Imperialism is a universal system of the domination 
of finance capital and the export of capital is one of the ways 
in which it exercises this domination. 

Monopolies accumulate mounting sums of money capital 
from the high profits they receive and from bankrupting small 
and medium entrepreneurs and concentrating their capital in 
the hands of the financial oligarchy. The rapid development 
and monopolisation of the credit and banking system also 
promoted accumulation of money capital. 

At the same time, the dominance of monopolies led to a 
further intensification of exploitation of the working class, to 
an enormous inflation of market prices, to robbery of the 

1 V. I. Lenin, "Imperialism, the Highest Stage of Capitalism", Col- 
lected Works, Vol. 22, p. 240. 

22— 107G 



peasantry, to growth of unemployment and increased poverty 
of the working masses and, consequently, to an ever widening 
gap between the growth of the home market and the rate of 
capital accumulation. The sharp intensification of the contra- 
dictions between the possibilities for expanding production 
of commodities and the conditions under which they were sold 
became a permanent barrier to highly profitable employment 
of the money capital accumulated by the financial oligarchy. 
Special conditions were thus created under imperialism that 
led to the piling up in a number of countries of a "surplus” 
of capital that could be invested more profitably abroad. This 
"surplus", of course, was relative, as the capital could easily 
have been used to develop a number of backward industries 
in the imperialist countries themselves, but then it would not 
have brought in such high monopoly profits as it did abroad. 
Thus an objective need arose, determined by the very essence 
of monopoly, to export capital to other countries. 

This necessity went hand in hand with the possibility ot 
exporting capital, which had already been prepared during the 
period of free competition, mainly by the rapid development 
of foreign trade. The relatively cheap products of capi- 
talist factories penetrating economically less developed 
countries greatly accelerated the disintegration of small 
commodity production and the transition of these countries 
from isolated subsistence economies to commodity-money 

The small demand for labour power because of the shortage 
of local capital, the weak organisation of the emerging prole- 
tariat and the generally low standard of living brought into 
existence a cheap labour power in developing countries. 

Furthermore, industry in developed capitalist countries 
placed an ever growing demand for the raw materials that 
could be obtained from economically less developed countries. 
I he existence of cheap manpower in the latter, in conjunction 
with favourable natural conditions and low prices for land, 
made it possible to obtain large amounts of raw material with 
the minimum outlay. 

The development of transport played a significant role in 
creating the right conditions for the export of capital, in par- 
ticular, the building of big ocean-going vessels, which made it 
economically profitable to transport large cargoes of raw 



materials and foodstuffs, and also the building of ports, rail- 
ways, highways and the laying of pipelines, which made it 
possible to get raw materials from remote areas of economi- 
cally less developed countries. 

By the end of the last century, both the possibility and 
necessity of exporting capital had thus arisen and the right 
conditions had been established for all-round financial exploi- 
tation of most of the people of the capitalist world by a hand- 
ful of imperialist powers. 

The Essence and Forms of the Export of Capital 

Monopolies export capital, as a rule, to obtain high monopo- 
ly profits. The capital exported may not participate directly 
in the production of surplus value, but it necessarily facili- 
tates the drawing of income by the most varied means 
and in the most varied forms, e.g. in the form of industrial, 
banker's and commercial profit, interest on loans and rent 
of land. 

The sources of profit on exported capital are not only 
the surplus value created by the labour of wage workers, but 
also a part of their wages and of the incomes of other strata 
of the population of the developing countries, and state bud- 
gets of these countries. The export of monopoly capital, and 
then the reinvestment of the profits, were the basis for the 
enslavement of the peoples of economically less developed 

The export ol capital is thus a form of the movement of 
"surplus" monopoly capital in the hope (a) of extracting mo- 
nopoly profits for the financial oligarchy of the imperialist 
countries through the oppression and exploitation of most 
nations, and of the peoples of developing countries in particu- 
lar, and (b) of extending and strengthening the domination 
of monopolies throughout the capitalist world. 

The export of capital from one country to another takes 
different forms, and may be divided, according to function, 
into productive (entrepreneurial) and loan capital. 

Productive (entrepreneurial) capital is invested in industry, 
agriculture, transport and commerce by its owners themselves 
for the sake of profit. In this case, the foreign monopolies 




themselves directly exploit the working people of the countries 
in which their capital is invested. 

Loan capital is exported in the form of foreign loans extend- 
ed to governments, banks, and industrial, commercial and 
other corporations in other countries for the sake of a fixed 
rate of interest. In this case, the foreign monopolies, while 
remaining owners of the capital, transfer the right to employ 
it abroad for a specific period of time and participate in the 
exploitation of the workers of other countries, not directly 
but through the borrowers of the capital. 


The Twofold Result of the Export of Capital 
to Developing Countries 

One of the most important and general economic conse- 
quences of the export of capital was an extraordinary accel- 
eration of the spread of capitalism, it having been the means 
by which monopolies energetically implanted capitalist rela- 
tions of production among the huge populations of Asia, 
Africa and Latin America which were at earlier stage of 
development. "The export of capital influences and greatly 
accelerates the development of capitalism in those countries 
to which it is exported/' Lenin wrote. "While, therefore, the 
export of capital may tend to a certain extent to arrest deve- 
lopment in the capital-exporting countries, it can only do so 
by expanding and deepening the further development of capi- 
talism throughout the world ." 1 

The accelerated development of capitalism in developing 
countries associated with the export of capital there did not 
imply adequate development of the productive forces of those 
countries. Cheap manpower and monopoly control of 
the richest sources of raw materials, which made for excep- 
tionally low costs of production, enable foreign mono- 
polies to derive high profits there without special outlays 

1 V. I. Lenin, "Imperialism, the Highest Stage of Capitalism", Col- 
lected Works, Vol. 22, p. 243. 

export o f capital 

on the introduction and improvement of techniques and 

Since the export of capital is accompanied by an increase 
in the export of industrial goods to developing countries, 
their own national capital fails to compete with the foreign 
monopolies and is confined to usury, and to the intermediary 
and service spheres, and exerts no noticeable effect on the 
development of the country's productive forces. 

Account must also be taken of the fact that a considerable 
share of foreign capital is employed not in production but 
in trade, credit and insurance, and for covering military 
expenditure, financing the machinery of oppression, and the 

Only that part of foreign monopoly capital that goes 
directly into the construction of new industrial, transport or 
agricultural undertakings, or the expansion of existing ones, 
promotes growth of production in developing countries; but 
even then, the investment is not determined by the national 
interests of these countries and peoples, but exclusively by 
those of the capital-exporting monopolies. 

A substantial share of foreign monopoly capital is invest- 
ed in the extractive industries and agriculture. 

Furthermore, each developing country specialises, as a 
rule, in the production of one or two products only for 
export; and this one-sided specialisation as well as agrarian 
and raw material orientation of its economy makes it depen- 
dent on the foreign monopolies and turns it into nothing 
more than an appendage of an imperialist state. 

The export of capital results in foreign monopolists appro- 
priating, without compensation, a significant share of the 
national income created by the working people of the develop- 
ing countries. 

According to UN estimates developing countries would have 
to pay more than 47,000 million dollars in 1972-77 to devel- 
oped capitalist countries simply to pay off state and state- 
guaranteed indebtedness. 

Thus, even the foreign capital invested in material pro- 
duction, which initially makes for a certain development of 
the productive forces, later inevitably becomes a brake on 
the economic progress of developing countries. 





Export of Capital — 

Parasitism of a Higher Order 

Since the export of capital brings the monopolies huge 
profits, the stimulus to expand and improve production with- 
in the capital-exporting countries is weakened in a number 
of industries yielding "insufficient profits". The separation 
between the possession of capital and its productive use 
vastly increases and there is an extreme growth of the number 
of rentiers, people often even unaware of the country in which 
their capital is invested, or the use to which it is put, and 
leading an idle life on income from foreign investments. 

The export of capital, consequently, not only promotes an 
extension of the boundaries of capitalist exploitation, but 
also greatly increases the parasitism and decay of capitalism. 
The slowing down of growth of the productive forces in the 
capital-exporting countries and their one-sided, misshapen 
development in the capital-importing countries, enrichment 
of some states through rapacious exploitation and robbery of 
the peoples of other states, the total gap between capital as 
property and capital as a function, and the rapid growth, on 
that basis, of the number of people leading parasitic lives, 
and corruption of the top leadership of the working class- 
this is the pattern of the inevitable economic consequences 
of the export of capital that Lenin described as parasitism 
of a higher order. 



With the development of imperialism, changes took place 
in the balance of forces between capital-exporting countries, 
and in the volume, structure, forms, concrete goals of the 
export of capital, its geographical distribution and so on, 
changes that were particularly big after the Second 
World War. 

The most general features of these changes were (1) signifi- 
cantly more complex international conditions for the export 
of monopoly capital; (2) an increased unevenness of the export 
of capital, the transformation of US monopolies into the big- 

gest financial exploiters in the capitalist world, and an in- 
tensification of the struggle between imperialist countries for 
spheres of capital investment; (3) a strengthening of the 
state-monopoly trends in the export of capital; (4) the mili- 
tary orientation of the export of capital and a steep rise in 
its military and policing use; (5) the transformation of the 
export of capital into the main economic support of neocolo- 
nialism.. The export of capital remains, as before, the main 
economic bastion of imperialist domination in developing 

Changing Conditions for the Export of Capital 

A main cause of fundamental changes in the international 
conditions for the export of capital was the formation of the 
world socialist economic system and its gradual development 
into a decisive factor in the advance of human society. This 
found clear expression, in particular, in the breaking of the 
imperialist powers' monopoly of granting credits and loans 
to developing countries. The varied assistance given to 
countries, which have freed themselves from colonial depen- 
dence, by the Soviet Union and other socialist states, without 
political conditions of any kind, has forced the imperialists 
to make a number of concessions in the export of capital to 
the developing countries and to limit and camouflage their 
exploitative aims. 

Another important factor leading to sharp deterioration of 
the conditions for exporting capital was the collapse of 
imperialism's colonial system. Taking the path to indepen- 
dent development, the newly-emerged states have often 
nationalised the property of foreign monopolies, limited, 
and sometimes even suppressed, their activities in a number 
of spheres, have won increased payments for concessions, 
have restricted the transfer of profit abroad, and so on. 

Increased Unevenness in the Export of Capital 

The Second World War caused fundamental changes in 
the balance of forces between the world exporters of 

As a result of the war, Germany, Italy and Japan lost 



nearly all their foreign investments, and France and the 
Netherlands about half. Great Britain had to sell about a 
quarter of its foreign investments to pay off war debts. The 
economics of these countries, moreover, required enormous 
capital investments in order to restore what was destroyed 
during the war and to renew obsolete fixed capital. Their 
currency reserves were completely exhausted. 

The monopolies of the USA, grown rich on the war, did 
not fail to take advantage of this situation. In the first post- 
war years they had an almost complete monopoly of the 
capital market, and "surplus" American capital poured into 
many countries. 

To retain their hold on their colonies and dependencies, 
however, Britain and France resumed active export of capi- 
tal right after the war, in spite of the fact that they them- 
selves were receiving large sums in military and economic 
"aid" from the USA. 

From the beginning of 1952, the Western allies removed 
the ban on the export of capital from West Germany and 
Japan that had been imposed by the conditions of surren- 
der. From then on. West German and Japanese monopolies 
also began with increasing success to return to the position 
they had lost among capital exporters. 

First place in terms of the volume of foreign investments 
is now occupied by the United States of America. The total 
foreign investments of the USA amounted to 181,000 million 
dollars in 1972, including private monopoly investments of 

145.000 million dollars (80 per cent) and 36,000 million dol- 
lars of state holdings (20 per cent). 

In 1972, Great Britain's overseas investments were 56,000 
million dollars, those of the Federal Republic of Germany 

29.000 million dollars, of France 23,000 million dollars, and 
of Japan 6,800 million dollars in a world total of 345,000 
million dollars. 

A new phenomenon in the export of American capital 
since the war has been its flow into developed capitalist 
countries. At present, more than 70 per cent of the foreign 
investments of US monopolies are in developed states, particu- 
larly in European capitalist countries, and in Canada and 
Japan. This is not because the rate of profit on capital export- 
ed to developing countries has fallen but because the changes 



in developing countries arc limiting the opportunities for 
export of capital on the same conditions as before and are 
reducing the interest of private monopolies in investing in 
those countries. Shifts in the structure of the economies of 
the imperialist countries due to the scientific and technical 
revolution, however, arc playing a decisive role in this pro- 
cess. West European monopolies have not had enough capi- 
tal at their disposal, since the war, for the development of 
new branches of the economy. The holders of such surplus 
capital and of the patents and know-how of the new technolo- 
gies have been American monopolies. Of some significance, 
too, was the fact that wages of the working people in capi- 
talist Europe were considerably below those in the USA, 
which makes for higher profits. Of major importance, too, 
is the task of overcoming the obstacles by the customs bar- 
riers of the Common Market. The US monopolies have begun 
to build enterprises and get control over enterprises in Com- 
mon Market countries. The goods produced by these enter- 
prises arc not subject to customs duties. It is not surprising 
that the sales of the European branches of American monopo- 
lies are now twice as big as these monopolies' annual exports 
to Europe from the USA. 

Major exporters of capital and rentier states are Britain 
and France. More than half of British and French capital is 
directed to the countries of their former colonial empires 
where, in spite of the expansion of American capital, Britain 
and France still, as a rule, hold strong positions. 

The West German monopolies have been experiencing 
rapid external economic expansion. Although West Germany 
is third among the major imperialist powers (after the USA 
and Britain) in absolute terms of foreign investments, in 
terms of the rate of growth of its capital exports it outstrips 
all other capitalist countries. West German and Japanese 
monopolies are exporting capital even to the USA. At the 
time of writing, foreign investments in the USA amount to 

66,000 million dollars; only less than a quarter of them, 
however, are connected with control over American 

The USA. makes the greatest profits from the exploitation 
of other peoples receiving about half the gross and three- 
quarters of the net revenues from the export of capital. 



According to official data published in the US Department of 
Commerce's bulletin Survey of Current Business, the total net 
profit brought to the United States by American direct private 
investments in 1974 was 17,700 million dollars, against 8,800 
million dollars in the previous year. This was mainly because 
the American monopolies made the most of the fuel and raw 
material crisis to enrich themselves to the maximum. 

As already mentioned, most developing countries only 
import capital. Some, however, mainly the oil producers, have 
by now a big active balance of payments as a result of the 
energy and raw material crisis and the steep rise in prices of 
oil and certain raw materials. These countries have also begun 
to export capital, primarily to developed capitalist countries. 

Growth of State-Monopoly Tendencies 

in the Export of Capital 

A most important feature of the post-war export of capi- 
tal has been its rapid growth in the form of state invest- 
ments and loans. The main cause of this trend is the acute 
weakening of the position of imperialism and the strengthen- 
ing of the influence of the forces of socialism throughout the 
world. Salvation of the capitalist mode of production in the 
centres of world capitalism (Western Europe and Japan), 
preservation of colonialism on its frontiers, the drive to steer 
the countries newly liberated from colonialism along the 
road to capitalism, financial support for reactionary classes, 
parties, groupings and cliques, the support of corrupt puppet 
regimes, the creation of military blocs and their arming- 
these are the concrete goals of capital investment that, 
although not yielding large profits directly, is intended 
ultimately to ensure the dominance of the financial oligarchy. 
State capital is also used when, for various reasons, 
it is unprofitable or risky to invest the capital of private 

In order to conceal its true motives and exploitative essence 
state export of capital is often carried out on the false pretext 
of extending "aid” to foreign states; but this "aid" is sent 
where it most accords with the military and political interests 
of the imperialist powers; much of it is intended for military 



purposes and is used, as a rule, to buy arms from the same 
imperialist powers. Far from helping developing countries 
to overcome their economic backwardness, such "aid", on the 
contrary, strengthens it by engendering non-productive expen- 
ditures of a significant part of their resources for military 

The main exporter of state capital is the United States of 
America; and the export of capital is one of the factors eco- 
nomically ensuring that country the leading role in the 
modern capitalist world. 

Each time subsidies or loans arc extended, a number of con- 
ditions are stipulated, aimed at reducing the newly-won po- 
litical independence of the recipient states to an empty for- 
mality, i.e. to prevent them from taking a non-capitalist path 
of development, to preserve the one-sided agrarian and raw 
material orientation of their economies, and to strengthen and 
perpetuate the dominance of capital in general and of foreign 
monopoly capital in particular. 

International Finance and Credit Organisations 
as a Form of Capital Export 

One of the most important of the forms of capital export 
that have developed since the Second World War is the 
activity of international state-monopoly credit organisations, 
the most prominent of which are the International Bank for 
Reconstruction and Development (IBRD), the International 
Finance Corporation and the International Development As- 
sociation. Since the USA makes the biggest contributions to 
these organisations, in practice it controls their activities and 
directs them primarily toward the external economic expan- 
sion of American monopolies. 

In March 1958, the biggest banks of the West set up the 
Regional Corporation for the Industrial Development of the 
Countries of the Middle East (MIDEC), the aim of which 
was to ensure control by the finance capital of imperialist 
countries over the economy of this very important oil- 
producing region. On the same pattern, the Inter-American 
Development Bank was founded in 1961 and the Asian 
Development Bank in 1966, under the full control of Ameri- 
can finance capital. 



The structure and activities of these banks and other credit 
institutions reveal the distinctive features of present-day capi- 
tal export. 

(1) Every possible assistance is rendered to expand private 
capitalist enterprise in developing countries against the 
growing state sector of the economy, which is aided by social- 
ist states. 

(2) Foreign monopoly capital is intensively merged with 
local national capital, so that the latter can be involved as a 
junior partner in exploiting and robbing the peoples of 
developing countries. MIDEC, for example, only extends 
credit on the condition that 70 per cent of the funds financ- 
ing the enterprise are put up by entrepreneurs in the countries 
receiving the "aid". 

(3) These organisations themselves, the economic basis of 
which is the export of capital, are typical of the new, collective 
colonialism, i.e. the union of imperialist powers, with the USA 
at the head, for the joint financial enslavement of new states. 

Changes in Capital Exports by Branches 
of Industry 

The new conditions have given rise to fundamental changes 
in the distribution of capital exports. In recent years, the 
fastest growth rates of investment have been in the manufac- 
turing industry, which is linked not only with a certain 
reorientation of the export of private capital into developed 
capitalist countries, but also with the infiltration of foreign 
monopolies into industries producing consumer goods and 
also into growing engineering, chemical and electrical-engin- 
eering industries of developing countries. Investment is 
usually combined with deliveries of equipment to these 
countries and carrying out building contracts, which enables 
the monopolies exporting capital to establish control also 
over the field of capital construction. 

Direct investments, enabling capital-exporting monopolies 
to exercise complete control over enterprises and whole in- 
dustries in oilier countries, have begun to play a predomi- 
nant role. A very important form of capital export at the 
present stage is the export of patents and scientific informa- 



tion, and also the technical "aid” to developing countries, so 
widely publicised by the imperialist powers. 


International Monopolies and Their Forms 

Monopolies, first of all, divide up the home market between 
themselves, but when their scale of production outgrows the 
national market, a struggle begins between the monopolies 
of different countries for control of foreign markets, sources 
of raw material and spheres of capital investment. 

The concentration of production has reached such a degree 
that a significant share of total world production of the most 
important types of commodity is concentrated in the hands 
of the biggest national monopolies. Once a few monopolies 
in different capitalist countries begin to play the decisive 
role in the production of any particular commodity, competi- 
tion between them becomes particularly fierce and destructive. 
At the same time, agreements between them become possible 
and a tendency develops for international monopolies to be 
formed, which consolidates their dominance of the world 
capitalist market. As Lenin said, "this is a new stage of world 
concentration of capital and production, incomparably higher 
than the preceding stages." 1 This gives rise to international 
monopolies or supermonopolies, as Lenin called them. 

The export of capital and the expansion of the foreign 
economic links and of spheres of colonial influence of the 
biggest national monopolies, resulting in the internation- 
alisation of capital and economic relations, played a vast role 
in laying the foundations for the development of interna- 
tional monopolies. 

The first international monopolies had developed in the 
most highly concentrated branches of production in the 
1860s to 1880s, but they only became a typical feature of 
capitalism at the turn of the century. Lenin penetratingly 

1 V. I. Lenin, "Imperialism, the Highest Stage of Capitalism", Col- 
lected Works, Vol. 22, p. 246. 



analysed their rise and showed that their formation, and the 
economic division of the world, was one of the most impor- 
tant features of imperialism, noting that, according to rough 
estimates, there were some 40 international monopolies at the 
end of the nineteenth century, and around 100 by 1910. 

By the beginning of the Second World War, there were 
already over 1,000 international monopolies, which controlled 
more than 40 per cent of the foreign trade of the capitalist 
world. In the last 25 years, the international monopolies have 
set up around 10,000 new “daughter" companies in many 
countries, producing an annual output of over 200,000 million 
dollars. Three-quarters of the biggest are controlled by Ameri- 
can capital. 

International monopolies take different forms which are 
modified forms of the national monopolies (sec Chapter 10). 
The commonest are cartels, the members of which (national 
monopolies) are linked together by agreements on the buying 
and selling prices of commodities, on the sharing out of the 
world market between them, on production and sales quotas, 
on fines and bonuses, and so on. One variety of international 
cartel is agreements between the monopolies of different 
countries on the mutual exchange and utilisation of patents for 
new inventions. 

Another form of international monopoly is the syndicate, 
which is, however, much rarer. 

International monopolies also take the form of trusts and 
groups. In most cases, they arise through the setting up by 
national monopolies of subsidiaries abroad. Today, the power- 
ful national monopolies of the main imperialist countries 
extend far beyond the national market and have become in- 
ternational or multinational. 

The Reactionary Role 
of International Monopolies 

The main aim of monopolists' international organisations 
is to ensure their members high monopoly profits. They 
achieve this goal in various ways, including, among others, (1) 
the establishment of high monopoly prices on the commodities 
sold by their members and of lowered prices for the raw 



materials, etc. supplied by developing countries; (2) control 
of the scale of production and sales of a particular commodity 
by fixing appropriate quotas for their members in order to 
create an artificial gap between supply of and demand for the 
product; (3) sharing out of the world market and sources of 
raw material in order to limit mutual competition; (4) agree- 
ments on the exchange and mutual use of patents. 

Lenin pointed out that the domination of international 
monopolies inevitably led to stagnation and decay. They often 
cut production, limited trade and kept important inventions 
and scientific discoveries secret. 

The international unions of monopolists actively push the 
governments of imperialist countries into military conflicts. 
The arms trade, being the most profitable business of the 
international monopolies, continues to be carried on even 
during a war, regardless of which side gets the weapons 

International alliances of monopolists had helped put Ger- 
many's arms industry back on its feet and assisted fascism 
to come to power. They also played a fatal role in unleashing 
the Second World War. 

Since the war, the international alliances of British, Ameri- 
can and French monopolists again played a decisive role in 
putting the West German arms monopolies back on their 




The Post-War Development 
of International Monopolies 

The world capitalist markets for the most important in- 
dustrial goods, raw materials and semi-finished products are 
now controlled by the international monopolies. 

The world oil cartel the “Eight Sisters”, which includes 
five American companies (Standard Oil of New Jersey, Mobil 
Oil, Gulf Oil, Texaco and Standard Oil of California), the 
Anglo-Dutch company Royal Dutch-Shell, the British 



Petroleum Co., and the French Compagnie Francaise de Pe- 
trole, is a typical example of a very large present-day mono- 
poly. The “Eight Sisters" control about 90 per cent of all 
known deposits of oil in the non-socialist world and 71 per- 
cent of its production. The cartel operates in many capitalist 
countries and, by fixing high monopoly prices for oil and oil 
products, derives fabulous profits. 

For a certain period after the Second World War, the big- 
gest American monopolies showed no interest in concluding 
agreements with European monopolies, mainly because they 
were in the dominant position on the world capitalist market. 
Taking advantage of the weakened position of their European 
competitors, they penetrated deep into the economies of 
European countries and their colonies. In other words, Ameri- 
can monopolies were international monopolies, though they 
appeared in national form. For most of them, the same situa- 
tion still exists. The three American motor industry giants 
mentioned above (General Motors, Ford, and Chrysler) and 
their foreign subsidiaries now produce over 50 per cent of all 
the motor vehicles in the entire capitalist system. The US 
aluminium monopolies (ALCOA, Reynolds, and Kaiser) pro- 
duce around 70 per cent of the aluminium of the whole non- 
socialist world. 

At the same time, however, many European monopolies 
have regained and multiplied their power in post-war years, 
becoming major competitors of the American monopolies. 

In 1948, the international tube cartel was revived, embrac- 
ing West Germany (41 per cent quota). Great Britain (33 per 
cent) and France (26 per cent). In 1963, the international wire 
cartel, first formed in 1927, which ceased to operate during 
the Second World War, was re-established. In the same year, 
an international cartel was again set up to control the export 
of steel, embracing the big steel monopolies of West Germany, 
France, Belgium, the Netherlands and Luxemburg. At the 
present time, there are international cartels, with Euro- 
pean monopolies' participation, covering electrical equipment 
and electric lamps, copper, diamonds, radio equipment, nitro- 
gen, etc. Some of the monopolistic national associations of 
Japan have grown into multinationals and now occupy first 
place in the world in shipbuilding, radio electronics and other 

In present conditions, certain new forms and methods have 
evolved in the struggle for economic division of the world. 
The members of world monopoly alliances now lay the main 
emphasis on the forms of division of the world in the spheres 
of production, and science and technology. Agreements are 
being made in which compacts on the division of markets are 
combined with long-term co-ordination of activities in intro- 
ducing new techniques and technology. These are commonest 
in science-intensive fields like chemicals, electronics, engineer- 
ing, and instrument-making. Agreements on scientific and 
technical co-operation, the sharing of production programmes, 
experimental and design work, specialisation and co-operation 
in production, between concerns in different countries 
have become common. The current forms of division that are 
developing rapidly include joint undertakings belonging to 
the monopolies of separate countries, a form of international 
alliance that is particularly convenient for penetrating coun- 
tries liberated from colonialism. 

Modern private international monopolies, whose activities 
t are on an immeasurably greater scale than at the turn of the 
j century, can be divided into two main groups: multinational 
monopolies that pool the capital of different imperialist coun- 
tries; and transnational monopolies, which are national com- 
panies in terms of their capital, but international in their 
activities. Both types are international monopolies with a 
ramified network of subsidiaries and branches created in many 
countries in order to obtain monopoly profits and divide mar- 
kets and spheres of influence. 

Examples of private multinational monopolies are the offi- 
cially Canadian, but in practice Anglo-American-Canadian, 
International Nickel Company of Canada, the Belgian-Franco- 
• Luxemburg steel company Arbed, the Belgian-West German 
photochemical firm Agfa-Gevaert, and the Anglo-Italian rub- 
ber and chemical merger Dunlop-Pirelli. It is the transna- 
tional monopolies, however, that are commonest and most 
important. According to the UN Secretariat's experts, there 
were 7,300 transnational companies in the capitalist world at 
the beginning of the 1970s. These had 27,300 foreign sub- 
sidiaries with total foreign investments amounting to 165,000 
million dollars. In 1971, the output of the foreign subsidiaries 
of transnational monopolies reached 330,000 million dollars. 




or a sixth of the gross product of all capitalist countries. 
According to some estimates the 700 biggest transnational 
corporations will control 60 per cent of world capitalist pro- 
duction through the networks of their foreign subsidiaries, by 
1980, and 75 per cent by 1985. About 60 per cent of the 
output of foreign subsidiaries of transnational monopolies 
belong to American companies. 

The wide development of transnational monopolies resulted 
from the new conditions of the post-war period. The sharp 
contraction of the territorial sphere of imperialism, owing to 
the development of the world socialist system and the collapse 
of the colonial system, the further deepening of the general 
crisis of capitalism, the struggle of the developing countries 
to consolidate their political and economic independence, the 
growth of class struggle and of the anti-imperialist movement 
in the capitalist world, the extreme intensification of the 
contradictions between the mounting concentration of capital 
and narrow national markets, and the scientific and technical 
revolution-are all factors directly affecting the economy of 
modern capitalism, including the development of international 
monopolies in the form of transnational and multinational 
corporations. Production and capital are becoming concen- 
trated across national boundaries in the hands of the biggest 
private monopolies, which threaten the sovereignty of many 
countries in the capitalist world, particularly of the develop- 
ing countries. 

A distinctive feature of the present struggle over economic 
division of the world is the development of international 
state-monopoly agreements. These were first conceived before 
World War II (for wheat, sugar, rubber and other raw mate- 
rials) but it has only been since the war that they have devel- 
oped widely and begun to play an important role in the 
world capitalist economy. In 1946, the International Bank for 
Reconstruction and Development and the International Mone- 
tary Fund, which were in fact under the control of the US 
financial oligarchy, began functioning. In 1951, the Interna- 
tional Conference on Raw Materials was formed, which is a 
typical monopoly organisation, fixing the scale of mining of 
raw materials, prices and so on. 

A further development of international state-monopoly 
relations has taken the form of integration. 



As early as 1951, the European Coal and Steel Community 
was formed embracing the iron and steel and coal enterprises 
of six European countries (France, West Germany, Italy, Bel- 
gium, Netherlands and Luxemburg). The ECSC fulfils all the 
functions of an international monopoly, i.e. the distribution 
of production quotas, the sharing out of markets, the fixing of 
prices, etc. and helps strengthen the competitive position of 
its members. Euratom is another association of this kind. 

The tendency to develop international state-monopoly asso- 
ciations is seen most clearly in the formation of trade and 
economic blocs in Europe. On the one hand, the European 
Economic Community (EEC), usually called the Common Mar- 
ket, was set up, and on the other, the European Free Trade 
Association (EFTA) or "the Seven". There have now been 
fundamental changes in the balance of forces between these 
economic blocs. Two members of EFTA, Britain (the leader 
of the bloc) and Denmark, and the Republic of Ireland have 
joined the Common Market, which has meant a significant 
strengthening of the position of the EEC and the virtual col- 
lapse of EFTA. 

Along with the redistribution of the sales market, these 
inter-state organisations pursue far-reaching political, econom- 
ic, military and strategic goals. In view of the rapid growth 
of the world socialist system and the broad scale of the nation- 
al liberation movement, monopoly circles are attempting to 
consolidate the position of capitalism by means of these orga- 
nisations. The creation of regional blocs (and of the EEC in 
particular) played an important role as the economic basis of 
the aggressive NATO bloc. 

Critique of Bourgeois and Reformist Views 
of the Essence and Role 
of International Monopolies 

From the first appearance of international monopolistic 
alliances, bourgeois economists have argued that such agree- 
ments, expressing the internationalisation of capital, make it 
possible to establish lasting peace between nations under 
capitalism. Their views were shared, in their time, by Rudolf 
Hilferding and Karl Kautsky. Hilferding, for example, stated 

23 * 



that a general cartel which would control all production and 
thus eliminate crises, would make economic sense, and Kaut- 
sky agreed that international agreements between monopolies 
would lead to replacement of the period of imperialism, 
with its conflicts and wars, by a peaceful period of "ultra- 
imperialism", when internationally organised capital would 
exploit the whole world. 

Criticising these theories Lenin wrote: "There is no doubt 
that the trend of development is towards a single world trust 
absorbing all enterprises without exception and all states 
without exception. But this development proceeds in such 
circumstances, at such a pace, through such contradictions, 
conflicts and upheavals-not only economic but political, 
national, etc.-that inevitably imperialism will burst and capi- 
talism will grow into its opposite long before one world 
trust materialises, before the 'ultra-imperialist', world-wide 
amalgamation of national finance capitals takes place." 1 

The international monopolies, through dividing world mar- 
kets and sources of raw materials between them, cannot 
eliminate the anarchy of capitalist production, competition, 
and the deep contradictions engendered by imperialism. "In 
fact," Lenin emphasised, "it is this combination of antago- 
nistic principles, viz., competition and monopoly, that is the 
essence of imperialism, it is this that is making for the final 
crash, i.e., the socialist revolution." 2 


Monopolists are not satisfied with dividing up the world 
economically. They also strive for undivided sway over other 
countries, strengthening their economic dominance by subor- 
dinating them both politically and administratively. 

As Lenin wrote: "The epoch of the latest stage of capi- 

1 V. I. Lenin, "Preface to N. Bukharin's Pamphlet Imperialism and 
the World Economy", Collected Works, Vo 1. 22, p. 107. 

2 V. I. Lenin, "Materials Relating to the Revision of the Party Pro- 
gramme", Collected Works, Vol. 24, p. 465. 



talism shows us that certain relations between capitalist as- 
sociations grow up, based on the economic division of the 
world; while parallel to and in connection with it, certain 
relations grow up between political alliances, between states, 
on the basis of the territorial division of the world, of the 
struggle for colonies, of the 'struggle for spheres of 
influence'." 1 

Colonies, as subject territories, existed long before impe- 
rialism. The colonial empires of certain present-day powers 
began to take shape as early as the fifteenth and sixteenth 
centuries. In the epoch of imperialism, however, the issue of 
colonies has taken on a totally different significance from 
that under pre-monopoly capitalism. Lenin unmasked the 
attempts of bourgeois apologists to identify the colonial poli- 
cies of earlier times with those of modern imperialism. 

The fundamental change in colonial policy under impe- 
rialism was that the territorial division of the world was 
completed in this period, and a struggle for its redivision 
began, and also that the role of colonies had altered signifi- 
cantly compared with the days of pre-monopoly capitalism. 

Completion of the Territorial Division 
of the World 

and the Struggle for Its Redivision 

By the 1870s, Great Britain, Portugal, the Netherlands and 
France had considerable colonial empires, while other powers 
had no colonies. At the same time, there were still broad 
territories in the world that had not yet been seized by the 
capitalist countries. 

From 1876 to 1914, there was rapid annexation of colo- 
nies. The largest colonial acquisitions of this period were by 
Great Britain. She seized two-fifths of the territory and over 
half the population of all the newly-annexed countries. France 
stood in second place, having taken possession of two-fifths of 
the newly-annexed territories, but with a much lower density 
of population. The other imperialist states (Germany, the 
USA, Japan and Italy) "bagged” less. 

The mass ive seizure of "free" lands and the complete divi- 

1 V. I. Lenin, "Imperialism, the Highest Stage of Capitalism", Col- 
lected Works, Vol. 22, p. 253. 



sion of the world at the turn of the century was not a chance 
occurrence, but was very closely linked with the establish- 
ment of the dominance of capitalist monopolies. It was the 
drive of the monopolies to strengthen their influence and to 
ensure their complete sway in the areas where they were 
exporting commodities, investing their capital and importing 
raw materials, that gave rise to the scramble for the seizure 
of colonies and led to completion of the territorial division 
of the world. As Lenin pointed out, "monopolies are most 
firmly established when all the sources of raw materials are 
captured by one group, and we have seen with what zeal the 
international capitalist associations exert every effort to de- 
prive their rivals of all opportunity of competing. . . . Colonial 
possession alone gives the monopolies complete guarantee 
against all contingencies in the struggle against competitors, 
including the case of the adversary wanting to be protected 
by a law establishing a state monopoly." 1 

Not only known sources of raw materials were seized, but 
also potential ones, to prevent their being grabbed by a ri- 
val. Hence came the inevitable drive of finance capital to 
extend its economic territory and its territory in general. And, 
stemming from the dominance of the monopolies, the territo- 
rial division of the world itself then led to the formation of a 
specific type of monopoly, the colonial monopoly of a few 
imperialist countries. 

The final or complete division of the world, however, did 
not exclude the possibility of a redivision. On the contrary, it 
made a fierce struggle for its redivision inevitable. 

By 1914, the two largest colonial powers, Britain and 
France, held 68 per cent of colonial territory and 86 per cent 
of the colonial population. At the same time, Germany, Italy 
and Japan, having arrived late for the division of the world, 
but having become powerful imperialist states, had far fewer 
colonies. They demanded "a place in the sun" and a right to 
colonial plunder through redivision of the world ; but that was 
already only possible by means of war. As a result, the First 
World War (1914-18) broke out. Defeated in this war, Germa- 
ny and her allies were stripped of their colonies, which were 
then redistributed between the victor states. 

1 V. I. Lenin, "Imperialism, the Highest Stage of Capitalism", Col- 
lected Works, Vol. 22, p. 260. 



Formation of the Colonial System 
of Imperialism 

The territorial division of the world by the imperialist 
powers completed the formation of the colonial system of 
imperialism, i.e. the aggregate of the relations by which 
the millions of people in the colonies and dependent coun- 
tries were exploited and enslaved by a handful of imperialist 

In comparison with the period when free competition pre- 
vailed, the role of colonies under imperialism both grew and 
altered significantly. "To the numerous 'old' motives of colo- 
nial policy," Lenin pointed out, "finance capital has added 
the struggle for the sources of raw materials, for the export 
of capital, for spheres of influence, i.e., for spheres for profit- 
able deals, concessions, monopoly profits and so on, economic 
territory in general." 1 

In the period of monopoly capitalism, colonial and depen- 
dent countries served the metropolitan countries as (1) mar- 
kets for commodities, (2) sources of raw materials, (3) areas 
for the investment of capital, (4) sources of non-economic 
revenue, (5) theatres of military and strategic operations and 
sources of recruits and reinforcements.- 2 

The new conditions taking shape since World War II, result- 
ing from the Soviet Union's victory over German fascism and 
Japanese imperialism, encouraged a powerful upsurge of the 
national liberation movement in colonies and dependent 
countries. As a consequence, not only the defeated capitalist 
countries lost their colonies, but the victors too, in particular 
Great Britain and France, began to lose one colony after 
another, and disintegration of the whole colonial system, which 
is now approaching completion, set in. The numerous attempts 
of the imperialists to hold peoples in direct colonial subordi- 
nation arc being defeated. Through the influence of the power- 
ful national liberation struggle, supported by the working class 
of all countries and the world socialist system, the period of 
colonialism is finally a thing of the past. 

1 ibid., p. 299. 

2 For further details, see Chapter 15. 



Formation of the World Capitalist 
Economic System 

and Deepening of the Contradictions 
of Capitalism 

The colonial system of imperialism was an important ele- 
ment in the world capitalist economic system. 

Formation of the world capitalist economy began long 
before imperialism. The development of the capitalist world 
market, even under pre-monopoly capitalism, had led to 
more countries and nations being drawn into its orbit, which 
resulted in the internationalisation of bourgeois relations. The 
economic self-sufficiency of various countries was under- 
mined and gave way to their increasing all-round economic 
dependence. Under imperialism, the tendency to interna- 
tionalise economic life became much stronger, and since it 
took place on the basis of capitalist relations, i.e. represented 
in fact the nationalisation of capital, the process led not to 
co-operation between peoples on the principles of equality, 
but to establishment of the dominance of imperialist countries 
over most of the peoples of the world. The trend toward 
economic rapprochement between different countries and 
peoples of the world, in itself progressive, in practice took 
place in a purely imperialist manner, through annexation, 
violent enslavement, oppression and exploitation. Interna- 
tional division of labour was forcibly imposed in accordance 
with the interests of the monopoly bourgeoisie, its 
enrichment, and consolidation of its dominion over the 
whole world. 

The world capitalist economy is a system of international 
economic ties and relations, expressing exploitation and 
enslavement of the peoples of colonies and dependent coun- 
tries by a handful of imperialist states; the domination of 
finance capital in all spheres of the economies of capitalist 
countries; competitive struggle between the monopoly bour- 
geoisie of various imperialist countries for domination over 
the world economy; struggle between imperialist countries 
for redivision of the world. After the emergence of the world 
capitalist economic system, capitalism's contradictions, far 
from becoming weaker, developed even further and became 
even more acute. 



To the already existing antagonistic contradictions of the 
capitalist mode of production the specific contradictions of 
the world capitalist economy were added, namely, the contra- 
dictions between colonies and the metropolitan states, between 
the imperialist states and the economically underdeveloped 
countries that had achieved political independence, and 
between imperialist states themselves that exploit the peoples 
of the developing countries. 



The Threefold Specific Character 
of Imperialism 

Lenin's description of the monopolistic stage of capitalism 
was not confined to analysis of its basic economic features. 
It also included definition of imperialism's place in history, 
i.e. its place in relation to the entire epoch of capitalism and 
in relation to the socialist revolution. The historical place of 
imperialism in relation to capitalism is that it is the highest 
and last stage of capitalism. Lenin's teaching on this is a 
continuation and development of Marx's doctrine of the 
inevitability of the revolutionary overthrow of capitalism. 

Imperialism arose as a development and direct continua- 
tion of the fundamental features of capitalism in general; but 
capitalism became imperialism only at a specific stage in its 
development, when certain of its fundamental features began 
to turn into their opposites. 

Lenin noted the extreme sharpening of all the contradic- 
tions of the capitalist mode of production under imperialism. 
"Imperialism," he concluded, "is a specific historical stage 
of capitalism. Its specific character is three-fold: imperial- 
ism is (1) monopoly capitalism; (2) parasitic, or decaying 
capitalism; (3) moribund capitalism." 1 

Lenin’s Critique of Kautsky’s Theory 
of Imperialism 

When studying the problems of imperialism, Lenin sharply 
criticised current reformist theories that were ideologically 

1 V. I. Lenin, "Imperialism and the Split in Socialism", Collected 
Works, Vol. 23, p. 105. 



disarming the working class and holding back development 
of its revolutionary struggle to overthrow the capitalist sys- 
tem. Karl Kautsky, the ideological leader of the Second 
International, argued that imperialism was the product of 
highly developed industrial capitalism and that its essence 
was a drive by industrially developed countries to annex 
increasingly large agrarian areas. His argument contradicted 
Marxism-concealed the contradictions of the new stage of 
capitalism and ignored its fundamental feature, the domi- 
nance of monopoly. It followed from Kautsky's theory that 
imperialism was only a policy that could be changed for 
another policy. "The essence of the matter," Lenin wrote, 
"is that Kautsky detaches the politics of imperialism from 
its economics, speaks of annexations as being a policy 'pre- 
ferred' by finance capital, and opposes it to another bour- 
geois policy which, he alleges, is possible on this very same 
basis of finance capital." 1 

In detaching the politics of imperialism from its eco- 
nomics, Kautsky proved, in fact, to be on the side of recon- 
ciliation with imperialism, because to struggle against the 
aggressive policies of the monopolies without touching the 
basis of their economic domination was, as Lenin commented, 
meaningless talk. 

Lenin also criticised another reformist theory of Kautsky- 
that of "ultra-imperialism". Kautsky argued that the develop- 
ment of capitalism would lead to the amalgamation of na- 
tional capitals, and to the merging of all trusts into a single 
all-enveloping trust, the formation of which would put a stop 
to the struggle between the imperialists of different coun- 
tries and usher in a phase of "ultra-imperialism". Lenin called 
this theory ultra-nonsense, and emphasised that the idea 
of international cartels making it possible to hope for peace 
between states under capitalism was theoretically utterly 
absurd and, in practice, represented a defence of imperial- 
ism, and clouding of the class consciousness of the 


l V. I. Lenin, "Imperialism, the Highest Stage of Capitalism”, Col- 
lected Works, Vol. 22, p. 270. 



Critique of “Pure Imperialism” 
and “Organised Capitalism” 

A variant of Kautsky's theory was the theory of "pure 
imperialism", that Bukharin tried to push into the Programme 
of the Russian Communist Party (Bolsheviks). Its essence 
was that monopolies had, supposedly, completely recon- 
structed the whole social economy, and eliminated the spon- 
taneous, anarchic nature of commodity production and the 
antagonistic contradictions inherent in it. Lenin pointed out 
that monopoly capitalism was a superstructure on the old 
capitalism, that a "pure imperialism" not based on capital- 
ism had never existed, did not exist, and would never exist. 

The theory of "pure imperialism" reappeared later as the 
theory of "organised capitalism", proposed by Hilferding 
and given official approval at the 1927 congress of German 
Social-Democratic Party. Basing himself on the temporary 
stabilisation of capitalism of those years, Hilferding argued 
that capitalism had already become organised in a planned 
way, that monopolies ensured continuous development of the 
economy without crises and upheavals, and that a period of 
eternally flourishing capitalism had arrived. Reality, as we 
know, soon refuted that right-wing opportunist theory: in 
1929, a crisis set in that was the most acute and destructive 
in the history of capitalism. 

Lenin's theses, revealing the essence of imperialism, still 
serve today as a theoretical weapon for the working class in 
unmasking the right-wing socialist lackeys of imperialism, 
who are again trying to revive the theory of "planned" or 
"organised" capitalism. 


Principal Manifestations 
of Monopoly Capitalism 

Lenin distinguished four principal manifestations of mo- 
nopoly capitalism. 

(1) As a result of the concentration of production mo- 
nopolies become dominant in the production and sale of 



(2) The dominance of monopoly led ultimately to seizure 
of the major sources of raw materials. The basic branches 
of production (iron and steel, power, oil-refining, etc.) are 
the most highly monopolised and their dominant position is 
ensured by monopoly control of the sources of raw 

(3) The concentration and centralisation of banking fa- 
cilitates establishment of the overall dominance of monopo- 
ly. Banks have become the biggest monopolists and the 
financial oligarchy has established its dominance over the 
economic and political institutions of present-day bourgeois 

(4) Monopoly arose out of colonial policy; the era of 
monopoly possession of colonies and particularly intense 
struggle for the division and the redivision of the world had 

The development of monopolisation along these lines 
inevitably led to monopolies subordinating the government 
apparatus to themselves, merging with it, and using it to 
preserve and strengthen their dominance in economic and 
political life. The forces of state and monopoly became united 
in a single mechanism, acting in the interests of the 

Exacerbation of the Main Contradiction 
of Capitalism 

under Monopoly Domination 

The dominance of monopoly enormously intensifies the 
process of socialisation of production. With increasing con- 
centration of production, the social character of production 
becomes more pronounced. The monopolies link huge enter- 
prises together, take account of markets and sources of raw 
materials, and seize technical discoveries and inventions, 
while the big banks have almost all the money resources of 
bourgeois countries under their control. 

Private capitalist ownership does not, however, give social 
production a chance to develop as a consciously directed, 
planned process. The high level of organisation of labour in 
individual undertakings and within monopolistic associations 



exists alongside anarchy of production on the scale of society 
as a whole. 

The enormous wealth created by the labour of millions of 
people is appropriated by a small group of the biggest mo- 
nopolists. But in order to develop continuously and without 
crisis, socialised production requires the elimination of pri- 
vate ownership of the means of production and the establish- 
ment of an order in which the results of labour would belong 
to all the working people. 

Thus, the domination of monopolies exacerbates the main 
contradiction of capitalism to the extreme, i.e. the contra- 
diction between the social character of production and pri- 
vate capitalist appropriation of its results. Under imperial- 
ism, the productive forces of society have developed to the 
point when they can no longer be confined within the frame- 
work of capitalist relations of production. 



The place of imperialism in history is also defined by its 
being parasitic or decaying capitalism. 

Two Trends in Development 

of the Productive Forces 

Lenin made an exhaustive analysis of the decay of capi- 
talism in its monopoly stage. This shows up primarily in 
the tendency for retarding technical progress. Under free 
competition, in the pursuit of extra profit, capitalists sought 
to cut costs of production by using new equipment and 
technologies. Under imperialism, monopolies have the possi- 
bility of obtaining super-profits simply by force of their 
monopolistic position, which enables them to fix monopoly 
prices. Economic domination of the market and constant 
high monopoly profits weaken the stimulus for monopolies 
to introduce new production technologies and act as a brake 
on technical progress. Quite often monopolies acquire patents 
on new inventions not in order to use them in production, but 
to prevent their competitors from using them. 



The tendency toward stagnation under imperialism, how- 
ever, does not eliminate the tendency toward technological 
development. Lenin warned against any over-simplified inter- 
pretation of the tendency for technical development to be 
retarded under imperialism. "Certainly," he said, "the possi- 
bility of reducing the cost of production and increasing profits 
by introducing technical improvements operates in the direc- 
tion of change. But the tendency to stagnation and decay, 
which is characteristic of monopoly, continues to operate, 
and in some branches of industry, in some countries, for 
certain periods of time, it gains the upper hand ." 1 On the 
whole, although the productive forces of capitalism develop 
rapidly, their development is increasingly falling behind the 
vast opportunities provided by science and technology 

"The scientific and technical revolution offers mankind 
unprecedented possibilities to remake Nature, to produce 
immense material wealth and to multiply man's creative 
capabilities. These possibilities should serve the general 
welfare, but capitalism is using the scientific and technical 
revolution to increase its profits and intensify the exploita- 
tion of the working people ." 2 

Growth of the Parasitic Stratum of Rentiers. 

Increase of Militarism 

The decay of capitalist society under imperialism is also 
manifested in growth of parasitic strata of the population 
and of their revenues. A significant part of the big bourgeoi- 
sie make a final break with production. The management of 
enterprises is transferred increasingly to hired specialists, 
while the big capitalists themselves live idly on income from 
securities, shares and state loan bonds and become capitalist 

The amount of securities in circulation increases from 
year to year, so that the amount of revenues appropriated 

1 V. I. Lenin, "Imperialism, the Highest Stage of Capitalism", Col- 
lected Works, Vol. 22, p. 276. 

2 International Meeting of Communist and Workers' Parties, Mos- 
cow 1969, Prague, 1969, p. 19. 



by the parasitic stratum of rentiers in the form of dividends 
and interest also rises. 

The detachment of capitalist rentiers from production has 
become even more pronounced through the export of capital. 
Under imperialism, not only are the individual rich coming 
to be rentiers, but whole countries that export capital and 
live on exploiting backward countries and colonies. They 
become rentier states. In addition, the imperialist countries 
receive immense profits as a result of non-equivalent trade 
with economically underdeveloped countries. 

The monopolistic bourgeoisie, however, not only leads a 
parasitic life itself, but also diverts a growing part of the 
population from productive work. 

Under imperialism, the number of people employed in 
the army, the police and the bureaucratic state apparatus, 
i.e. primarily in the organs of repression and compulsion of 
the working people, grows rapidly. Non-productive costs 
connected with the anarchy of production and increasingly 
fierce competition also grow; there is a significant rise 
in expenditure on advertising, unjustified transport, and 
the like. 

Despite the absolute increase in the numbers employed in 
the non-productive sphere, the threat of unemployment, far 
from shrinking, actually grows, which is the clearest indi- 
cation of decay and evidence of capitalism's incapacity to . 
make use of labour power, the main productive force of 

Decay under imperialism is seen in its most acute form 
in the unchecked growth of militarism and the frenzied 
arms race characteristic of the present day. 

Corruption of the Upper Strata 

of the Working Class 

and Formation of a Labour Aristocracy 

An important sign of decay and parasitism under impe- 
rialism is the corruption of the upper strata of the working 
class, which became an economic possibility through the 
high monopoly profits received by the imperialists. The 
imperialist bourgeoisie gives handouts to the upper strata of 
the working class by intensifying exploitation of the vast 


majority of the workers in their own countries, and by reap- 
ing colonial super-profits. 

As Lenin noted, the representatives of these upper strata 
act as veritable agents of the bourgeoisie in the working- 
class movement-as labour class lieutenants of the capital- 
ists. They have a certain influence on the masses, and by 
splitting the working-class movement hinder the unity of all 
progressive forces in the struggle against imperialist oppres- 
sion. It is this milieu, along with the petty bourgeoisie, that 
provides the leading personnel of right-wing socialist parties 
and yellow trade unions. A sort of labour aristocracy thus 
takes shape within the working class, and a labour bureau- 
cracy, a major social support of the bourgeoisie. 

The nurtured upper strata of the working class should 
not, however, be confused with workers receiving relatively 
high wages. For a considerable proportion of highly paid 
workers, the level of their wages is the result of long class 
struggle, and not of artificial privileges created by monopo- 
lists. Skilled workers play an important role in the revolu- 
tionary movement in present-day conditions. 



The Turn toward Reaction 
in Social and Political Life 

The decay and parasitism of imperialism is also to be 
seen in its inherent turn toward reaction in all spheres of 
social and political life. While the economic essence of impe- 
rialism consists in replacing free competition with the domi- 
nation of monopolies, its political essence is the turn from 
bourgeois democracy to political reaction. As Lenin wrote 
l in "A Caricature of Marxism and Imperialist Economism": 
"Both in foreign and home policy imperialism strives 
towards violations of democracy, towards reaction. In this 
sense, imperialism is indisputably the negation of democracy 

in general, of all democracy " l Monopoly capital strives 

to wipe out the democratic rights won by the workers through 
the persistent struggle of generations. The increase of politi- 
cal reaction under imperialism found expression in fascism. 

1 V. I. Lenin, Collected Works, Vol. 23, p. 43. 





The domination of monopoly also brought with it unbridled 
reaction in ideology and culture. 

The parasitism and decay of monopoly capitalism is evi- 
dence that capitalism has exhausted itself as a mode of pro- 
duction and that another, progressive social system, the 
communist mode of production, must come in its place. 


From deep analysis of the monopoly stage of capitalism, 
Lenin drew the conclusion that imperialism is moribund 
capitalism. Capitalism will not disappear of its own accord 
or automatically. It is liquidated as a result of the prole- 
tarian revolution; therefore, while defining imperialism as the 
last stage of capitalism, Lenin at the same time said that it 
was the eve of the socialist revolution. 

Exacerbation of Contradictions 

and the Inevitability of Socialist Revolution 

In the era of imperialism, the contradictions between 
labour and capital, between the oppressed peoples of colo- 
nies and dependent countries, on the one hand, and the 
monopolistic bourgeoisie, on the other, and between the . 
imperialist states themselves all become far more acute, and 
their intensification leads capitalism to the proletarian 

As a result of the Great October Socialist Revolution, a 
new contradiction arose alongside the old ones, that between 
moribund capitalism and the newly-emerging progressive 
social system, socialism. The victory of the socialist revolu- 
tion in a number of countries in Europe, Asia and America, 
has given rise to the major contradiction of modern times, 
that between the world capitalist system and the world social- 
ist system. This contradiction determines the character and 
distinctive features of all social phenomena today, in the 
period of the transition from capitalism to socialism. 

The victory of the socialist revolution in Russia and in 
other countries and the formation of the world socialist sys- 


tern is absolute confirmation of Lenin's conclusion that capi- 
talism was dying. The death of capitalism is a result of ex- 
treme intensification of all the contradictions inherent in capi- 
talism, and is an objective historical necessity. Underlying 
it is the lack of correspondence between the obsolete produc- 
tion relations of present-day capitalism and the emerging 
productive forces that are becoming social in nature, which 
runs counter to the needs of further social development and 
the basic interests of the majority of humanity. “The course 
of social development," it was stated at the International 
Meeting of Communist and Workers' Parties in 1969, “shows 
that imperialism comes into conflict with the vital interests 
of workers by hand and brain, of different social strata, 
peoples and nations. As a result, growing masses of working 
people, social movements and entire peoples are rising 
against imperialism." 1 

The Law of the Uneven Economic 
and Political Development of Capitalism 

Lenin's theoretical study of monopoly capitalism enabled 
him to reveal the law ot the uneven economic and political 
development of capitalism in the epoch of imperialism. This 
discovery was the basis of his teaching on the possibility of 
socialism triumphing first in a few countries, or even in one 
country alone. 

By uneven economic development is meant that capitalist 
enterprises, industries and countries have different rates of 
growth of production and national income. 

Economic development was also uneven in pre-monopoly 
days. The dominance of monopolies not only intensified it 
but also led to a fundamental qualitative change in its 
nature. Instead of being a smooth evolutionary flow, the 
unevenness has become spasmodic, which resulted, and still 
does, in sharp conflicts and contradictions between imperialist 

1 International Meeting ot Communist and Workers' Parties, Mos- 
cow 1969, p. 21. 

24 * 



This is because countries that set out late along the road 
of capitalist development and utilise the ready results of 
technical progress not only have the opportunity of catching 
up with older capitalist countries but also have the chance 
of overtaking them rapidly in development. The spasmodic 
nature of the development of capitalist countries also be- 
comes more pronounced as a result of the export of capital, 
economic crises and wars, particularly world wars. 

Since the world was already divided up between the 
imperialist powers and no free land remained for unfettered 
extension of their spheres of influence, it could only be 
redivided by military force. Under these conditions, the un- 
evenness of the development of individual countries gives 
rise to imperialist wars to redivide the world, simply because 
it constantly leads to a change in the balance of forces 
between imperialist countries, so that the distribution of colo- 
nies, sources of raw materials and spheres for capital invest- 
ment ceases to correspond to the new balance of power. The 
unevenness of the economic development of individual coun- 
tries under imperialism is thus the economic foundation for 
imperialist wars. 

The balance of economic power between capitalist coun- 
tries is also in a state of flux today, as a result of the opera- 
tion of this law. The economic and political struggle between 
imperialist powers is becoming more and more fierce, so that 
the economic foundation for imperialist wars still continues 
to exist. 

But there are now powerful forces opposing the aggres- 
sive aspirations of imperialism. "A new world war can be 
averted by the combined efforts of the socialist countries, 
the international working class, the national liberation move- 
ment, all peace-loving countries, public organisations and 
mass movements," the Communist and Workers' parties of 
the world affirm . 1 

The unevenness of the development of capitalism under 
monopoly domination is the objective basis for the possi- 
bility of breaking the chain of imperialism at one of its weak- 
est links and for victory of the socialist revolution, initially 

1 International Meeting ot Communist and Workers’ Parties, Mos- 
cow 1969, p. 31. 


in a few countries or even in one. "Uneven economic and 
political development is an absolute law of capitalism," Lenin 
wrote in his article "On the Slogan for a United States of 
Europe". "Hence, the victory of socialism is possible first in 
several or even in one capitalist country alone ." 1 This con- 
clusion has been of decisive significance for the revolutionary 
struggle of the proletariat in the period of imperialism. 

Unevenness of political development means that the politi- 
cal preconditions for the proletarian revolution do not arise 
or mature in all countries simultaneously. These premises 
include, above all, the sharpness of class contradictions and 
the degree of development of the class struggle, i.e. the level 
of class consciousness, political organisation and revolu- 
tionary decisiveness of the proletariat; the solidarity of the 
non-proletarian mass of working people with the proletariat; 
and the leading role of the Marxist-Leninist party in the 
revolutionary movement. 

The unevenness of political development linked with 
uneven economic development is not simply a consequence 
and reflection of the latter, but is of great independent sig- 
nificance. The sharpness of class contradictions and the devel- 
opment of the revolutionary movement of the proletariat by 
no means depend solely on the degree of capitalist develop- 
ment in any particular country. Class contradictions may 
become more acute and the organisation and revolutionary 
consciousness of the proletariat more developed in a country 
that is not at the forefront, as far as the development of capi- 
talism is concerned. That was the case, for example, in Rus- 
sia and in a number of other countries where the socialist 
revolution has since triumphed. 

But however acute the economic contradictions of 
capitalism are, they never themselves lead automaticaly to its 
downfall. They only make the overthrow of capitalism a 
possibility. In order actually to overthrow capitalism, politi- 
cal preconditions of revolution, which mature at different 
times in different countries, are also essential, that is to say, 
a revolutionary situation is necessary. The revolution tri- 
umphs in the weakest links in the chain of world capitalism, 
in which the necessary objective and subjective precondi- 

1 V. I. Lenin, Collected Works, Vol. 21, p. 342. 



tions have matured. "Lenin teaches that the decisive precon- 
dition for the success of the revolution is the workers' readi- 
ness and ability for revolutionary activity, their conscious- 
ness, organisation and experience in the struggle." 1 

Lenin's theory of socialist revolution has been of tremen- 
dous significance in unleashing the revolutionary initiative of 
the proletariat in individual countries. 

At the same time, it follows from his theory of the uneven- 
ness of the development of capitalism that the replacement 
of capitalism by socialism cannot be a single act once and 
for all. It takes place over a whole historical period as more 
and more countries break away from the capitalist system, 
a period of transition from capitalism to socialism through- 
out the whole world; and, during this period, the coexis- 
tence of states with different social systems is inevitable. 

In defining the place of imperialism in history, Lenin also 
laid the foundations of the theory of the general crisis of 

1 On the Centenary ol the Birth ot V. I. Lenin, p. 16. 


Chapter 13 




Mankind's transition to socialism occupies a certain histori- 
cal period, during which more and more countries break 
away from the world capitalist system and set out on the 
road of building socialism. As the Programme of the CPSU 
says: "Our epoch, whose main content is the transition from 
capitalism to socialism, is epoch of struggle between 
the two opposing social systems, an epoch of socialist 
and national-liberation revolutions ... an epoch of the 
transition of more and more peoples to the socialist path, 
of the triumph of socialism and communism on a world-wide 
scale." 1 

In those countries where the proletarian revolution has 
been victorious, the building of socialism and communism 
is now going successfully ahead. In the countries where capi- 
talism still exists, it continues to disintegrate, while the forces 
capable of smashing it by means of a revolution are 
growing in strength. The capitalist socio-economic formation 
has entered the period of its decline and fall, i.e. the histori- 
cal phase of its general crisis resulting from the development 
of its contradictions in the imperialist stage. 

Thus, the general crisis of capitalism is a world historical 
process of the collapse of the capitalist mode of production 
and its revolutionary replacement by socialism. 

1 The Road to Communism, p. 449. 



of Capitalism 

The first and main feature of the general crisis of capi- 
talism is that the world has split into two systems, the de- 
veloping socialist system and the moribund capitalist one, a 
split begun by the Great October Socialist Revolution. 

With the rise of the socialist economic system in Russia, 
the capitalist system ceased to be the sole one prevailing in 
the world. The rise of socialism meant the emergence of pro- 
duction relations of a new type, corresponding to the nature 
of contemporary productive forces. Between capitalism and 
socialism there is an uncompromising struggle during which 
the balance of power is constantly shifting in favour of the 
latter. In the second stage of the general crisis of capitalism, 
socialism became a world system that is now exerting an 
ever increasing effect on all spheres of life in contemporary 
society. "Development of the socialist countries, their greater 
might, and the greater beneficial influence of their interna- 
tional policy-this is now the main direction in mankind's 
social progress." 1 

The second feature of the general crisis of capitalism is 
the crisis of imperialism's colonial system, and its final 
downfall, as a result of the strengthening of the national 
liberation movement. The struggle against neocolonialism 
proceeds. The newly-free countries are fighting to end their 
economic dependence on the imperialist powers, and some 
of them have taken a non-capitalist path of development. 

The third characteristic of the general crisis of capitalism 
is that world imperialism is becoming ever weaker and its 
contradictions more acute. Its state-monopoly character is 
becoming more pronounced, the instability and stagnation of 
the capitalist economy is growing, and the class antagonisms 
hastening its fall are becoming sharper. 

The general crisis has not simply gripped the capitalist 
economy, but is becoming increasingly acute in bourgeois 
politics and ideology, morality and spiritual culture. 

1 L. I. Brezhnev, Report ot the CPSU Central Committee and the 
Immediate Tasks ot the Party in Home and Foreign Policy. 25th Con- 
gress ot the CPSU, p. 33. 



As L. I. Brezhnev said at the Conference of European Com- 
munist and Workers' Parties in Berlin in June 1976: "This 
crisis cannot be ended by revitalising the imperialists' 
military-political blocs, or by the arms race, or by economic 
integration of the monopolies, or by apparent social reforms, 
or by repression." 

The Split of the World into Two Systems 
and the Struggle between Them. 

Peaceful Coexistence — 
a Form of Class Struggle 

The October Revolution laid the basis for ridding man- 
kind of the exploitative system and bringing the ideas of scien- 
tific communism to life, and has had the most profound effect 
on the whole subsequent course of world history. It opened 
the era of the general revolutionary resurgence of the world, 
the period of the transition from capitalism to socialism. 

While bourgeois revolutions simply replaced one exploit- 
ative system by another, the Great October Socialist Revo- 
lution abolished all exploitation of man by man, put an end 
to poverty and unemployment, and created broad scope for 
the all-round harmonious development of human society. It 
laid the foundation of a new civilisation in man's history. 
The best people of all ages and nations have long dreamed 
of such a civilisation but only Marxism provided the key to 
making it reality. Marx and Engels transformed socialism 
from a utopia into a science. 

The ideas of scientific socialism gained wide acceptance 
in Russia, but that did not happen at once or by chance. 
"Russia achieved Marxism-the only correct revolutionary 
theory," Lenin wrote, "through the agony she experienced in 
the course of half a century of unparalleled torment and 
sacrifice, of unparalleled revolutionary heroism, incredible 
energy, devoted searching, study, practical trial, disappoint- 
ment, verification, and comparison with European experi- 
ence." 1 

1 V. I. Lenin, " 'Left-Wing' Communism-an Infantile Disorder", 
Collected Works, Vol. 31, pp. 25-26. 



Thanks to the heroic efforts of Lenin and the revolutionary 
party he created, the ideas of Marxism penetrated the con- 
sciousness of the working class and of broad masses of the 
working people of Russia and became the immense force 
that led to victory of the Great October Socialist Revolution. 

The Soviet state born of the October Revolution immedi- 
ately became an important factor, affecting all aspects of 
mankind's life. "In the present world situation following the 
imperialist war," Lenin said in 1920, "reciprocal relations 
between peoples and the world political system as a whole 
are determined by the struggle waged by a small group of 
imperialist nations against the Soviet movement and the 
Soviet states headed by Soviet Russia. Unless we bear that in 
mind, we shall not be able to pose a single national or colo- 
nial problem correctly, even if it concerns a most outlying 
part of the world. The Communist parties, in civilised and 
backward countries alike, can pose and solve political prob- 
lems correctly only if they make this postulate their starting- 
point." 1 

The victory of the Great October Socialist Revolution in 
Russia and of socialist revolutions in other countries and 
the building of socialism and communism in the countries of 
the world socialist system have been and are an important 
factor in the development of the international working-class 
movement, the national liberation struggle, and the struggle 
of the peoples for peace and socialism. As the Central Com- 
mittee of the CPSU stated in 1967 : "The world historical 
significance of the Great October Socialist Revolution is that 
it indicated the road to, and revealed the forms and methods 
of revolutionary transformation, which have acquired an 
international character. Its experience is an inexhaustible 
treasury of the theory and practice of revolutionary strug- 
gle, a model of scientific strategy and tactics." 2 

The problem of relations between the capitalist and social- 
ist systems arose in the very first days of the Soviet state. 
In this field there are two objective, but opposing trends. 

• V. I. Lenin, "The Second Congress of Lhe Communist Interna- 
tional", Collected Works, Vol. 31, p. 241. 

2 On the 50th Anniversary oi the October Revolution, Moscow, 
1967, p. 9 (in Russian). 



The first trend is that the bourgeois world, by virtue of 
its class nature, strives to destroy the socialist system. The 
most reactionary circles of finance capital take the lead in 
this and the tendency will continue as long as capitalism 

"The spearhead of the aggressive strategy of imperial- 
ism," the International Meeting of Communist and Workers' 
Parties in 1969 noted, "continues to be aimed first and fore- 
most against the socialist countries. Imperialism does not 
forego open armed struggle against socialism." 1 

The second trend is for capitalist states to be interested 
in establishing and developing economic relations with social- 
ist countries. "The economic position of those who blockad- 
ed us has proved to be vulnerable," Lenin said at the Ninth 
All-Russia Congress of Soviets in 1921. "There is a force 
more powerful than the wishes, the will and the decisions of 
any of the governments or classes that are hostile to us. That 
force is world general economic relations, which compel 
them to make contact with us." 2 

The socialist states make use of this objective trend to 
pursue a policy of peaceful coexistence. Socialism excludes 
domination and coercion of one nation by another, and the 
socialist states build their relations with other states on the 
principles of respect for the sovereign rights of all peoples 
and all nations, big or small. Peace is essential for the work- 
ing people in building socialism, and can only be ensured 
by peaceful coexistence of the two systems. 

The opponents of Marxism argue that the socialist coun- 
tries need war with imperialist states, as this, they say, would 
speed up victory of the revolution in capitalist countries. 
This is nothing but slander against the socialist countries and 
socialism. "Perhaps," Lenin wrote in combating Left-wing 
Communists, "the authors (of the resolution of Left-wing 
Communists-Ed.] believe that the interests of the world 
revolution require that it should be given a push, and that 

such a push can be given only by war, never by peace 

Such a 'theory' would be completely at variance with 

1 International Meeting of Communist and Workers' Parties, Mos- 
cow 1969, p. 12. 

2 V. I. Lenin, "Ninth All-Russia Congress of Soviets", Collected 
Works, Vol. 33, p. 155. 



Marxism which has always been opposed to 'pushing' revolu- 
tions, which develop with the growing acuteness of the class 
antagonisms that engender revolutions.” 1 

"Left” revisionists try to represent the policy of peaceful 
coexistence and the struggle for relaxation of international 
tension followed by socialist countries as rejection of the 
class struggle, as a policy of social and economic rapproche- 
ment of the two systems, and as an obstacle to the develop- 
ment of the national liberation movement. Detente, however, 
as was noted at the 25th Congress of the CPSU, "does not 
in the slightest abolish, nor can it abolish or alter, the laws 
of the class struggle. No one should expect that because of 
the detente Communists will reconcile themselves with capi- 
talist exploitation or that monopolists will become followers 
of the revolution.” 2 In reality, in social terms, peaceful 
coexistence is one of the forms of the proletariat's class 
struggle against the bourgeoisie, and a way of solving the 
problem of who will win in the world today. 

The policy of peaceful coexistence does not contradict the 
right of any oppressed people to fight for its liberation by 
any means it considers necessary-armed or peaceful; and it 
has nothing in common with support of reactionary regimes, 
as "leftist” revisionists allege. 

This policy does not mean a weakening of the ideological 
struggle against imperialism. Being directed against the 
instigators of wars, reactionaries and arms monopolies, it is 
in the general interests of the revolutionary struggle against 
all forms of oppression and exploitation, facilitates the 
strengthening of friendship between nations, and the develop- 
ment of fruitful economic, scientific, technical and other forms 
of co-operation between countries with different social systems 
in the interests of social progress. 

At the same time, it blocks imperialism's attempts to 
overcome its internal contradictions by creating international 
tension and kindling hotbeds of military conflict. 

1 V. I. Lenin, "Strange and Monstrous", Collected Works, Vol. 27 
pp. 71-72. 

2 L. I. Brezhnev, Report ol the CPSU Central Committee and the 
Immediate Tasks of the Party in Home and Foreign Policy. 25th Con- 
gress of the CPSU, p. 39. 


The peace policy of the Soviet Union and the whole course 
of events, L. I. Brezhnev has said, are gradually causing the 
capitalist world to recognise the necessity of dealing with the 
socialist states on the basis of peaceful coexistence. The 
principle of peaceful coexistence has become the true force 
of international development. The 25th Congress of the CPSU, 
having noted the successful implementation of the Peace Pro- 
gramme worked out by the 24th Congress, advanced new tasks 
for furthering and developing it. "Struggle to consolidate the 
principles of peaceful coexistence, to assure lasting peace, to 
reduce, and in a longer term to eliminate, the danger of 
another world war has been, and remains, the main element 
of our policy towards the capitalist states." 1 


Since its inception, the general crisis of capitalism has 
passed through two stages and entered a third stage in the 
middle of the 1950s. 

The First Stage 

The first stage of the general crisis of capitalism began 
with the First World War and the October Revolution in 

Even in this stage, although the Soviet Union was under 
constant threat of intervention from the surrounding capi- 
talist world, the advantages of the socialist system, in eco- 
nomic competition with capitalism, were clearly visible. 

By the end of the 1930s, the USSR had been transformed 
from a backward agrarian country into a highly developed 
industrial and agrarian power, with all vitally important 
branches of modern industry at its disposal. 

Industrial production in the USSR, which in 1924-25 was 
a little more than half its pre-war level, by 1940 had 
increased nearly eightfold compared with 1913, and the 

1 Ibid., p. 20. 


output of heavy industry nearly twelvefold. At the same time, 
industrial production increased by 91 per cent, compared 
with 1913, in the USA, by 21 per cent in Great Britain and 
by 11 per cent in France. The share of socialism in world 
industrial output had risen from 3 per cent in 1917 to 10 per 
cent by 1937. 

The crisis of the colonial system of imperialism began in 
the first stage of the general crisis of capitalism. The necessary 
objective and subjective preconditions for struggle for inde- 
pendence had ripened in the colonies and semi-colonies. 
Their own industry had developed, albeit one-sided and 
deformed, national capital had accumulated, and with it a 
national bourgeoisie had taken shape. The interests of the 
national bourgeoisie were frequently at variance with those 
of foreign capital, and the bourgeoisie began, though not 
always resolutely or consistently, to fight against it. The 
development of capitalism in the colonies was also accompa- 
nied by a growth of the numbers and organisation of the 
national proletariat, the most consistent fighter against colo- 
nialism. The proletariat roused and drew the working masses 
into the struggle, above all the peasantry. 

The victory of the socialist revolution in Russia, with its 
many nationalities, and the consequent entry of the Mongo- 
lian People's Republic onto the road to socialism clearly 
showed to the peoples of colonial countries the prospect of 
liberation from imperialist oppression and of solution of the 
national problem on the principle of equality of nations and 
unselfish mutual assistance, which helped to strengthen the 
national liberation struggle in the colonies. 

"After the victory of the October Revolution, a crisis of 
the colonial system of imperialism set in. The Republic of 
Soviets, which had in practice combined the socialist revo- 
lution and the national liberation movement, became an 
example and reliable support for the liberation struggles 
of other peoples." 1 

The most distinctive feature of the national liberation 
movement in that period was that the oppressed peoples not 
only rose up spontaneously against colonialism, but also 

1 On the 50th Anniversary ol the October Revolution, p. 55 (in 


became increasingly aware of the need for and possibility of 
organised struggle. National uprisings took place in Indo- 
China and the Philippines and a stubborn anti-imperialist and 
anti-feudal war developed in China. 

The first stage of the general crisis of capitalism was 
characterised by further intensification of all the contradic- 
tions of capitalism. The inability of the bourgeoisie to make 
full use of the productive forces was revealed, which mani- 
fested itself above all in such new phenomena as chronic 
narrowness of the home market giving rise in turn to chronic 
underutilisation of productive capacities and the rise and 
growth of a permanent army of the unemployed. 

The instability of the capitalist economy became more 
pronounced. In 1921, soon after World War I, the capitalist 
world suffered an industrial economic crisis. In 1920, an 
agricultural crisis set in that continued right up to the out- 
break of World War II. The relative and partial stabilisation 
of capitalism in the mid-1920s did not last long. In 1929, 
the worst and most destructive world economic crisis in the 
history of capitalism set in, followed by an extremely long 
depression. No significant boom succeeded it, as capitalism 
suffered a new economic crisis in 1937, without regaining the 
pre-crisis level of 1928. 

The aggravation of the contradictions of monopoly capi- 
talism was accompanied by its development into state- 
monopoly capitalism, and a further attack by finance capital 
on the working masses, the advent of fascism in a number 
of bourgeois states. 

As a consequence of the unevenness of economic de- 
velopment, the crisis of the capitalist system of world 
economy became more acute. The monopolies in Germany, 
Italy and Japan took' the road of militarising their eco- 
nomies and of preparing for a new imperialist war for 
redivision of the world. Ultimately the development of the 
crisis of the world capitalist economy led to the Second 
World War. 

The Second Stage of the General Crisis 

During the Second World War and the socialist revolu- 
tions in a number of European and Asian countries, the 



second, stage of the general crisis of capitalism devel- 

The victory of the Soviet people in World War II and the 
defeat of the forces of fascism and reaction in Germany, 

Italy and Japan created favourable conditions for the peo- 
ples of a number of countries in Europe and Asia to fight 
successfully against German and Japanese occupation and 
for the triumph of the democratic forces there. The revo- 
lutionary transformation of the world, begun by the October 
Revolution, was continued as a result of the victories of 
socialist revolutions in other countries. Socialism broke out 
of capitalist encirclement and became a world system, which 
was the greatest historical event since the victory of the 
October Revolution. The share of the socialist countries in 
the population of the world rose from 9 per cent in 1937 to 
35 per cent in 1955, and in world industrial output from 10 
per cent to 27 per cent. 

The economies of the socialist countries were character- 
ised in this period by high rates of growth of industrial pro- 
duction, national income and other economic indices. 

The victory of the Soviet Union in World War II created 
favourable conditions for successful development of the . 
national liberation struggle and the liquidation of colonial f 
regimes, and encouraged break-up of the colonial system of 
imperialism. In China, North Vietnam and North Korea, 
socialist revolutions took place and the peoples of these 
countries broke away from the world capitalist system. Sever- 
al other newly-free countries ceased to be reserves of impe- 
rialism and their peoples took the course of anti-imperialist 
struggle, for independent economic development. 

Imperialism, however, American imperialism in parti- 
cular, resorted to new forms of colonialism, to neocolo- 
nialism, entangling a number of developing countries in 
its web. 

The second stage of the general crisis of capitalism was 
characterised by the growing instability of the capitalist econo- 
my. Crises became more frequent in the main country of 
world imperialism, the USA, which suffered three crises in 
1948, 1953 and 1957. In 1948, capitalist agriculture entered 
a new period of extended crisis. 

The sharpening of all the contradictions of the capitalist 


system speeded up the growth of monopoly capitalism in 
the developed imperialist countries into state-monopoly 

The Third Stage of the General Crisis 

of Capitalism 

In the mid-1950s, a new, third stage of the general crisis 
of capitalism began. It was not the result of world war, as 
were the previous stages, but developed in a period of rela- 
tively peaceful coexistence and competition between the two 
systems, when the peace forces were struggling persistently 
for universal peace. This again gives the lie to the bourgeois 
ideologists who claim that the socialist world links the fall 
of capitalism only with wars, in which it is allegedly interest- 
ed as a means of liquidating capitalism and strengthening 
the socialist order. 

Marxism-Leninism proceeds from the idea that the de- 
velopment and deepening of the general crisis of capitalism 
are primarily the result of exacerbation of the internal con- 
tradictions of the capitalist mode of production. 

The following description of the third stage of the general 
crisis of capitalism is given in the Programme of the Com- 
munist Party of the Soviet Union : "The break-away from capi- 
talism of more and more countries; the weakening of impe- 
rialist positions in the economic competition with socialism; 
the break-up of the imperialist colonial system; the inten- 
sification of imperialist contradictions with the development 
of state-monopoly capitalism ,and the growth of militarism ; 
the mounting internal instability and decay of capitalist 
economy evidenced by the increasing inability of capitalism 
to make full use of the productive forces (low rates of pro- 
duction growth, periodic crises, continuous undercapacity 
operation of production plant, and chronic unemployment); 
the mounting struggle between labour and capital; an acute 
intensification of contradictions within the world capitalist 
economy; an unprecedented growth of political reaction in 
all spheres, rejection of bourgeois freedoms and establish- 
ment of fascist and despotic regimes in a number of coun- 
tries; and the profound crisis of bourgeois policy and ideol- 




ogy-all these are manifestations of the general crisis of. 
capitalism Z' 1 

Events have shown the truth of this. The 24th Congress 
of the CPSU paid much attention to analysing present-day 
imperialism and the third stage of the general crisis of capi- 
talism, and its resolution noted that the distinctive features 
of modern capitalism can largely be explained by the fact 
that it is adapting itself to the new situation in the world, 
above all to the conditions of the struggle between the two 
systems and the requirements of the scientific and technical 
revolution. "The attempts of capitalism to adapt itself to the 
new conditions," it said, "do not lead to its stabilisation as 
a social system. The general crisis of capitalism continues to 
deepen." 2 The events of recent years have fully confirmed 

What are the new events in the world, what are the quali- 
tative changes in the development of the contradictions of 
capitalism that arc evidence of the deepening of its general 

(1) The balance of forces between the two competing 
world systems has changed fundamentally in favour of social- 
ism, at the expense of capitalism, and there has been a steady 
weakening in imperialism's position in economic competition 
with socialism, and a further increase in the strength of the 
world socialist system. 

The world socialist system is exerting an increasingly deci- 
sive influence on social development. This does not mean, of 
course, that solution of all the concrete problems facing 
mankind depends solely on the efforts of the world socialist 
system. Dangerous foci of international tension continue to 
exist, and the opposition of the forces of imperialism to the 
easing of international tension has not yet been overcome. 
Fierce class struggle against the forces of imperialism con- 
tinues both on the international plane and within capitalist 
countries. Socialism, however, is constantly gaining new 
victories. Fundamental changes have taken place in Soviet 
society which, as L. I. Brezhnev has noted, "have enabled our 
Party to draw the important theoretical and political conclu- 

1 The Road to Communism , pp. 470-71 

2 24th Congress of the CPSU, Moscow! 19 71, p. 214. 


sion that a developed socialist society has been built in the 
Soviet Union by the selfless labour of Soviet people under the 
leadership of Lenin's Party”. 1 The peoples of other social- 
ist countries are also advancing successfully towards solu- 
tion of this task. 

The further development of socialist integration is also 
evidence of the qualitatively new stage in the development 
of the world socialist system and the strengthening of its 
position in economic competition with capitalism. 

Implementation of the Comprehensive Programme for the 
Further Extension and Improvement of Co-operation and the 
Development of Socialist Economic Integration of the Mem- 
ber Countries of CMEA, approved at the Council's 25th ses- 
sion, is a major contribution to the victory of socialism over 

Strengthening of the position of socialism is also to be 
seen in the expansion of the world socialist system during the 
third stage of the general crisis of capitalism with the addi- 
tion of yet another socialist republic-Cuba. The triumph of 
the Cuban revolution and the successful advance of that 
country along the road of building socialism marked the 
beginning of a new stage in the history of the American 
continent and has raised the prestige of socialism throughout 
the world. 

This gave L. I. Brezhnev grounds to say, at the 25th Con- 
gress of the CPSU : "No impartial person can deny that the 
socialist countries' influence on world affairs is becoming 
ever stronger and deeper." 2 

(2) The third stage and deepening of the general crisis of 
capitalism has been characterised by a new and powerful 
rise of the national liberation movement since the end of the 
1950s and the beginning of the 1960s, as a result of which 
the decline of the imperialist colonial system has been fol- 
lowed by its overthrow everywhere: the colonial empires of 
Great Britain, France, the Netherlands, and now Portugal, 
are breaking up. 

1 L. I. Brezhnev, The 50th Anniversary of the Union of Soviet So- 
cialist Republics, Moscow. 1973, p. 83. 

2 L. I. Brezhnev, Report of the CPSU Central Committee and the 
Immediate Tasks of the Party in Home and Foreign Policy. 25th Con- 
gress of the CPSU, p. 8. 

25 * 



The national liberation movement is increasingly taking 
on an anti-capitalist orientation. "The great Lenin's predic- 
tion that the peoples of the colonies and dependent countries, 
starting with a struggle for national liberation, would go on 
to fight against the very foundations of the system of exploi- 
tation is coming true," it was noted at the 24th Congress 
of the CPSU. "And this, of course, is a heavy blow at the 
positions of capitalism as a whole, as a world social 
system." 1 

In the third stage of the general crisis of capitalism a num- 
ber of newly-free countries have taken the road of non- 
capitalist development. These countries are orienting them- 
selves towards the construction of socialism in the future, and 
have become the front line of the national liberation move- 
ment today. A real possibility has opened up for countries 
that have gained their freedom to come to socialism, bypas- 
sing capitalism. 

(3) The present stage of the general crisis is characterised 
by further strengthening of the state-monopoly nature of 
modern capitalism and intensification of all its economic and 
social contradictions. 

The capitalist economy has become even more unstable. 
In the third stage of the general crisis the capitalist world 
experienced two deep world economic crises between 1957 
and 1961, 1969 and 1971. The new crisis of overproduction 
that developed in 1974-75 has proved to be the worst and 
deepest since the beginning of the 1930s, and has affected all 
the main centres of the world capitalist economy and all 
spheres of life in capitalist society. It has been interwoven 
with the crisis of the capitalist monetary and financial system, 
and the fuel and raw materials crises, and is accompanied by 
galloping inflation and a sharp deterioration in the condi- 
tion of the workers. The unevenness of development has 
become more pronounced, which has led to extreme sharp- 
ening of inter-imperialist contradictions and to the forma- 
tion of three imperialist centres competing among them- 
selves (the USA, the Common Market and Japan). 

The decay of imperialism is deepening and is manifested 
especially in the unprecedented growth of militarisation and 

1 24th Congress ol the CPSU, p. 25. 



intensification of monopoly exploitation and oppression, not 
only of the working class but of all non-monopolistic strata 
of the nation. Social contradictions have become acute in the 
extreme and the class struggle threatens the existence of 
capitalism as a whole, as a social system. 

As was noted at the 25th Congress of the CPSU, "it is 
farthest from the Communists' minds to predict an 'automatic 
collapse' of capitalism. It still has considerable reserves. Yet 
the developments of recent years forcefully confirm that capi- 
talism is a society without a future." 1 

(4) The present stage of the general crisis of capitalism is 
characterised by a further decline in bourgeois politics and 
ideology. The internal policies of the modern bourgeois state 
are becoming more and more reactionary and anti-popular. 
The ideologists of capitalism are unable to come up with any 
ideas that can stand up against the ideals of socialism and 
inspire people to implement them in daily life. This is why 
bourgeois ideology, unable to explain the growing contra- 
dictions of capitalism, resorts increasingly to bare-faced anti- 

The foreign policies of imperialism are also in acute cri- 
sis. A clear indication of this is more than ten years of 
criminal aggression in Vietnam, which ended in defeat of the 
aggressor. Evidence of the crisis of bourgeois policies is the 
sense of outrage of all world opinion at reactionary impe- 
rialist circles' support of Israel's aggression in the Middle 
East, and the collapse of attempts to establish an order in 
newly-free Angola to suit the imperialists. The crisis of 
bourgeois policy stands out particularly clearly against the 
background of successful implementation of the Peace Pro- 
gramme adopted by the 24th Congress of the CPSU. 


The main feature of the third stage of the general crisis of 
capitalism is that the world socialist system, in strengthening 

i L I Brezhnev Report ol the CPSU Central Committee and the 
Immediate Tasks of the Party in Home and Foreign Policy. 25th Con- 
gress of the CPSU, p. 34. 



its economic power, is fighting successfully for victory over 
capitalism in the most important sphere of the life of human 
society, i.e. material production, 

Lenin foresaw that the countries of victorious socialism 
would have the greatest effect on the world revolution through 
their economic construction. 

"We are now exercising our main influence on the in- 
ternational revolution through our economic policy," he said 
in his closing speech to the Tenth All-Russia Conference of 
the RCP(B) in 1921. "The struggle in this field has now 
become global. Once we solve this problem, we shall have 
certainly and finally won on an international scale. That is 
why for us questions of economic development become of 
absolutely exceptional importance." 1 In today's conditions 
the perspicacity of Lenin's forecast was confirmed by the 
International Meeting of Communist and Workers' Parties in 
1969 which stated that "the contribution of the world social- 
ist system to the common cause of the anti-imperialist forces 
is determined primarily by its growing economic potential". 2 

The world socialist system still has no absolute prevalence 
in world industrial output, but its share is increasing year 
by year. While the socialist countries produced less than 20 
per cent of world industrial output in 1950, they produced 
more than 40 per cent in 1975, CMEA countries accounting 
for around a third of world production. Comparison of the 
strongest powers of the world systems, the USSR and the USA, 
shows that the Soviet economy has achieved tremendous suc- 
cess in competition with the US economy. In 1913, the 
industrial production of tsarist Russia was only 12.5 per cent 
that of the USA. In 1975, the volume of industrial output in 
the USSR was already more than 80 per cent of the US level. 
The USSR has taken first place in the world in the extraction 
of oil, coal, and iron ore, in the smelting of pig iron and 
steel, in the production of fertilisers, diesel and electric 
locomotives, tractors, cement, prefabricated reinforced con- 
crete modules, woollens, leather footwear, sugar, animal fats, 
etc. And all this, despite the enormous losses it suffered 

1 V. I. Lenin, Collected Works, Vol. 32, p. 437. 

- International Meeting of Communist and Workers’ Parties , Mos- 
cow 1969, p. 22. 



during the two world wars, while the economy of the USA, 
far from suffering as a result of the wars, actually grew 
extraordinarily rapidly during these periods. 

The socialist world left the capitalist economic system 
behind long ago in terms of the rate of growth of industrial 
production. In the quarter of a century from 1950 to 1975, 
the total volume of the socialist countries' industrial pro- 
duction rose elevenfold or 1,000 per cent, while the corre- 
sponding figure for the developed capitalist countries was 
210 per cent. In 1975, industrial production in CMEA 
countries increased by 8.5 per cent, while it fell by more 
than 8 per cent in the six largest capitalist countries. As the 
25th Congress of the CPSU noted: "The socialist community 
has now become the world's most dynamic economic force. 
In the past five years the industry of its member countries 
grew four times as swiftly as that of the developed capitalist 
states. In 1975 the industrial output of the countries of our 
community was more than double that of the Common 
Market countries." 1 

An important indicator of economic development is the 
level of labour productivity. According to this index, the 
countries of the world socialist system are still behind the 
highly developed capitalist countries. Labour productivity 
in the industry of the USSR, for example, was 55 per cent of 
the American level in 1975 and in agriculture was even 
lower. But the rate of growth of labour productivity in the 
USSR now considerably exceeds that in the USA; over the 
period 1951-75, the mean annual rate of increase in the labour 
productivity in the USSR's industry was 6.2 per cent, while it 
was 3.2 per cent in the USA. 

The most general index of economic growth is the increase 
in national income. In volume of national income per capita, 
the socialist countries are still behind the mostly developed 
capitalist countries. The national income of the USSR, for 
example, was somewhat over 66 per cent of the US level in 
1975. In terms of rate of growth of national income, how- 
ever, the socialist countries far outstrip the developed 

1 L. I. Brezhnev, Report of the CPSU Central Committee and the 
Immediate Tasks of the Party in Home and Foreign Policy, 25th Con- 
gress of the CPSU, p. 12. 



capitalist countries. Its average annual increment was 8.1 
per cent in the USSR in 1951-75, and only 3.1 per cent 
in the USA. 

With every passing year, socialism is strengthening its 
position in the main fields of scientific and technical progress. 
New natural sources of energy are being explored, nuclear 
power stations are being built, research is being carried out 
into automatic and telemechanic systems and new polymers 
with pre-set characteristics are being introduced into pro- 
duction. The USSR is achieving great successes in the explora- 
tion and mastery of space. 

"The swift economic development of the countries belong- 
ing to the socialist system at rates outpacing the economic 
growth of the capitalist countries, the advance of socialism 
to leading positions in a number of fields of scientific and 
technological progress, and the blazing of a trail into outer 
space by the Soviet Union," said the 1969 International 
Meeting of Communist and Workers' Parties, evaluating the 
success of the world socialist system in the struggle between 
the two opposing social systems, "all these tangible results, 
produced by the creative endeavours of the peoples of the 
socialist countries, decisively contribute to the preponderance 
of the forces of peace, democracy and socialism over 
imperialism." 1 

Even official bourgeois politicians and economists have to 
admit that capitalism is not winning in the competition 
between the two world systems. 

The successes of socialism in the sphere of material pro- 
duction are the main way in which socialism is being trans- 
formed into the decisive factor in mankind's development. 

The effect of socialism on capitalism is to be seen in the 

(1) As a consequence of countries breaking away from 
capitalism and setting out on the road to socialist develop- 
ment, the sphere of capitalist exploitation is shrinking. 

(2) The very fact of the existence and growing strength 
of the world socialist system revolutionises the thinking of 
the working people and creates favourable conditions for 

1 International Meeting ot Communist and Workers' Parties, Mos- 
cow 1969, p. 22. 



the struggle of the working class and other working people 
for their emancipation. 

The successes of socialism in raising the standard of living 
of the working people, the better satisfaction of their mate- 
rial, cultural and spiritual needs, and the development of 
socialist democracy serve as an inspiring example for the 
struggle of the working masses in capitalist countries and at 
times compel the bourgeoisie to make concessions to the 
working class. 

(3) The world socialist system is a powerful support for 
peoples rising in revolutionary struggle against imperialism, 
countering the export of counter-revolution. Countries fight- 
ing against colonialism rely in their struggle on the moral, 
political and material support of the world socialist system. 

(4) The unselfish economic, scientific and technical assis- 
tance of the world socialist system eases the struggle of the 
peoples of developing countries against neocolonialism, 
deprives imperialists of the opportunity to dictate one-sided 
conditions to them, and helps them to overcome their back- 
wardness and gain economic independence. 

Friendly relations of ncwly-free countries with the world 
socialist system make their advance along the non-capitalist 
path a real possibility. 

(5) The world socialist system is exerting an ever increas- 
ing influence on the development of international relations. 
Imperialist powers are no longer in a position to dictate their 
policies to the world. The possibility has emerged for the 
united efforts of the world socialist system and the forces of 
peace and democracy to block the course of imperialist 
aggression and prevent the unleashing of a new world war. 

At the 25th Congress of the CPSU, L. I. Brezhnev had this 
to say about the advantages of socialism and its significance 
for the fate of humanity: "Already today socialism exercises 
a tremendous influence on the thinking and sentiment of 
hundreds of millions of people all over the world. It assures 
working people freedom, truly democratic rights, well-being, 
the broadest possible access to knowledge, and a firm sense 
of security. It brings peace, respect for the sovereignty of all 
countries and equal interstate co-operation, and is a pillar 
of support to peoples fighting for their freedom and indepen- 
dence. And the immediate future is sure to provide new 



evidence of socialism's boundless possibilities, of its histori- 
cal superiority over capitalism .” 1 
The advantages of the socialist system over the capitalist 
system in all fields of human activity and, above all, in 
economics, have now become so evident that the ideologists 
of the bourgeoisie are no longer in any position to deny 
them. Bourgeois economists, therefore, now loudly proclaim 
the so-called convergence theory, according to which there 
is supposedly a social and economic rapprochement taking 
place between the socialist and capitalist economies. Similar 
views have also been expressed by revisionist "theoreticians” 
such as Roger Garaudy, Ota Sik and Ernst Fischer. They 
claim that processes arc taking place in both capitalist and 
socialist countries, as a result of which some new sort of 
social system is supposedly emerging, negating both the 
present capitalist and socialist systems. 

The bourgeois ideologists and their revisionist lackeys, 
however, ignore a most important fact here, that the econom- 
ic foundation of socialism is social ownership of the means 
of production, which excludes the possibility of exploitation 
of man by man, and predetermines the whole complex of 
production relations and economic laws which are new and 
principally different from the capitalist ones. 

As for capitalist society, processes are taking place in all 
spheres of it at present that are evidence of a further develop- 
ment of the general crisis of capitalism. Considering the 
aggregate of all the crisis processes that have become more 
and more acute in recent years, one cannot avoid the inevita- 
ble conclusion that a further deepening of the general crisis, 
and a certain qualitative shift in its development, have been 
taking place in the capitalist world during its third stage. 

1 L. I. Brezhnev, Report ot the CPSU Central Committee and the 
Immediate Tasks of the Party in Home and Foreign Policy. 25th Con- 
gress ot the CPSU, pp. 13-14. 

Chapter 14 



Present-day capitalism, while not changing its essence and 
remaining monopoly capitalism, has, at the same time, ac- 
quired certain new features compared with the beginning of 
the century. In particular its state-monopoly character has be- 
come more pronounced. 

Considerable attention was paid at the 24th and 25th 
Congresses of the CPSU to analysing state-monopoly capital- 
ism. Emphasis was laid on the point that "the features of 
contemporary capitalism largely spring from the fact that it 
is trying to adapt itself to the new situation in the world”, 1 
i.e. to the struggle between the two systems and the develop- 
ing scientific and technical revolution. The 1969 International 
Meeting of Communist and Workers' Parties also devoted 
much attention to this. 

The development of the productive forces is inevitably 
accompanied by the social nature of production becoming 
more pronounced, but under capitalism, particularly in its 
present stage, the process becomes very distorted and is 
characterised by extreme intensification of all the social contra- 
dictions of imperialism. 

Growth of the social nature of production is seen in the 
increasing concentration, specialisation and interdependence 
of the different branches of the economy. In developing Karl 
Marx's teaching on this question Lenin wrote: "The sociali- 
sation of labour by capitalist production does not at all con- 
sist in people working under one roof (that is only a small 
part of the process), but in the concentration of capital being 
accompanied by the specialisation of social labour, by a 

1 24th Congress ol the CPSU, p. 20. 


decrease in the number of capitalists in each given branch 
of industry and an increase in the number of separate branches 
of industry-in many separate production processes 
being merged into one social production process. . . . Yet 
each branch is conducted by a separate capitalist, it depends 
on him and the social products are his private property. Is it 
not clear that the form of production comes into irreconcil- 
able contradiction with the form of appropriation? Is it not 
evident that the latter must adapt itself to the former and 
must become social, that is, socialist?" 1 

The capitalist socialisation of production, noted by Lenin 
more than eighty years ago, has now acquired enormous 
scale. The contemporary scientific and technical revolution 
is accompanied by an unprecedented increase in the con- 
centration and centralisation of capital, development of the 
social division of labour, and growth of the social character 
of production. There has also been further development in 
the international division of labour, embracing not only 
different branches of the economy of any particular impe- 
rialist nation but also the world economy as a whole. The 
economic links between the different undertakings and 
branches of production and between countries and continents 
have become more extended and interwoven. 

The scientific and technical revolution is bringing more 
and more new industries into existence and fundamentally 
altering the structure of industry and its energy and raw 
material base. Unprecedented opportunities for mastering 
nuclear power, the resources of the world ocean, and outer 
space have opened up before mankind. 

Present-day capitalism is characterised by a rapid develop- 
ment of the new, sophisticated branches of the economy, i.e. 
electricity generation, the chemical and petrochemical in- 
dustries, engineering and instrument-making (particularly 
electronics) providing the basis for technical progress in all 
other branches of the capitalist economy. 

Overall industrial production increased 2.8 times in devel- 
oped capitalist countries from 1950 to 1970, but the power 
industry grew o . 7 times. Generation of electricity grew parti- 

1 V. I. Lenin, What the 'Friends of the People' Are and How Thev 
Fight the Social-Democrats”, Collected. Works, Vol. 1 , pp. 175.76, 177. 



cularly rapidly. The role of nuclear power stations in the pro- 
duction of electricity is increasing, their share in the total ele- 
ctricity output is expected to rise from 4.3 per cent in 1970 to 
29 per cent by 1980. The weight of the chemical industry in the 
total volume of industrial production of the developed capit- 
alist countries rose from 9.6 per cent in 1950 to 16 per cent in 
1970. The increased importance of this industry was accom- 
panied by a marked change in the raw material basis of indus- 
try. The role of natural raw materials has declined and, 
consequently, the weight of the extractive industries has also 
fallen from 9.5 per cent of the total of industrial production 
in developed capitalist countries in 1950 to 5.4 per cent in 
1970. At the same time, however, there has been absolute 
growth in the oil and gas industries, their share in the total 
output of the extractive industries of these countries having 
risen from 25 to 44 per cent. 

The creation of new branches of production has necessi- 
tated enormous investment in research and development 
(R&D). Most research is carried out in private laboratories and 
research centres, but monopolies now also make extensive 
use of state funds to finance them. The share of the state in 
R&D expenditure is 63-64 per cent in the USA, 63 per cent 
in France and 57 per cent in Britain. Most scientific research 
work is concentrated in the aerospace, electronics, electrical 
engineering and chemical industries and is military in charac- 
ter, with only a quarter of the expenditure being devoted to 
research connected with the development of peaceful branches 
of the economy. 

Not only does the capital belonging to an individual entre- 
preneur often prove insufficient to find solutions to a number 
of scientific and technical problems connected with production, 
but also that of the biggest joint-stock companies. What is 
required is the combining of capital on a national scale and 
sometimes (as, for example, with the production of nuclear 
power by West European countries) the joint participation of 
capital of a number of countries. All this speeds up the con- 
centration and centralisation of capital, increases specialisa- 
tion of production and promotes further development of the 
social nature of production. 

The unprecedented growth of the social nature of produc- 
tion, while private capitalist property remains intact. 



aggravates the conflict between the modern productive forces 
and capitalist production relations to the limit, intensifies the 
contradiction between labour and capital, and speeds up 
the development of state-monopoly capitalism. 


Contemporary imperialism is characterised by the develop- 
ment of monopoly capitalism into state-monopoly capital- 

The essence of state-monopoly capitalism was first dis- 
closed by Lenin, who coined the term for this phenomenon. 
Speaking at the April Conference of the RSDLP in 1917, 
Lenin said: "The concentration and internationalisation of 
capital are making gigantic strides; monopoly capitalism is 
developing into state-monopoly capitalism. In a number of 
countries regulation of production and distribution by society 
is being introduced by force of circumstances." 1 

In the Programme of the CPSU it is defined as follows on 
the basis of Lenin's description and taking account of present 
developments: "State-monopoly capitalism combines the 

strength of the monopolies and that of the state into a 
single mechanism whose purpose is to enrich the monopo- 
lies, suppress the working-class movement and the national- 
liberation struggle, save the capitalist system, and launch 
aggressive wars." 2 

In the first two stages of the general crisis of capitalism, 
the strengthening of state-monopoly capitalism took place 
mainly during wars or economic crises. In the present stage, 
the monopolistic bourgeoisie is compelled to make extensive 
use of the methods of state-monopoly capitalism as a "nor- 
mal" means of maintaining their dominance. 

The growth of monopoly capitalism into state-monopoly 
capitalism has been accelerated since the Second World War, 

1 V. I. Lenin, “The Seventh (April) All-Russia Conference of the 
R.S.D.L.P.(B.)", Collected Works, Vol. 24, p. 305. 

2 The Road to Communism , p. 471. 



stimulated by a number of internal and external factors. 

The main objective economic basis for this process is the 
further growth of the social nature of production, the con- 
centration and centralisation of capital, and strengthening of 
the dominance of monopolies in the economies of imperialist 

In recent years, an unprecedented wave of mergers and 
take-overs of joint-stock companies, and centralisation of 
capital and production has been taking place in the capi- 
talist world. With the decrease in the number of giant monopo- 
lies, their economic and political sway increases. 

It is easier for a group of monopolies, small in number 
but great in economic power, to dictate to the contemporary 
bourgeois state, exert a decisive influence on its policies and 
turn it into an obedient instrument. 

The development of state-monopoly capitalism is also 
accelerated by the scientific and technical revolution, which 
requires centralisation of capital on a national scale. The 
bourgeois state, accumulating a significant share of the nation- 
al income in the state budget through the taxation system, 
sets up state enterprises with the tax-payers' money that are 
necessary for the functioning of private capital, but in which 
capitalists will not risk investing. 

When the amount of national capital proves insufficient, 
it becomes centralised on an international scale. The West 
European monopolies, for example, have combined their 
efforts and those of their states, to develop and utilise nuclear 
energy within the framework of Euratom. 

State-monopoly capitalism, thus, reflects the development 
of the social nature of production on both a national and an 
international scale. The socialisation of production is reach- 
ing its upper limit, and reflects the overripe state of capi- 
talism and the urgent need for its revolutionary overthrow 
and the transition to socialism. Social production by its very 
nature objectively requires all members of society to be 
subordinated to its interests and the establishment of social 
management and control. "Capitalism in its imperialist 
stage," as Lenin wrote, "leads directly to the most comprehen- 
sive socialisation of production; it, so to speak, drags the 
capitalists, against their will and consciousness, into some sort 
of a new social order, a transitional one from complete free 



competition to complete socialisation ." 1 That is the objective 
basis of why the bourgeois state is ultimately compelled to 
"regulate" the capitalist economy in some way or other. 

One of the reasons for the growth of state-monopoly 
capitalism is the sharpening of class contradictions. The 
intensification of exploitation by monopoly capital not only 
of the working class but also of other strata of working 
people calls forth resistance to its oppression from the broad- 
est strata of the nation. Under these conditions, strikes 
become both political and national in character. The monopo- 
lies themselves no longer have the strength to cope with the 
mass resistance of the working people. They, therefore, 
increasingly resort to the power of the bourgeois state in 
this battle. The bourgeois state "regulates" relations between 
labour and capital in the interest of the monopolies, adopt- 
ing anti-labour laws of every kind, making strikes illegal 
and encouraging strikebreaking, "freezing" of wages, 
and so on. 

The development of monopoly capitalism into state-mono- 
poly capitalism is also explained by changes in the interna- 
tional position of the imperialist countries. Capitalism has 
already ceased to be the all-embracing and all-determining 
economic system. The world socialist system has emerged and 
is developing, which, by demonstrating the economic and 
political superiority of socialism, is exerting an ever increas- 
ing influence on the development of mankind. At the same 
time, "the fact that imperialism has no historical prospects 
becomes even more obvious ”. 2 In order to hold its own in 
economic competition with socialism, monopoly capital has 
to resort to the combined force of the monopolies and state 
apparatuses of a number of countries. To this end, it uses 
capitalist integration, setting up multistate monopoly organi- 
sations like the European Economic Community (the Com- 
mon Market), the European Free Trade Association, and 
others. ^ 

The development of state-monopoly capitalism on the 
international plane 7 is also largely connected with the disin- 

1 V. I. Lenin, "Imperialism, the Highest Stage of Capitalism”, Col- 
lected Works, Vol. 22, p. 205. 

2 24th Congress ol the CPSU, p. 214. 



tegration of the colonial system. The break-up of old colonial 
empires has prompted the imperialists to combine the efforts 
of their governments to maintain the remnants of colonialism 
and to spread it in new forms, a goal served, for example, 
by the Eurafrica agreement, by which the monopolies of the 
countries of the Common Market are endeavouring to main- 
tain their colonial positions in the newly-free countries of 

The formation of inter-state monopoly organisations has 
also been encouraged by the increasingly uneven develop- 
ment of capitalism since World War II. The monopolies are 
striving to use the state to strengthen the competitiveness 
of their national imperialism in the struggle for foreign 
markets and spheres of capital investment and economic 

State-monopoly capitalism is neither something new in 
comparison with the monopoly stage of capitalism, nor 
"super-imperialism". The new features of contemporary 
capitalism are the result of further development of the social 
nature of production and the strengthening of dominance of 
monopolies in economics and politics. Docs that mean, how- 
ever, that the development of productive forces and the 
growth of the social nature of production must necessarily 
lead to the rise of state-monopoly capitalism? The answer 
to that question must be in the negative. 

The contemporary social productive forces call for social 
management of production in the interests of the producers 
themselves. That is to say they call for the transition to so- 
cialism. This transition, however, will not take place automati- 
cally as a result of the growth of the social character of 
production; for the transition from capitalism to socialism 
to take place there must be a revolutionary change in social 
relations, i.e. establishment of the dictatorship of the prole- 
tariat and socialist nationalisation of the means of production. 

Objectively, the capitalist world as a whole has long been 
ripe for the proletarian revolution, but the subjective precon- 
ditions for it in the different countries do not yet exist and 
cannot be created simultaneously. In countries in which the 
proletarian revolution has been delayed for one reason or 
another, the domination of monopoly capital leads with 
objective inevitability to the development of monopoly 




capitalism into state-monopoly capitalism. The economic 
advantages obtained in these circumstances as a result of the 
development of the social nature of production are employed 
by the monopolies for their own selfish ends at the expense 
of the working masses. 

As the state-monopoly character of contemporary capital- 
ism is more pronounced, all its contradictions become more 
acute. In his speech at the 1969 International Meeting of 
Communist and Workers' Parties, L. I. Brezhnev noted: 
"Massively socialising production and centralising its man- 
agement, state-monopoly capitalism is carrying to extremes 
the basic contradiction of the bourgeois system, the contra- 
diction between the social nature of production and the 
private appropriation. The unnatural character of the situa- 
tion in which production complexes, some of which serve 
more than one country, remain the private property of a 
handful of millionaires and billionaires is becoming increas- 
ingly evident to the peoples. The need for replacing capital- 
ist by socialist relations of production is becoming ever 
more pressing.” 1 


State-monopoly capitalism has its own distinctive features 
in each imperialist country, depending on the concrete his- 
torical internal and external conditions of its development. 
But for all that, we can distinguish basic forms or lines of 
development of state-monopoly capitalism common to the 
majority of imperialist countries. 

In order to envisage the concrete forms in which the essence 
of state-monopoly capitalism is expressed, we must first 
clarify what effect state intervention has on contemporary 
imperialism's whole system of production relations, that is, 
on the relations pertinent to the ownership of the means of 
production, distribution, exchange and consumption of the 
social product. That will enable us to explain what new 
features the system of state-monopoly capitalism introduces 

1 L. I. Brezhnev, Following Lenin’s Course, Moscow, 1972, p. 159. 



into the internal structure of capitalism and to what extent 
it modifies the production relations of the capitalist mode 
of production. At the same time, we must also consider the 
new features state intervention introduces into international 
economic relations and the world capitalist economic system. 
Taking all that into account, the following main lines of 
development of the system of state-monopoly capitalism may 
be mentioned : 

entrepreneurial activity by the bourgeois state, seen pri- 
marily in the growth of state or national monopoly owner- 
ship of a certain share of the means of production and social 
wealth ; 

state programming and regulation of the economy both 
direct and centralised and indirect by way of redistribution 
of the national income through the state budget, the credit 
and financial system, and the policy of prices; 

state regulation of relations between the entrepreneurs 
and the working people; 

state consumption of the final social product, mainly in 
the form of state military purchases and orders, and develop- 
ment of militarisation of the capitalist economy; 

support for and financing by the bourgeois, state of the 
external economic expansion of monopoly capital and neo- 

the creation of inter-state monopoly alliances, conclusion 
of agreements, and the development of imperialist integra- 
tion as an instrument in the struggle for economic and ter- 
ritorial redivision of the world. 

Finally, the system of state-monopoly capitalism is fur- 
thered by continued development of personal unions between 
the representatives of monopoly capital and their alliances 
with bourgeois governments. 

State-Monopoly Ownership 

The most important form of the development of state- 
monopoly capitalism is direct intervention of the bourgeois 
state in the property relations pertinent to the means of 
production, which finds expression in the development of 
entrepreneurial activity by imperialist states, in growth of 

20 * 


the state sector of the economy, and in an increase of state 
or national monopoly ownership. 

In the countries of monopoly capital, from 15 to 25 per 
cent of the national wealth belongs to the state, which not 
only owns separate enterprises, but also whole industries 
(e.g. communications, transport, electricity generation, gas 
industry, coal mining, credit and financial institutions, and 
the like). 

In Great Britain, the coal industry, the railways, the gas 
industry and the generation of electricity are concentrated 
in the hands of the state. About 20 per cent of all industrial 
and office workers are employed in state enterprises. 

In France, the state sector produces about 15 per cent 
of the gross national product; 80 per cent of the aircraft 
industry and almost the whole coal industry and generation 
of electricity are concentrated in the hands of the state. 

In West Germany, around 25 per cent of all share capital 
is under state control, including a considerable share of the 
mining of aluminium, iron ore and coal, railway transport 
and the generation of electricity. 

In several West European countries, state-monopoly 
ownership is the result of nationalisation of certain branches 
of industry, carried out by bourgeois governments influenced, 
on the one hand, by the demands of the popular masses 
and, on the other hand, by the interests of a certain section 
of the monopolistic bourgeoisie, whose enterprises were close 
to bankruptcy. 

In certain countries, state ownership is the result of state 
capital investment in industries of great economic and strate- 
gic significance, but requiring large expenditure and a certain 
risk. Private monopolies are frightened to invest their own 
capital in these industries, since the investment may not in 
the first instance be profitable. That, for example, is how the 
atomic industry was set up in the USA. 

In all imperialist countries, state property is employed in 
the interests of private monopolies. The management of state 
enterprises presents them with golden opportunities as it is 
exercised, as a rule, by supervisory boards, consisting of 
representatives of monopoly capital. 1 These boards decide the 
financial p olicy of the enterprises, including the selling 
1 The British trade union secretary Clive Jenkins, in his Power at 




prices of their output. In that way, the private monopolists 
get the chance to buy commodities important to them (coal, 
electricity and gas) at low wholesale prices and to enjoy 
subsidised railway rates for freight, which enables them to 
reduce costs of production and increase their profits. When 
power stations were nationalised in France, for example, the 
working people expected the price of electricity to be re- 
duced. Charges for the domestic use of electricity, however, 
remained high, but the price of electricity for the major 
monopolies was fixed at between 5 and 10 per cent of the 
price paid by the domestic consumer. As a result, the steel 
and chemical monopolies in France received thousands of 
millions of francs net profit. The surplus value created by 
the workers in state enterprises finds its way into the pockets 
of the private monopolists. The rate of profit for private mo- 
nopolies, therefore, significantly exceeds that of state enter- 
prises. The average profits of private monopolies in Great 
Britain, for example, are about 16 per cent, while that for 
state power stations does not exceed 5 per cent and for 
British railways is only 0.2 per cent. 

The defenders of capitalism try to present state-monopoly 
property as a variety of public socialist property. In fact, 
however, it is the joint corporate property of the monopo- 
listic bourgeoisie, since it is used in their interests and for 
their profit. Such a situation is inevitable under the political 
dominion of the financial oligarchy. The essence of the rela- 
tions of production remains capitalist. Only a certain modifi- 
cation of these capitalist relations takes place. The working 
class is no longer opposed by the individual capitalist or 
joint-stock company, but by monopoly capital as a whole 
and its board of management, the bourgeois state. Monopoly 
capital now exploits the working class by using the bourgeois 
state machinery. The description of state ownership given 
by Frederick Engels in Anti-Diihring is fully applicable to 

the Top qave the following interesting data on the composition of 
the management of eight state monopolies in Great Britain. Of the 
27-y members of the management boards, only 47 were representa- 
tives of trade unions and the Labour Party, while 106 were at the same 
time directors of large private companies. Forty-nine of the director- 
ships in The state monopolies were held by representatives of the 38 
largest insurance companies, while another 31 were held by represen- 
tatives of 18 banks. 



state-monopoly ownership. "But the transformation, either 
into joint-stock companies [and trusts]," he wrote, "or into 
state ownership, does not do away with the capitalistic nature 
of the productive forces. . . . The modern state, no matter 
what its form, is essentially a capitalist machine, the state of 
the capitalists, the ideal personification of the total national 
capital. The more it proceeds to the taking over of the pro- 
ductive forces, the more does it actually become the national 
capitalist, the more citizens does it exploit. The workers 
remain wage-workers-proletarians. The capitalist relation is 
not done away with. It is rather brought to a head." 1 

The bourgeoisie, it must be emphasised, only resorts to 
nationalisation to a certain limit. During cyclical upswings 
in industry and favourable market conditions, the monopo- 
listic bourgeoisie strives to regain as private property certain 
of the enterprises that had previously been nationalised and 
opposes further development of nationalisation. 

While unmasking the exploitative essence of state- 
monopoly ownership, the working class and Communist and 
Workers' parties, at the same time, oppose any "denationali- 
sation" (return to private ownership) of state enterprises. 
It is easier to establish democratic control in state enterprises 
than in private ones, and easier to win a certain im- 
provement in working conditions. State ownership to some 
extent serves as a barrier to the infiltration of foreign capital 
into the economy. The programmes of most Marxist-Leninist 
parties in capitalist countries include demands for nationali- 
sation, which would be accompanied by the establishment 
of democratic control over the activities of the nationalised 

State Programming and 
Regulation of the Economy 

Such forms of state-monopoly capitalism as forecasting, 
programming and regulation of economic affairs through 
the state budget and the state finance and credit system 
have developed significantly. 

1 Frederick Engels, Anti-Duhting, pp. 330-31. 



In most imperialist states, special organs have been set 
up to programme the economy. In France, there is the 
Commissariat of the Plan for the Modernisation and Equip- 
ping of the French Economy, and in Great Britain the 
National Economic Development Council, and so on. The 
programming, however, is rather limited. "Plans" are pri- 
marily recommendations and are only compulsory for state 
enterprises. They do not, as a rule, cover the whole economy, 
but generally the railways, power, geological prospecting, 
scientific research and certain other branches of the economy, 
in the development of which monopoly capital as a whole 
is interested. 

Since direct regulation of the economy cannot be effective 
given the predominance of private ownership of the means 
of production, bourgeois states often resort to indirect 
methods of regulation, primarily by redistributing the 
national income through the state budget, the system of 
prices, the monetary and credit system. At the beginning of 
the century, the budgets of imperialist countries accumulated 
between 3 and 5 per cent of the national income. At the 
present time, between 26 and 55 per cent of the national 
income is drawn into the state budget through taxes. The 
main source of budget revenues are taxes from the working 
people, who provide from 70 to 85 per cent of all tax reve- 
nue. Another major source of revenue is state loans, i.e. 
bonds that are primarily floated among the major groups 
of financial capitalists and bring them high guaranteed 
interest. 1 

The main items of expenditure are direct and indirect 
military spending. In the USA, they constitute the bulk 
of all federal budget expenditure. Considering that mili- 
tary orders and credit for arms production go primarily to 

1 This is one of the causes of the imperialist countries' growing 
indebtedness. In the USA, for example, the national debt up to the 
Second World War was around 1,000 million dollars; by April 1975, 
it had risen to 538,500 million dollars. Very high guaranteed interest 
is usually paid on state loans. In the 1974/75 fiscal year, total payments 
were 33000 million dollars. The funds for paying this interest are 
extracted by increasing the tax burden on the working people and by 
inflation. That is why Lenin considered loans as a covert form of 



the biggest arms monopolies, it is quite clear that the state 
budget is used mainly to enrich the upper echelons of the 
financial oligarchy. 

The economy is also "regulated” by means of other finan- 
cial levers. The policy of so-called accelerated depreciation 
is of particular interest. Laws on accelerated depreciation 
were passed in the USA at the beginning of the 1960s and 
an extremely short depreciation period of two or three years 
was established for a number of industries (mainly in the 
arms and export industries). Since, in practice, the wear of 
fixed capital takes considerably longer, this law gave monopo- 
lies the chance to conceal a significant share of their profits 
from the tax authorities, by putting them down as deprecia- 
tion allowances not subject to taxation. Because of this law, 
the monopolies avoid paying thousands of millions of dol- 
lars annually into the US budget. In Japan, the monopolies 
in certain industries, on which the competitiveness of Japa- 
nese imperialism on foreign markets depended, were totally 
exempted from taxation. 

In connection with the broad development of program- 
ming and regulation of the economy, the opinion is gaining 
currency that contemporary capitalism has allegedly over- 
come its tendency to anarchy and that the trend towards 
planned and proportional development predominates under 
the conditions of state-monopoly capitalism. Present-day 
pipitalism, however, though it has achieved certain success 
in planned organisation of production in individual enter- 
prises and even within monopoly conglomerates, cannot 
overcome the anarchy of production on the scale of a 
whole country, let alone of the world capitalist economic 

State-monopoly regulation is carried out in the interests 
of monopoly capital, and it is in no position to curb the 
spontaneous forces of the capitalist market. Clear confirma- 
tion of this is the economic crisis of 1974-75 which affected 
the highly developed state-monopoly economy most of all. 

Capitalism did its utmost, so to speak, to keep in step with 
the times," L. I. Brezhnev said at the 25th Congress of the 
CPSU, to apply various methods of economic regulation. 
This made it possible to stimulate economic growth, but, as 




the Communists foresaw, it could not remove the contradic- 
tions of capitalism." 1 

Capitalist ownership of the means of production is the 
main obstacle to planned, balanced development of the 
economy, which is precisely what excludes the possibility 
of subordinating social production to satisfying the needs 
of all members of society, and what gives rise to impoverish- 
ment of the masses and the lag of the working people's 
purchasing power behind the growth of production. It also 
leads to imbalance in social production and intensification 
of the contradiction between production and consumption, 
and ultimately to economic crises of overproduction. 

The facts confirm Lenin's thesis that "the trusts, of course, 
never provided, do not now provide, and cannot provide 
complete planning". 2 

Bourgeois politicians and economists themselves are 
now forced to admit the limited nature of capitalist 

State Regulation of Relations 
between Employers and Workers 

The bourgeois state "regulates" the relations between 
employers and workers in the interests of monopoly capital. 

Bourgeois governments in imperialist countries arc making 
wide use of measures aimed at "freezing” of wages which 
brings in additional profits to the monopoly capitalists and 
artificially maintains the gap between the relatively stable 
price of labour and the rising cost of living. 

The imperialist state adopts reactionary legislation to 
make the struggle of the working class against capitalist 
exploitation more difficult. For example, in the USA, the 
anti-labour Taft-Hartley Labour Relations Act has been in 
operation since 1947 and the Lundrum-Griffin Act since 1959, 
which limit the rights of workers to strike and put the 

1 L. I. Brezhnev, Report of the CPSU Central Committee and the 
Immediate Tasks of the Party in Home and Foreign Policy. 25th 
Congress of the CPSU. p. 33. 

2 V. I. Lenin, "The State and Revolution", Collected Works, Vol. 25, 
p. 443.’ 


activities of the trade unions under government control. 
During the famous strike of British miners in 1972, the British 
Government brought in a law on picketing aimed at support- 
ing strikebreakers and making the strike struggles of 
workers more difficult. 

Even during the First World War, Lenin wrote: "Both 
America and Germany 'regulate economic life' in such a 
way as to create conditions of war-time penal servitude for 
the workers (and partly for the peasants) and a paradise for 
the bankers and capitalists. Their regulation consists in 
'squeezing' the workers to the point of starvation, while the 
capitalists are guaranteed (surreptitiously, in a reactionary- 
bureaucratic fashion) profits higher than before the war." 1 

State Consumption and Militarisation 

One of the forms of state-monopoly capitalism is what is 
called state consumption. The bourgeois state interferes not 
only in the production and distribution of the social product 
but also in its consumption, a significant share of which goes 
to meet its needs, mainly for military purposes. In the past, 
state consumption acquired a vast scale during wars, but 
today, even in peacetime, it swallows up a considerable part 
of the social product. In the USA in 1971, for example, out 
of a gross social product of 931,000 million dollars, the 
state purchased goods and services to the tune of 293,000 
million dollars. 

The relatively narrow and unstable domestic market com- 
pels monopoly capital to seek ways of expanding it. One of 
those by which monopolies ensure themselves a guaranteed 
market for their output is "treasure work", i.e. state pur- 
chases of goods and services, which has developed widely since 
World War II. This is primarily connected with militarisa- 
tion of the economy. 

Militarisation of the economy is one of the most obvious 
signs of the decay of capitalism during its general crisis. As 
the Programme of the CPSU says: "State-monopoly capital- 
ism stimulates militarism to an unheard-of degree. The inv 

1 V. I. Lenin, "The Impending Catastrophe and How to Combat It", 
Collected Works, Vol. 25, p. 334. 


perialist countries maintain immense armed forces even in 
peacetime. Military expenditures devour an ever-growing 
portion of the state budgets. The imperialist countries are 
turning into militarist, military-police states. Militarisation 
pervades the life of bourgeois society." 1 

During the existence of NATO, the members of this ag- 
gressive bloc have spent more than 1,700,000 million dollars 
on military ends. In 1974 alone, NATO expenditure was 
131,600 million dollars, seven times as high as in 1949. US 
military expenditure is growing especially fast; in 1975, the 
military budget provided for the spending of 85,800 million 
dollars, while appropriations for military purposes in 1976 
were 112,700 million dollars. 

The total number of persons engaged in military work 
(servicemen, war industry and servicing the armed forces) 
in the capitalist world is about 75 million. 

The main bulwark of militarism in the capitalist world 
are US monopolies. Through militarisation, monopoly capi- 
tal strives to solve both internal political problems (to 
strengthen the position of reaction) and external political 
problems (to launch aggression against socialism; to main- 
tain their position in developing countries and to combat 
progressive forces throughout the world). But that does not 
exhaust its purpose. 

The main economic goal of militarisation is to provide 
vast profits for monopoly capital. The rate of profit of the 
monopolies of the military-industrial complex is much 
higher than the average for all other monopolies. Ac- 
cording to data from the US Bureau of Financial Ac- 
counting, the rate of profit in manufacturing industry hovers 
around 20 per cent. At the same time, out of 169 monopolies- 
military subcontractors-investigated by one of the Senate 
subcommittes, 94 corporations receive about 50 per cent 
profit, 49-more than 100 per cent, 22-more than 200 per 
cent, 3-more than 500 per cent and one monopoly receives 
almost 2,000 per cent profit. 

The bourgeois state attempts, through militarisation, to 
stimulate economic activity and prevent economic crises of 
overproduction. Militarisation can, of course, stimulate 

1 The Road to Communism, p. 474. 



production to a certain degree and within certain limits, but 
on the whole it withdraws enormous material and human re- 
sources from production. From the economic point of view, 
military production and the maintenance of armed forces 
ultimately represent non-productive waste of part of the 
social product. "War,” Marx noted, "in direct economic 
terms is just the same as if a nation cast part of its capital 
into the water." 1 

Military production, expanded at the expense of civil 
production, reduces the growth rate of the latter. The higher 
the proportion of the national income expended on military 
purposes, the lower the growth rate of civil industry will be. 

Militarisation weighs heavily on the position of the work- 
ing masses. Bourgeois states cover their enormous military 
expenditure and the interest payments on state loans by 
increasing taxes, primarily on the working people. 

The growth of military expenditure usually entails a bud- 
get deficit and inflation, which, in turn, as we have already 
said, reduces the real wages of the working class and the 
incomes of other strata of the working people. 

Thus militarisation means, in the words of L. T. Brezhnev, 
that "the labour of many millions of people, the brilliant 
achievements of the human intellect, of the talent of scientists, 
researchers and engineers, are used not for the benefit of 
mankind, for promoting progress and the remaking of life 
on earth, but for barbarous, reactionary purposes, for the 
needs of war, the greatest of calamities for the peoples". 2 

However ruinous militarisation is for the economy as a 
whole, it brings vast gains to monopoly capital and is there- 
fore stimulated by bourgeois states in every way possible. 

State Support of the Economic Expansion 
of Monopolies Abroad 

One of the types of state-monopoly capitalism is exten- 
sive use of the bourgeois state by monopoly capital to 
strengthen and expand its dominance in the international 

1 Karl Marx, Grundrisse der Kritik der Politischen Okonomie (Rohent- 
wtiti), 13d. I, Moskau, 1939, S. 47. 

2 L. I. Brezhnev, Following Lenin’s Course, p. 161. 



arena and to support neocolonialism in all its forms. "Aid" 
to other countries has a special place in this. 

The nature and geographical distribution of "aid” changes 
with the strategic goals of monopoly capital at any given 
moment in any particular part of the world. In the first years 
after the Second World War, US "aid", for example, was 
mainly directed to the countries of Western Europe, to help 
monopoly capital restore its military and economic potential 
and, at the same time, to ensure a market for piled-up stocks. 
This American "aid" promoted the establishment of reac- 
tionary regimes in Greece and certain other capitalist coun- 
tries and financed anti-communist hysteria in Italy and France. 
From the 1950s, when monopoly capital was sufficiently 
strong in Western Europe and when the rapid disintegration 
of the imperialist colonial system had set in, "aid" from US 
monopolies found a new address and began to be directed 
mainly to countries in South-East Asia, the Middle East, 
Latin America and Africa. Until the end of the 1950s, it was 
predominantly military "aid" to allies in aggressive blocs, 
and constituted around 43,000 million dollars. Not more 
than 20 per cent of all resources supplied as "aid" went on 
economic needs. 

From the beginning of the 1960s, significant sums of "aid" 
have been directed by the imperialist powers to support 
reactionary regimes and also to a number of economically 
less developed countries, with the aim of tying them eco- 
nomically to the system of world capitalism as raw material 
appendages, and of preventing them from taking a non- 
capitalist path of development opening up a socialist 
prospect for liberated states. 

In addition to programmes of "aid", the external economic 
expansion of monopoly capital includes state financing of 
dumping on foreign markets, state subsidies, and guaran- 
tees for the export of capital and commodities by private 

International State-Monopoly Organisations 

On the international plane, state-monopoly capitalism 
primarily operates in the form of inter-state monopoly orga- 
nisations-the European Economic Community (EEC), the 



European Free Trade Association (EFTA), the International 
Bank for Reconstruction and Development (IBRD), the 
International Monetary Fund (IMF), the International Devel- 
opment Association (IDA), and others. 

One of the most typical international state-monopoly 
organisations is the European Economic Community, or the 
Common Market. From 1958 to 1973, it was a state-monopoly 
organisation of six West European countries (the Federal 
Republic of Germany, France, Italy, Belgium, Netherlands, 
and Luxemburg). In 1973, it was joined by three other mem- 
bers-Great Britain, the Republic of Ireland, and Denmark. 
The monopoly capital of this community uses the combined 
might of its members to intensify exploitation of the peoples 
both of the community and of other countries, to carry out 
collective neocolonialism, to suppress the revolutionary 
movement, and for joint struggle against the world socialist 
system. At the Internationa] Meeting of Communist and 
Workers' Parties in 1969, it was noted that in trying to meet 
the challenge of socialism and to strengthen their position, 
the imperialists are combining their efforts on an interna- 
tional scale, and resorting to various forms of economic 

The drive to create this type of international monopoly 
organisation mainly reflects, as was indicated above, the 
growing contradiction between productive forces and pro- 
duction relations in the world capitalist system. The sociali- 
sation of production transcends national frontiers. The 
national boundaries are too cramped for capital. The speciali- 
sation of production and the rise of new industries, the 
transition of agriculture to the machine stage of production, 
and the increasing role of research in the development of 
material production-all encourage the development of impe- 
rialist integration and, at the same time, increase the volume 
of output and necessitate huge markets. 

The capacity of the home market under capitalism, how- 
ever, is limited by the low purchasing power of the working 
people. Markets grow more slowly than production capaci- 
ties. At the same time, as a result of the rise and growth of 
the world socialist system and the collapse of the colonial 
system, imperialist monopoly of foreign markets has been 
undermined. And in consequence of the uneven economic 


development of capitalism, the struggle between imperialist 
powers for a redivision of markets and spheres of influence 
is becoming more intense. The growth of the revolutionary 
activity of the working people, however, and the strengthen- 
ing of the forces of peace and socialism in the international 
arena are making it more and more risky to struggle for 
redivision of the world by the old methods, i.e. by unleashing 
war. State-monopoly capitalism is, therefore, striving to 
solve the problem of foreign markets by creating inter-state 
monopolistic associations. Yet they cannot overcome the 
internal and external inter-imperialist contradictions; they 
only alter the form of the struggle and make it sharper. 

The main positions in the Common Market, for example, 
were seized by the biggest West German and French mo- 
nopolies. At the same time, there is no unity between them, 
and cannot be, since each side strives to cut itself a larger 
slice of the cake. It is not by chance that there is an ir- 
reconcilable struggle between these particular monopoly 
groups within the Common Market. With the entry of Great 
Britain, the internal contradictions of the Common Market 
have become even more intense. British imperialism is trying 
to solve its difficulties and strengthen its position in Western 
Europe at the expense of its new partners. 

The rivalry between the Common Market and American 
imperialism has intensified. "The Nine", or the Common 
Market with its new members, represents a serious competi- 
tor to American imperialism. 

In noting the contradictions of the Common Market, the 
fact must not be ignored that the monopoly capital of the 
"integrated" countries has achieved certain advantages by 
weakening the position of its competitors both in Europe 
and across the Atlantic. 

Strengthening of the Personal Ties 
of Monopoly Capital with 
Bourgeois Governments 

The further growth of state-monopoly capitalism is also 
seen in the strengthening of the personal union of monopoly 
capital with bourgeois governments. As Lenin showed, this 
is inherent in capitalism at the imperialist stage of its devcl- 


opment, and takes two main forms : (1) government officials 
occupy important posts on the boards of private monopolies 
and banks; and (2) agents of the monopolies and the heads 
of the biggest corporations or banks themselves hold leading 
posts (right up to president) in bourgeois governments. 

Here, particular note must be taken of so-called military- 
industrial complexes, a specific form of personal union, i.e. 
merging of the military circles of imperialist states with the 
monopolies producing armaments. 

After World War II, such an organisational form of links 
at the personal level as the representative organisations of 
monopoly capital exerting pressure on bourgeois governments 
also became common. In all imperialist countries, there are 
associations of industrialists like the National Association 
of Manufacturers in the USA, the Federation of German 
Industries in West Germany, the General Confederation of 
Italian Industry in Italy and the Confederation of British 
Industry in Great Britain. Whatever these organisations are 
called, the point is that the governments cannot decide a 
single fundamental question concerning the economic or 
political life of the country without first consulting these 
organisations. Even the work of the European Economic 
Community is controlled and directed by a specially created 
inter-state organisation of monopoly capital— the Union 
of Industries of the European Community (UNIC), which has 
assumed the right to contact the official organs of the EEC 
as the plenipotentiary representative of the industry of the 
countries of the community. The representatives of UNIC 
are, at the same time, official members of the different organs 
and officials of the EEC, ECSC and Euratom. 

The Present Economic Role 

of the Bourgeois State 

As state-monopoly capitalism has grown, the role of the 
bourgeois state in the capitalist economy has been strength- 
ened. Its state-monopoly character is becoming more pro- 
nounced, the 1969 International Meeting of Communist 
and Workers Parties noted in its resolution. "It resorts ever 
more extensively to such instruments as state-stimulated 



monopolistic concentration of production and capital, redis- 
tribution by the state of an increasing proportion of the 
national income, allocation of war contracts to the monopo- 
lies, government financing of industrial development and 
research programmes, the drawing up of economic develop- 
ment programmes on a country-wide scale, the policy of 
imperialist integration and new forms of capital export." 1 

Earlier the bourgeois state performed only the role of 
"night watchman", as Engels put it, while protecting the prop- 
erty of the bourgeois class, and the economy was outside 
its competence. Now, when capitalist socialisation of produc- 
tion has reached a high degree of development and all the 
contradictions of capitalism have been sharpened to the 
extreme, monopoly capital is merging with the bourgeois 
state and using the state machinery to interfere in all spheres 
of life in present-day bourgeois society, especially in the 
process of reproduction. That does not mean, however, that 
the state has become a force above classes, as bourgeois and 
reformist theoreticians claim. In the close union of the mo- 
nopolies and the bourgeois state, the leading role still belongs 
to monopoly capital. As Engels wrote, "the state ... is on 
the whole only a reflection, in concentrated form, of the 
economic needs of the class controlling production." 2 

It would be a mistake, however, to deny that the state 
exerts an active influence on the economy. To understand 
correctly the processes taking place today in capitalist coun- 
tries, the actual ways in which the bourgeois state intervenes 
in the economy must be studied from a Marxist-Leninist point 
of view and the limitations, results, and class essence of this 
intervention analysed, without overestimating its possibilities 
of action. 

The bourgeois state, in nationalising enterprises (usually 
under the pressure of the working masses), does so in such 
a way as to preserve the interests of monopoly capital and 
to transfer the enormous outlays required to replace obsolete 
equipment onto the shoulders of the workers. It redistributes 

1 International Meeting of Communist and Workers' Parties, Mos- 
cow 1969, p. 18. 

2 Frederick Engels, "Ludwig Feuerbach and the End of Classical 
German Philosophy". In: Karl Marx and Frederick Engels, Selected 
Works, in three volumes, Vol. 3, p. 370. 




the national income in favour of monopoly capital, particu- 
larly through militarisation of the economy, ensures it 
enormous profits and a guaranteed market for output. What 
is more, during economic crises, the state subsidises the 
monopolies on a grand scale. As a result, for certain monopo- 
ly capitalist groups, the state can soften the consequences 
of economic crises and transfer their burden onto the work- 
ing people. 

The bourgeois state fosters the foreign economic expansion 
of private monopolies in every possible way, and raising of 
the competitiveness of its own national imperialism on 
foreign markets, and in certain cases also finances dumping. 
It guarantees private monopolies the export of capital to 
developing countries, transferring the risk involved, particu- 
larly during the disintegration of the imperialist colonial 
system, onto the tax-payer. 

The bourgeois state draws up, passes and implements 
anti-labour legislation, thus becoming an instrument for 
intensifying the exploitation of the working masses and, in 
the full sense of the term, the executive committee for manag- 
ing the affairs of the monopolistic bourgeoisie. 

State-Monopoly Capitalism and Preparation 
of the Preconditions for Socialism 

The development of state-monopoly capitalism, regardless 
of the will and desires of the monopolistic bourgeoisie and 
the governments controlled by it, means preparation of all 
the material preconditions for the socialist revolution. 

In "The Impending Catastrophe and How to Combat It", 
Lenin wrote that "state-monopoly capitalism is a complete 
material preparation for socialism, the threshold of socialism, 
a rung on the ladder of history between which and the rung 
called socialism there are no intermediate rungs'. 1 

What exactly did Lenin have in mind by the expression 
material preparation for socialism"? 

(1) State-monopoly capitalism speeds up the development 
of the social character of production enormously, which inev- 

1 V. I. Lenin, Collected Works, Vol. 25, p. 359. 


itably leads, under the domination of private capitalist 
ownership, to intensification of the basic contradiction of 
capitalism and all the forms in which it is manifested. At 
the same time, centralisation of the economy on a national 
and international scale, will facilitate the building of social- 
ism after the working class has gained power. 

The development of monopoly capitalism into state-monop- 
oly capitalism, Lenin noted, brings mankind closer to 
socialism, for "socialism is merely state-capitalist monopoly 
which is made to serve the interests ot the whole people and 
has to that extent ceased to be capitalist monopoly". 1 

(2) State-monopoly capitalism sets up the machinery to 
manage state property and regulate the capitalist economy. 
With the establishment of the dictatorship of the proletari- 
at, the state machine of violence and oppression of the 
working people is destroyed; but the mechanism of control 
and regulation of economic life is used by the proletariat 
to organise the building of socialism. As Lenin said in The 
State and Revolution, "the mechanism of social management 
is here already to hand. Once we have overthrown the capi- 
talists, crushed the resistance of these exploiters with the 
iron hand of the armed workers, and smashed the bureau- 
cratic machine of the modern state, we shall have a 
splendidly-equipped mechanism, freed from the 'parasite', a 
mechanism which can very well be set going by the united 
workers themselves. . . ." 2 

(3) The emergence and development of state property un- 
der capitalism and the development of state programming 
and regulation of the economy objectively demonstrate the 
failure of the very principle of private property, its incom- 
patibility with the growth needs of the modern productive 
forces and are evidence that for social production to function 
the bourgeoisie is unnecessary. 

(4) The development of state-monopoly capitalism inten- 
sifies the class conflicts of bourgeois society and speeds up 
maturation of the subjective factors of the revolutionary 
replacement of capitalism by socialism. 

Although it is the material preparation for socialism, its 

1 Ibid., p. 358. 

2 Ibid., p. 426. 

27 * 



threshold, state-monopoly capitalism cannot, however, auto- 
matically grow into socialism, without the proletarian revo- 
lution and without the dictatorship of the proletariat. Lenin 
stated that "the erroneous bourgeois reformist assertion that 
monopoly capitalism or state-monopoly capitalism is no 
longer capitalism, but can now be called 'state socialism' 
and so on, is very common". 1 

State monopoly can be made to serve the whole people 
only when state power is snatched from the hands of the 
bourgeoisie, and for that a socialist revolution is needed, 
and establishment of the dictatorship of the proletariat. 
Whether this is performed by relatively peaceful means or 
whether the proletariat takes power as a result of armed 
uprising depends on the actual conditions in each country, 
on the balance of forces between the proletariat and the 
bourgeoisie, on the revolutionary consciousness and degree 
of organisation of the working class, and on its ability to 
carry the other working people along with it. At the 24th 
Congress of the CPSU, it was noted that the development 
of state-monopoly capitalism leads not to the stabilisation 
of capitalism as a social system, but to an aggravation of all 
the contradictions of capitalism and to a rise of the anti- 
monopoly struggle. 2 

V. I. Lenin, Collected Works, Vol. 25, pp. 442-43. 
2 See 24th Congress of the CPSU, p. 214. 

Chapter 15 




A basic feature of the general crisis of capitalism is the 
crisis of the imperialist colonial system, which is now ap- 
proaching its final downfall. 

The colonial system of imperialism had taken shape by 
the beginning of the twentieth century, when the world had 
divided into two parts: on the one hand, a small group of 
imperialist powers, exploiting and oppressing the peoples 
of the colonies, and on the other hand, a large group of colo- 
nial and dependent countries. "Capitalism," as Lenin wrote, 
"has grown into a world system of colonial oppression and 
of the financial strangulation of the overwhelming majority 
of the population of the world by a handful of 'advanced’ 
countries." 1 For the imperialist powers the colonies were, 
it seemed, an inexhaustible source of enrichment, from which 
industrial and agricultural raw materials were drawn, along 
with fabulous profits from the export of^ capital and com- 
modities and exploitation of their territories. 

The colonial domination, however, inevitably led to the 
creation of the objective and subjective preconditions for 
imperialism's weakening and ultimate collapse. The pro- 
ductive forces were developed in colonial countries, though 
very slowly and in a mutilated form; capitalist relations of 
production took shape and the contradictions inherent in 
capitalism in general developed. There was an increase in 
the numbers and degree of organisation of the national pro- 
letariat which waged a persistent battle against colonialism. 

i V. I. Lenin, "Imperialism, the Highest Stage of Capitalism", Col- 
lected Works, Vol. 22, p. 191, 



Other contingents of the working people also rose in strug- 
gle, above all, the numerous peasantry, suffering the oppres- 
sion both of local feudal lords and foreign capital. A national 
bourgeoisie also grew up, whose interests were not always in 
line with those of foreign capital. They too, therefore, began, 
though not always so resolutely or consistently, to resist the 
domination of foreign monopolies. The anti-imperialist 
struggle thus united various social strata of colonial and 
dependent countries. 

The October Revolution and the Beginning 
of the Crisis of the Colonial System 

The Great October Socialist Revolution, in changing the 
whole course of mankind's historical development, had a 
decisive effect on the development of the national libera- 
tion movement. The Soviet state's solution of the national 
and agrarian problems, and creation of a powerful economy, 
and its cultural reforms became an inspiring example for 
the peoples of colonies and dependent countries. Soviet 
Russia's abrogation of all unequal treaties and establishment 
of friendly relations with the countries of the East on the 
basis of equality and respect for the sovereignty of large 
and small nations alike had an immense revolutionising in- 
fluence on the oppressed working masses. 

Lenin saw clearly the historical potential of uniting the 
struggle of the revolutionary proletariat for socialism with 
the national liberation movement. "The socialist revolution 
will not be solely, or chiefly, a struggle of the revolution- 
ary proletarians in each country against their bourgeoisie- 
no, it will be a struggle of all the imperialist-oppressed colo- 
nies and countries, of all dependent countries, against in- 
ternational imperialism." 1 

Under the influence of the October Revolution, in colonial 
and dependent countries the class consciousness of the pro- 
letariat grew, it entered the arena of political struggle, 

1 V. I. Lenin, "Address to the Second All-Russia Congress of Com- 
munist Organisations of the Peoples of the East". Collected Works 
Vol. 30, p. 159. 



Marxism-Leninism became widespread and Communist parties 
appeared and gradually gained in strength. Under the blows 
of the national liberation movement, the crisis of the colo- 
nial system of imperialism set in, shaking it to its founda- 
tions, and the first successes were gained in the struggle for 
political independence. 

After the socialist revolution in Russia, the political life 
of the peoples of neighbouring colonies and dependent 
countries of the East became more active. The national libera- 
tion movement gained strength in China, India, Turkey, 
Iran, Afghanistan, Mongolia and other countries. The revo- 
lutionary actions of the peoples, however, did not always 
lead, in the first stage of the general crisis of capitalism, to 
true independence being won. Though granting formal inde- 
pendence to certain countries (e.g. Iraq, Lebanon and others), 
imperialist states succeeded in keeping them in fact deoen- 
dent on imperialism. The victory of the October Revolution 
opened to colonial peoples the possibility of taking a non- 
capitalist path of development. 

The Influence of World Socialism 

on the Break-Up of the Colonial System 

In the second stacre of the general crisis of capitalism, 
the victory of the USSR over Hitler's Germany and impe- 
rialist Japan, and the formation of a world system of social- 
ism, created even more favourable conditions for the strug- 
gle of the peoples of the colonies and dependent countries for 
independence. The success of the socialist system in eco- 
nomic competition with capitalism and the relations of 
friendship and of mutual aid without strings between the 
socialist countries had a favourable effect on the develop- 
ment of the national liberation movement. The socialist 
countries rendered the colonial and dependent countries all- 
round economic, technical, political, and occasionally also 
military, assistance. The crisis of the colonial system of im- 
perialism developed into its break-un. In the first ten years 
after the war, more than 1,200 million people, i.e. most 
of the oppressed nations, had freed themselves from colonial 
or semi-colonial dependence. 



In the third stage of the general crisis of capitalism, the 
break-up of the colonial system developed into its universal 
crash and liquidation. With the general weakening of im- 
perialism and strengthening of the world socialist system 
and the powerful upsurge of the working-class and demo- 
cratic movements, the colonial system created by capitalism 
finally collapsed under the blows of anti-imperialist, national 
liberation revolutions. In place of the former colonial world, 
about 80 independent national states were formed, which 
is of enormous historical significance in changing the balance 
of forces in the world today in favour of socialism and prog- 
ress and to the detriment of imperialism. A particularly 
important year in this connection was 1960, which has gone 
down in history as Africa Year. In that one year, 17 Afri- 
can countries gained their independence. By the end of 1975, 
there were already 47 sovereign states in Africa. Since the 
middle of the 1970s, the final stage in the collapse of impe- 
rialism's colonial system has developed there. 

“In the past decade," the Moscow International Meeting 
of Communist and Workers' Parties in 1969 said, “the role 
of the anti-imperialist movement of the peoples of Asia, 
Africa and Latin America in the world revolutionary pro- 
cess has continued to grow. In some countries, this move- 
ment is acquiring an anti-capitalist content. 

"In many Asian and African countries the national libera- 
tion movement has entered a new phase. A large number 
of national states has emerged in this area, substantially al- 
tering the world political structure and changing the balance 
of power to the detriment of imperialism. The old colonial 
empires have been almost completely abolished." 1 

The anti-imperialist movement in Latin America, most 
countries of which won their independence as early as the 
beginning of the nineteenth century, is developing and the 
peoples there are stubbornly struggling against the neocolo- 
nial oppression of US and other imperialist countries' mo- 
nopolies, for genuine national sovereignty and economic in- 
dependence. At the same time, the class struggle against lo- 
cal monopolies and the owners of vast estates (latifundia) is 

1 International Meeting of Communist and Workers’ Parties Mos- 
cow 1969, p. 27. 



becoming fierce. The victory of the socialist revolution in 
Cuba has been an event of great portent in the history of 
the peoples of America. 

The elimination of colonial regimes is drawing to a close. 
The Portuguese colonial empire, the last such empire, which 
relied on the economic and military support of the imperi- 
alists in other countries, has collapsed. Through persistent 
struggle, the peoples of Guinea-Bissau, the Cape Verde Is- 
lands, Mozambique, and Angola have been victorious. The 
struggle is still going on to end the colonial regimes in 
Namibia and in colonial areas in the Caribbean and the In- 
dian and Pacific oceans, used by the imperialist powers as 
military bases. 

In resisting the national liberation movement, imperial- 
ism stubbornly defends the remains of colonialism, on the 
one hand, and on the other, strives to hamper the economic 
and social progress of the developing countries by the 
methods of neocolonialism. The imperialists, however, are no 
longer in a position to block the path of the national libera- 
tion movement or to save the system of colonial regimes 
from final collapse, whether by military means or in any 
other way. 

Under today's conditions, the national liberation movement 
is entering a new phase, that of struggle for economic inde- 
pendence. The stability of political independence depends 
on its outcome. Economic liberation, Lenin noted, is the main 
thing in national liberation. 

The collapse of the imperialist colonial system occurred 
at a time when the forces of socialism and of the national 
liberation movement were uniting against the common 
enemy, imperialism, and this facilitated the struggle of the 
peoples for freedom and speeded the process up signifi- 
cantly. What Lenin wrote more than sixty years ago has 
come to pass, that national wars against imperialist powers, 
to be successful, "require either the concerted effort of huge 
numbers of people in the oppressed countries (hundreds 
of millions in our example of India and China), or a particu- 
larly favourable conjuncture of international conditions 
(e.g., the fact that the imperialist powers cannot interfere, 
being paralysed by exhaustion, by war, by their antagonism, 
etc.), or the simultaneous uprising of the proletariat against 



the bourgeoisie in one of the big powers (this latter 
eventuality holds first place as the most desirable and favour- 
able for the victory of the proletariat)”. 1 

The consolidation and development of the world socialist 
system exerted a decisive influence on the growth of the 
national liberation movement in colonial and dependent 
countries. The socialist countries inspired the peoples of the 
colonics by their example in the struggle for independence, 
and are giving the new sovereign states all-round eco- 
nomic, technical, moral and political assistance in their de- 
velopment along the democratic road and in the struggle 
against various forms of neocolonialism. "Our Party," 
L. I. Brezhnev emphasised at the 25th Congress of the 
CPSU, "supports and will continue to support peoples fight- 
ing for their freedom. In so doing, the Soviet Union does 
not look for advantages, docs not hunt for concessions, does 
not seek political domination, and is not after military bases. 
We act as we are bid by our revolutionary conscience, 
our communist convictions." 2 The struggle of the socialist 
countries, headed by the Soviet Union, for peace and against 
the danger of devastating nuclear war is of enormous sig- 
nificance for newly-free nations. The proletariat of the devel- 
oped capitalist countries, too, has given and is giving ever 
increasing support to the peoples of developing countries. 
The national liberation movement has become one of the 
three major forces of the world front of revolutionary strug- 
gle against imperialism and reaction and a number of 
newly-free countries have taken a non-capitalist path of 

What is new and most important in the national libera- 
tion movement today, as stated by the 24th Congress of the 
CPSU, is that "the struggle for national liberation in many 
countries has in practical terms begun to grow into a struggle 
against exploitative relations, both feudal and capitalist ". 3 

1 V. I. Lenin, "The Junius Pamphlet”, Collected Works, Vol. 22, 
p. 312. 

2 L. I. Brezhnev, Report of the CPSU Central Committee and the 
Immediate Tasks of the Party in Home and Foreign Policy. 25th Con- 
gress of the CPSU, p. 16. 

3 24th Congress of the CPSU, p. 23. 



The Essence of Neocolonialism 

The winning of national sovereignty is an important vic- 
tory for the peoples of former colonies and dependent coun- 
tries. It does not, however, signify the total liquidation of 
colonialism, but simply reduces the opportunities for colonial 
exploitation. The monopolies utilise the economic backward- 
ness of newly-free countries, the one-sided development of 
their productive forces, and the domination of their key in- 
dustries by foreign interests to strengthen their position, 
employing new methods of enslavement and plunder for this 
purpose. In essence, neocolonialism is the aggregate of the 
economic, political and military methods employed by im- 
perialist states to maintain the economic exploitation and 
dependence of the peoples of developing countries that have 
gained state independence. 

The aim of neocolonialism is to prevent the developing 
countries from pursuing a truly independent home and 
foreign policy, to prevent them from creating truly indepen- 
dent economies, not to allow them to take a non-capitalist 
course of development, and to do everything in its power to 
keep them within the world capitalist system. The economic 
foundation of neocolonialism in developing countries is 
foreign monopoly capital and the property of the local com- 
prador bourgeoisie. The ideological foundation of neocolo- 
nialism is anti-communism, nationalism, racism and other 
reactionary theories. 

Neocolonialism is the colonialism of the present period 
of the general crisis of capitalism, when imperialism is trying 
to adapt itself to the changing conditions of historical 

The Methods and Forms of Neocolonialism 

One of the commonest methods of maintaining colonial 
domination in countries that have won independence is to 
set up puppet regimes, i.e. to create state organs which, 
hiding under the national flag, serve the interests of foreign 



monopoly capital (South Korea, the military fascist dicta- 
torships in a number of Latin American countries, and so 
on). When the people rise up against the corrupt rulers, the 
imperialists intervene on the pretext of defending "freedom 
and democracy" to put down the liberation movement. Such 
was the character of the barbarous, exterminatory war of 
American imperialism in Vietnam. The American imperialists 
are trying for similar goals against Arab states, using Israeli 
extremists. In their struggle against nations that have taken 
the path of progressive independent development, the im- 
perialists do not hesitate to use such amoral methods as 
economic blockade, threats to withdraw aid (including food), 
sabotage, diversion, criminal conspiracies, and murder of 
leading figures in the liberation movement. 

The imperialists also make extensive use of the technique 
of drawing developing countries into aggressive military 
blocs, of concluding bilateral agreements with them on "mu- 
tual security", and the construction of military bases, ports 
and airfields. In addition to their clear orientation against 
socialist countries, the military bases serve as support points 
for imperialism against the growing national liberation 
movement and for political pressure on developing countries. 
In order to fulfil the military obligations imposed by the 
imperialists, the young states spend enormous resources un- 
productively, resources that could have been used for eco- 
nomic development. 

One variety of contemporary colonialism consists of the 
various "commonwealths', " communities " and "unions" con- 
cluded by the metropolitan countries with their former colo- 
nies in order to retain their economic and political in- 
fluence on them, once state independence has been estab- 
lished. These agreements often take the concrete form of one- 
sided concessions and other contracts concluded between 
the governments of developing countries and individual mo- 
nopolies. The British mining companies operating in Afri- 
ca, for example, saddled African countries, before they ob- 
tained independence, with concessions valid to the end of 
this century. 

A special place in the policies of neocolonialism is occu- 
pied by the export ol state capital, in the form of "aid" to 
developing countries. In fact, the concept of aid is incompat- 


ible with the very nature of imperialism, the immutable law 
of which was and is the enslavement, exploitation and ruin 
of the weak and profit from robbing economically backward 
countries. Imperialist "aid" to developing countries, as we 
have already shown, is in fact one of the most refined forms 
of neocolonialism, and is used primarily to put down national 
liberation movements, to support and defend reactionary 
regimes, to divert newly-free countries from the path of 
non-capitalist development, and to transform them into 
centres of struggle against the world socialist system. The 
bulk of it goes for military and police needs and is linked 
with imperialism’s aggressive plans. During the three years 
or more that the military fascist junta has been in power in 
Chile, for example, the USA has supplied that country with 
"aid" amounting to 2,000 million dollars. Israeli extremists 
annually receive "aid" of 3,000-4,000 million dollars for 
their struggle against the progressive forces in Arab 

A second major problem that the imperialists solve by 
"aid" is that of maintaining their dominance in the econo- 
mies of countries gaining state independence and of using 
them, as before, as objects of exploitation. Soviet econo- 
mists have estimated that the monopolies of imperialist pow- 
ers annually draw off about 25,000 million dollars from de- 
veloping countries, while all their investments, including 
reinvestments, do not exceed 8,000 million dollars a year. 

Being unable to prevent the process of industrialisation 
of developing countries, the imperialists are now trying to 
bring it under their control and use it in their own interests. 
To this end, first of all, they institute "disjointed production", 
the initial and final stages of which take place in imperialist 
countries, and the "middle" one in developing countries. The 
latter thus come to be technologically dependent on the in- 
ternational monopolies that control the whole process. As 
a consequence, developing countries are drawn even more 
tightly into the capitalist system of world economy than 
before, and once more on an unequal footing. Secondly, there 
is a developing trend to transfer the most labour-intensive, 
material-intensive, and ecologically harmful industries to 
developing countries. The drive to use rich sources of raw 
materials and cheap labour power on the spot prompts 



monopolies to transfer production that has become too 
expensive in the centres of world capitalism to developing 

All this leads not so much to development of the econo- 
mies of the developing countries, as to their transformation 
from agrarian and raw material appendages of the developed 
capitalist countries of the West into industrial and raw ma- 
terial ones, preserving exploitation of their peoples and 
natural resources. 

Foreign trade is of great significance in the present period 
in the exploitation of developing countries. Even since the 
collapse of the colonial system, the monopolies of impe- 
rialist countries still dominate the markets of developing 
countries, so that non-equivalent exchange between develop- 
ing and developed capitalist countries is on the increase 
rather than diminishing. The prices of the raw materials 
exported by developing countries are falling, while those 
of the industrial goods supplied by imperialist states are 
rising. As a consequence of this change in the balance of 
export and import prices alone, the developing countries arc 
losing 14,000 to 15,000 million dollars a year, which is more 
than double the amount of official economic aid extended to 
them through the United Nations and other international or- 
ganisations (some 7,000 million dollars a year). 

State-monopoly forms of exploiting developing countries 
are spreading. The more the imperialist states lose politi- 
cal influence in former colonies and dependent countries, 
the greater the role they assume in these countries' economic 
enslavement, i.e. in fulfilling all the functions that were 
previously the sphere of private monopoly capital. 

Collective forms of neocolonialism are being developed 
through the establishment of international finance and credit 
organisations (the International Bank for Reconstruction and 
Development, the International Monetary Fund, the General 
Agreement on Tariffs and Trade, etc.), and also by drawing 
developing countries into closed economic groupings of 
imperialist powers (for example, as associate members, with- 
out rights, of the Common Market). 

Foreign monopoly capital is merging with national capital 
in order to use the latter as a junior partner in intensified 
exploitation of the working people of developing countries. 



mainly through setting up "joint’ 7 companies with a national 
facade, but really under the control of foreign monopoly 

Consequently, imperialist states still have not rejected the 
policy of economic enslavement of developing countries and 
of intensified exploitation of these peoples by foreign mo- 
nopoly capital. 

The main bulwark of modern colonialism is the imperial- 
ism of the United States of America. It is the US imperial- 
ists who finance most of the operations directed at sup- 
pressing the national liberation movement throughout the 
world and who supply the colonialists and reactionary 
groups in developing countries with arms. 



The Social and Economic Structures 
of Developing Countries 

Countries gaining political independence inherit an eco- 
nomic backwardness resulting from age-long colonial rule. 

One indication of their backwardness in the sphere of 
production relations is their multistructural economies. They 
all have the following economic structures or types of pro- 
duction: (1) subsistence, (2) small-scale commodity produc- 
tion, (3) capitalist. In some countries, primitive-communal 
and feudal modes of production are also still in evidence, 
though hardly anywhere in their pure form, since they have 
undergone considerable changes under the influence of 
commodity-money relations. 

The balance between these structures in each country de- 
pends on historical conditions, on the level of development 
of the productive forces, on the existence of vestiges of feu- 
dal relations, on the degree to which foreign capital domi- 
nates, and so on. The private capitalist sector occupies a 
strong position in some developing countries and is expand- 
ing at the expense of small-scale commodity production; it 

is supported by foreign monopoly capital as a prop for 
its own infiltration into the economy of the country. In many 
developing countries, small-scale commodity production pre- 
dominates, and is represented by the peasantry, artisans and 
handicraft workers. In several states in Africa and Oceania, 
a considerable proportion of the population is still engaged 
in subsistence farming. 

The state or public sector, based on state ownership, oc- 
cupies a special place in the economics of developing 
countries. It is formed both by nationalisation of large capi- 
talist, and above all foreign, property and by the building 
of state enterprises. It develops along different lines in 
different countries. In those developing toward capitalism, 
it assumes the features of state capitalism and does not 
represent an independent social structure in character, since 
state power is in the hands of the bourgeoisie; but it reflects 
the economic need for centralisation of resources so that 
the economy can develop more rapidly. The public sector 
also speeds up creation of the necessary material precondi- 
tions for the revolutionary transition to socialism, and in 
that it is progressive. 

In the public sector of the economy, favourable oppor- 
tunities arise for regulating economic processes; but the 
spontaneous growth of capitalist relations in many develop- 
ing countries, and the instability of the market situation in 
the world capitalist economy, make such regulation extremely 
difficult. In many countries, it consists simply of pro- 
grammes for state investment. 

In countries taking a non-capitalist path of development, 
the public sector is the economic basis for implementing 
revolutionary and democratic policies. It also promotes 
development of the economy in the interests of all the people 
and gradually takes on a new social and economic content, 
including an anti-capitalist tendency. In the long run, 
given favourable conditions, it may serve as the basis 
for establishing socialist ownership of the means of pro- 

As was noted at the 25th Congress of the CPSU, there have 
been fundamental changes in recent years in many de- 
veloping countries: "Shifting of the centre of gravity in 
industrial development to the state sector, abolition of feu- 


dal landownership, nationalisation of foreign enterprises to 
assure the young states' effective sovereignty over their 
natural resources, and formation of their own personnel. In 
short, far-reaching progressive changes are taking place in 
that part of the world, despite difficulties." 1 

The Economic Backwardness 
of Developing Countries 

The economics of most developing countries are dominated 
by backward farming. Industry is little developed. The de- 
veloping countries of Asia, Africa, and Latin America, where 
over 70 per cent of the population of the capitalist world 
lived in 1975, produced only 12 to 14 per cent of its in- 
dustrial output, according to UN estimates. In spite of the 
rapid development of the power industry (including nuclear 
power), steel, engineering, chemical, oil-refining, and other 
progressive industries in individual countries (India, Iran, 
Algeria, and Mexico), the extractive industries account for 
a large and growing proportion of industrial output in the 
developing countries as a whole. Their share in the mining 
in the non-socialist world increased from 17 per cent in 1938 
to 45 per cent in 1974. 

Developing countries have still not overcome the one- 
sided development of their economies. In Sri Lanka, for 
example, about 60 per cent of its foreign exchange in 1974 
came from the export of tea. The Philippines in the same 
year obtained 75 per cent of its foreign exchange from the 
export of sugar. In 1974, 72 per cent of Ghana's receipts from 
all exports came from cocoa. 

The extremely low productivity of labour in developing 
countries results in a low level of national income. While 
national income per capita in the USA in 1974 was 3,783 
dollars, in the Federal Republic of Germany (1973) 3,270 

dollars, in France 2,670 dollars, in Japan 2,235 dollars, and 
in Great Britain 1,640 dollars, in the developing countries 

1 L. I. Brezhnev, Report of the CPSU Central Committee and the 
Immediate Tasks of the Party in Home and Foreign Policy. 25th Con- 
gress of the CPSU, p. 15. 




it did not exceed on the whole 200 dollars, including, for 
example, 135 dollars in Thailand, 120 dollars in the 
Philippines, 68 dollars (1971) in Ethiopia, 65 dollars in Tan- 
zania, and 51 dollars in Zaire. 1 

Economic backwardness is the reason for the extremely 
low standard of living of the working people of developing 
countries, where the population suffers from constant mal- 
nutrition, lack of sufficient number of schools and hospi- 
tals, a shortage of doctors and teachers, and a very high level 
of illiteracy. Of the more than 2,500 million people in the de- 
veloping countries, 800 million are illiterate, and 1,000 million 
suffer from malnutrition or hunger. The average life expect- 
ancy in India, for example, is 45 to 47 years and in Senegal 
37 years. 

The peoples of the newly-free countries have no desire to 
put up with such backwardness, and are persistently look- 
ing for ways to overcome it and to create a developed econo- 
my and culture. 

The Two Paths of Development 

and the Necessity 

of the Non-Capitalist Path 

During the struggle of liberated countries against colonial- 
ism and neocolonialism, each of them faces the question of 
what course its further development should take. In the 
world today there are two systems-the capitalist and the 
socialist. Capitalism is increasingly discrediting itself in 
peoples' eyes. It does not ensure the economic independence 
of peoples now free from colonial oppression, and they are 
becoming convinced by their own experience that the capi- 
talist way does not bring true liberation. "Countries which 
have taken the capitalist road have been unable to solve any 
of the basic problems facing them," 2 the 1969 International 

1 According to the scientific method of calculating national in- 
come, i.e. without double counting of incomes received in the non- 
productive sphere. 

2 International Meeting of Communist and Workers' Parties, Mos- 
cow 1969, p. 29. 



Meeting of Communist and Workers' Parties said, and most 
of them are not in a position to overcome their economic 
backwardness or their dependence on imperialist countries. 

The peoples of countries newly-free from colonial depen- 
dence are, therefore, drawn toward socialism, correctly seeing 
in this social system their only chance of solving all their 
economic and social problems. 

"The Afro-Asian and Latin American peoples," as 
L. I. Brezhnev said at the Conference of European Commu- 
nist and Workers' Parties in Berlin in June 1976, "are un- 
doubtedly increasing their contribution to the cause of peace 
and progress. Socialism has already struck deep, root in 
many countries which have thrown off imperialism s colonial 
yoke and which have embarked on free and independent 
development. The non-alignment movement, which we all 
know, plays a considerable role in international life. 

The radical changes in the balance of forces in the world 
in favour of socialism and to the detriment of capitalism 
have opened up an objective possibility for countries freed 
from colonialism to take a non-capitalist path of develop- 
ment. During the struggle for the revival of their economy 
and national culture, the peoples of several of the newly- 
independent countries have already taken the non-capitalist 
path of development, which will enable them to do away 
with the backwardness bequeathed by their colonial past and 
to create the conditions for the transition to socialist develop- 
ment Their socialist orientation is making its way, over- 
coming great trials and obstacles. And thanks to the existence 
of the world socialist system and to its unselfish economic, 
technical, political and cultural assistance to peoples strug- 
gling against imperialism, this prospect is becoming a 

The experience of building socialism in the USSR and 
in the other countries of the socialist system particularly 
in the national republics of the Soviet Union and in the Mon- 
golian People's Republic, where pre-capitalist relations 
previously existed, is of enormous value to countries 
that have chosen the non-capitalist path of development. 
Their example is of special value for the peoples of Africa 

aI Bas£g themselves on the experience and support of the 



socialist states, the countries taking the non-capitalist road 
are struggling against imperialism for full political and eco- 
nomic independence, carrying out progressive social and 
economic reforms, and taking steps to raise the material and 
cultural level of their people, and are in the front rank in 
the contemporary national liberation movement. 

Regimes and political organisations carrying out progres- 
sive measures are under pressure from internal and external 
reaction. One example are the imperialist provocations against 
progressive governments of the newly-liberated countries; 
another is the anti-popular activity of rightist forces in the 
Arab Republic of Egypt against the social and political gains 
of the Egyptian revolution. 

The degree and consistency of social transformations in 
newly-independent countries, and the possibility for their 
peoples to choose their own course of development, depend 
on the alignment and the internal balance of class forces; 
but, despite the motley character of the concrete historical 
conditions under which their struggle is taking place, they 
have a number of features in common. Objective necessity 
forces them to take certain measures, without which there 
can be no successful struggle against colonialism, for revival 
of the national economy, or social progress. Let us consider 
the most important of these. 

Evicting Foreign Capital from Its Positions 

Elimination of the dominance of foreign capital usually 
begins with nationalisation of enterprises belonging to the 
monopolies of the imperialist powers. This measure is fully 
justified since the property of the monopolies represents the 
capitalised surplus value, created by the labour of the peoples 
of the countries concerned. Such nationalisation has taken 
place, for example, in Iraq, Algeria, Syria, India, Guinea, 
Peru and other countries. It was done in different ways, 
both through confiscation of the property of foreign capi- 
talists without compensation and through compulsory 

Another way of limiting the activity of foreign capital is 
to ban investment in certain branches of the economy and 



to declare them the exclusive sphere of activity of the state. 
Yet another way of limiting and controlling foreign capital 
is to set up joint enterprises, with a predominance of national 
capital, the progressive forces employing foreign resources, 
technical expertise and personnel to develop their econo- 
mies. The founding of joint enterprises is a sort of com- 
promise between national and foreign capital, adopted with 
the aim of promoting economic development. Foreign capital, 
in turn, is striving to regain its lost positions in a number of 
cases through this same form. 

In several developing countries, limits are set on the 
profits that foreign monopolies can export, the transfer of 
profits in the currencies in short supply ("hard" currencies) 
is prohibited, and higher income taxes are levied. One form 
of struggle for economic independence and the right to dis- 
pose of their own natural resources in developing countries 
is the setting up and operating of inter-state organisations 
by these countries, such as the Organisation of Petroleum 
Exporting Countries (OPEC), founded in 1960. 

The state sector is of growing importance in fighting the 
dominance of foreign capital. Nationalisation of foreign 
monopoly property and limitations on foreign capital help 
strengthen the position of the state sector. By nationalising 
the main means of production the state gradually gains 
possession of the most important levers for influencing 
economic life as a whole. And the efficiency of the taxation, 
customs, currency and concession measures taken to ensure 
development of the national economy largely depends on the 
social and economic orientation of the governments of deve- 
loping countries and the alignment of class forces. 

The Problem of Industrialisation 
in Developing Countries 

The restructuring of the economy of developing countries 
and the establishment of their own industries have become 
vital problems, solution of which helps ensure economic 
independence. The development of industry encourages the 
raising of labour productivity in all branches of the economy, 
speeds up the rate of accumulation and growth of national 


income, and serves as the basis for the development of agri- 
culture and of the productive forces in the village. At the 
same time, it makes it possible to utilise the latent overpopu- 
lation and turn it into an active industrial army of labour. 

Imperialist states hold back the development of the na- 
tional industry of newly-free countries, as their interests 
lie in maintaining the one-sided character of their econo- 
mies, and in retaining them as appendages supplying raw 
materials. The numerous recommendations of bourgeois 
economists and politicians consist either in diverting the 
attention of the peoples of developing countries from the 
fundamental task of building up a national industry or 
dragging its solution out over a long time. 

In several of the newly-free countries that have taken a 
non-capitalist path of development the state sector, formed 
as a result of nationalisation of the property of foreign mo- 
nopolies, has been the basis for setting up their own national 
industry, and has ensured growth of state capital invest- 
ment on developing the economy and laid the foundations 
for industrialisation. 

There has been some increase in the rate of growth of 
industrial production in developing countries. By 1975, in- 
dustrial production in developed capitalist countries had 
increased by 210 per cent over 1950, and in the developing 
countries by 540 per cent. The mean annual rate of growth 
in the latter is 7.7 per cent, as against 4.6 per cent in the 
developed capitalist countries. At the present economic 
growth rate and rapid increase of population in developing 
countries, it will take them 100 to 150 years simply to reach 
the level of per capita gross national output already existing 
in developed capitalist countries. The gap in production of 
per capita gross national product between developed and 
developing countries increased from 740 per cent in 1953 
to 1,500 per cent in 1973, which confirms the conclusion of 
the 1969 International Meeting of Communist and Workers' 
Parties that the gulf between the highly developed capitalist 
states and the majority of other countries in the capitalist 
world is not closing, as the ideologists of the bourgeoisie 
claim, but widening. For the developing countries to catch 
up, the growth rate of their industry needs to be raised 
considerably and all the channels closed through which they 



are plundered by the imperialist powers and through which 
the parasitic elements within them grow rich. 

Acceleration of the process of industrialisation gives rise 
to a need for loans and for technical aid from more devel- 

oped countries; but the attraction of monopoly capital on 
a large scale entails the danger of new entanglements, so 
that the state needs to exercise very careful control over 

its use. 

Agrarian Reforms in Developing Countries 

Radical agrarian reforms in favour of the peasantry are 
of primary significance for resolving the social and eco- 
nomic problems facing developing countries. Their objective 
necessity is dictated by the fact that these countries are 
agrarian ones with 70 to 80 per cent of the population living 
in the village. In many countries in Asia, Africa and Latin 
America, there are still fairly strong survivals of feudal 
relations. In the Philippines, for example, a small group of 
landowners own more than half of all the cultivated land. 
In Latin America, 70 per cent of the peasants do not have 
their own land, while those who do, hold only 5 to 10 per 
cent of the land. The peasants have to hold land on lease, 
and in most cases, rentals fluctuate between half and two- 
thirds of the harvest on irrigated land and from a quarter to 
one-third on non-irrigated land. If the landowner supplies 
cattle or tools, the rental may be three-quarters or even four- 
fifths of the harvest. 

The landowners also frequently act as usurers or middle- 
men between the peasants and the monopolies, buying up 
agricultural raw materials, which adds to the already heavy 
burden of foreign capital. Sub-letting is common. It is mainly 
the rural bourgeoisie who act as sub-letters and usurers. In 
India, for example, until recently, between 50 and 80 per 
cent of the peasants' commodity output was sold through 
middlemen who, depending on the market conditions, ap- 
propriated between a quarter and mo-thirds of value of the 

The elements of feudal relations, the peasantry with little 
or no land, and the single-crop orientation of agriculture are 



obstacles to solving the developing countries' food problem. 
Growth of agricultural production is everywhere lagging 
behind growth of requirements. The developing countries 
have about two-thirds of the capitalist world's cultivated land 
and area under cereal crops, and more than 70 per cent of 
its cattle. The low productivity of the cultivated land and 
of the cattle is the reason why, in 1974, the developing 
countries harvested only 47.3 per cent of the total grain 
crop (including rice) in the capitalist world and produced 
26 per cent of the meat, 22 per cent of the milk, and 23 per 
cent of the eggs. Their per capita production of grain was 
40 per cent that in developed countries, and of meat, eggs 
and milk 11 to 15 per cent. 

Agrarian overpopulation makes the situation worse. The 
low standard of living of the population of developing 
countries, for whom malnutrition is normal, is a result of 
the combined effect of the backwardness of agriculture and 
agrarian overpopulation. Hunger and famine become particu- 
larly acute in years of crop failure, when the dependence of 
their backward agriculture on weather conditions becomes 
especially evident. 

Dispossession of the big landowners and foreign plant- 
ers and latifundists and fundamental agrarian reforms in the 
interests of the landless peasantry are indispensable con- 
ditions for development of the productive forces of a country, 
and abolition of unemployment, poverty, and hunger among 
the broad masses. 

The peasants oppose the domination of the colonialists and 
landowners. The national bourgeoisie is also, to some extent, 
interested in carrying through agrarian reforms so as to 
speed up the development of capitalism and expansion of the 
home market, but fearing a revolutionary uprising of the 
peasant masses would hit not only the feudal order, but also 
affect the positions of capital, it often reaches a comnromise 
with the landowners. The agrarian reforms in most develop- 
ing countries have therefore not yet been very radical, the 
landowners as a rule only giving up the worst land and the 
reforms often entailing rather high compensation to be paid 
by the peasants. The size of peasant holdings has therefore 
remained practically unchanged. Nevertheless large-scale 
feudal landed property has been curbed by the reforms, para- 


sitic revenues of feudal lords curtailed, and the holdings 
of foreigners eliminated or limited. The broadest reforms 
have been carried out in countries that have taken a non- 
capitalist path of development such as Burma, Syria, and 
Algeria. In the People's Republic of the Congo, all land 
and mineral wealth have been declared state property. 

In the most progressive of the developing countries, the 
state provides strong support for the development of agri- 
cultural co-operation and of the state sector in the rural 
areas. The peasants are provided with funds to buy cattle, 
seed and tools, and are given financial, organisational and 
technical aid in setting up production co-operatives. 

The Significance of Assistance 
from the Soviet Union 
and Other Socialist States 

The socialist states co-operate with the developing 
countries and are giving them ever increasing economic and 
technical assistance. The objective basis of this co-operation 
is the fact that the world socialist system has interests in 
common with the national liberation movement in the strug- 
gle for peace and against colonialism and imperialist op- 
pression in all their forms. 

As the resolution of the 24th Congress of the CPSU said: 
"The CPSU is invariably true to the Leninist principle of 
solidarity with the peoples fighting for national liberation 
and social emancipation. As in the past, the fighters against 
the remaining colonial regimes can count on our full sup- 
port. The Congress attaches special importance to extend- 
ing co-operation with countries taking the socialist 
orientation." 1 

In accordance with agreements concluded, around 2,000 
industrial and agricultural enterprises, workshops, complex 
installations and units, and other projects have been built, 
are being built or arc planned in developing countries with 
the socialist countries' assistance. The Soviet Union has 

1 24th Congress ot the CPSU, p. 215. 



agreements on economic and technical co-operation at present 
with more than 50 developing countries. The volume of its 
economic and technical assistance to countries in Asia, Afri- 
ca and Latin America is constantly growing. In India, for 
example, 68 large industrial enterprises, farms and educa- 
tional institutions, including steel works in Bhilai and 
Bokaro, a heavy engineering works in Ranchi, and an elec- 
trical engineering works in Hardwar have been or are being 
built with Soviet aid. In Algeria 45 projects had been built 
with Soviet aid and commissioned by the beginning of 1975, 
in the Arab Republic of Egypt 86, in Afghanistan 67, in Iraq 
43, in Iran 43, in Syria 15, and so on. 

The effectiveness of this assistance should not be judged 
in absolute terms alone. In evaluating it and comparing it 
with the economic links existing between developing coun- 
tries and imperialist powers, it must be remembered that the 
world socialist system renders assistance primarily to 
help resolve the main strategic problem of eliminating eco- 
nomic backwardness and dependence on imperialism. The 
character and significance of the USSR's economic and tech- 
nical assistance to developing countries is seen clearly in 
its being directed to the main branches of the economy (in 
percentages as of January 1, 1974): industry and power 
73.8 (including metallurgy 37.6), geological prospecting 8.2, 
transport and communications 8.1, agriculture 5.3, education, 
health and other fields 4.6. 

By helping new states to resolve their major economic 
problems, the socialist countries are compelling foreign mo- 
nopolies and governments to make certain concessions in 
their relationships with developing countries. The building 
of the Bhilai steel works in India by the Soviet Union, for 
example, forced the monopolies of imperialist countries to 
meet the demands of other countries (Pakistan, Tunisia, 
Ethiopia) for the building of similar works. British and US 
monopolies refused to help India build national oil enter- 
prises; the Indian Government itself built them in the end. 
Soviet aid to India and Syria in prospecting for oil and or- 
ganising the exploitation of oil fields gave the national oil 
industries their start. 

A distinctive feature of the assistance given by socialist 
countries is the construction of economic complexes in key 



branches of the economy that make efficient use of national 
resources a possibility. Unlike the imperialist powers, so- 
cialist countries never demand a proportion of the shares 
of these enterprises. The country receiving the aid becomes 
the complete owner of the project built. 

Socialist states adhere to the most-favoured nation prin- 
ciple in relation to developing countries and do not erect 
artificial trade barriers. Trade takes place on the basis of 
long-term inter-governmental agreements that give the 
developing country a firm guarantee on the export and im- 
port of certain commodities for several years ahead, which 
has a favourable effect on its economic development. The 
volume of the USSR's trade with developing countries in- 
creased 45-fold (in comparable prices) in the post-war pe- 
riod (i.e. in 1976 compared with 1946). In trying to render 
assistance to backward countries through the channels of 
foreign trade, the socialist countries often buy more goods 
from them than they sell to them. 

Developing countries, receive credits from socialist states 
for the development of their economics. The credit extended 
differs fundamentally from that granted by capitalist countries, 
both in nature and intent. Its aim is not to extract high in- 
terest, but to promote in every way strengthening of the eco- 
nomic potential of the country receiving the credit. The cred- 
its themselves are granted on the basis of inter-governmental 
agreements over 12 to 15 years at a rate of 2.5 to 3 per 

cent per annum. , , . ... 

The socialist countries help developing countries in every 
way with the training of local, national cadres, mainly tech- 
nical personnel, both by organising various educational 
establishments locally and the training of local personnel 
during the building of various projects and also by educa- 
tion and training in higher educational establishments and 
enterprises in the socialist countries. In the Soviet Union 
alone about 80,000 specialists with higher qualifications had 
been trained for developing countries till 1975, and more than 
15 000 were studying in higher educational institutions of 
the USSR in the 1975/76 academic year. Engineers and 
workers from developing countries, moreover, are given 
production and technical training at more than 150 leading 
enterprises of the Soviet Union. Over 140 educational msti- 


tutions (institutes, technical colleges, technical and secondary 
schools, and study centres through which 100,000 students 
have received training in fields most needed for development 
of the national economy) have been or are being founded 
with Soviet aid. In recent years alone, Soviet specialists have 
helped to train more than 200,000 skilled workers and fore- 
men on construction sites in developing countries. 

The Soviet Union and other socialist states also give the 
developing countries considerable moral and political sup- 
port within the United Nations Organisation and other in- 
ternational organisations. 

The all-round economic ties and other links between 
developing countries and the world socialist system faci- 
litate the struggle of the former to eliminate the grave 
consequences of colonial exploitation and for social 

The Historic Significance of the Collapse 
of the Imperialist Colonial System 

The collapse of the colonial system of imperialism is of 
great historic significance. "The breakdown of the system of 
colonial slavery under the impact of the national liberation 
movement is a development ranking second in historic im- 
portance only to the formation of the world socialist sys- 
tem/' 1 said the statement adopted by the 1960 Meeting of 
Representatives of the Communist and Workers' Parties. 

The break-down of the colonial system fundamentally 
weakened the position of imperialism and altered the balance 
of power in the struggle between developing socialism and 
moribund capitalism in favour of socialism. Imperialism lost 
its undivided sway over the fates of the hundreds of mil- 
lions of people living in newly-free countries. The break- 
up of the colonial empires and the achievement of political 
independence by former colonies and semi-colonies created 
the necessary preconditions for overcoming the considerable 

1 The Struggle tor Peace, Democracy and Socialism, Moscow, 1963, 


economic backwardness of dozens of newly-formed states 
and for the national and social regeneration of their peoples. 

“The foreign policy of the developing countries has become 
visibly more active," L. I. Brezhnev said at the 25th Con- 
gress of the CPSU. “This is seen in many trends-the political 
course of the non-alignment movement, and the activity of 
the Organisation of African Unity and of the various eco- 
nomic associations formed by the developing countries. It 
is quite clear now that with the present correlation of world 
class forces, the liberated countries are quite able to resist 
imperialist diktat and achieve just-that is, equal-economic 
relations. It is also clear that their already considerable 
contribution to the common struggle for peace and the 
security of the peoples is quite likely to become still more 
substantial." 1 

Having gained political independence, the countries freed 
from colonial oppression are, one by one, ceasing to be 
obedient tools in the hands of the imperialist powers in the 
solution of international problems. In 1945, there were 
51 member states of the United Nations; on December 1, 
1975, there were 132, including more than 90 developing 
countries. The new sovereign states are becoming a power- 
ful force in the world today. They are developing closer 
and closer ties with the socialist countries, receive vital po- 
litical and diplomatic support from them and increasingly 
frequently join forces with them in fighting the intrigues 
of imperialism and reaction and for peace and democracy. 

The decline and fall of the colonial system has shaken 
the foundations of imperialism and is bringing it closer to 
its final doom. The national liberation movement of peoples 
fighting against colonial and neocolonial oppression is one 
of the three powerful revolutionary forces shaking capitalism 
and driving the world revolutionary process ahead. The 
influence of the national liberation movement on the fate 
of the world largely depends on its links with the world 
socialist system and with the revolutionary working-class 
movement in developed capitalist states. 

“The great Lenin's prediction that the peoples of the colo- 

‘ L. I. Brezhnev, Report ol the CPSU Central Committee and the 
Immediate Tasks ot the Party m Home and Foreign Policy. 25th 
Congress ot the CPSU. pp. 16-17. 



nies and dependent countries, starting with a struggle for 
national liberation, would go on to fight against the very 
foundations of the system of exploitation is coming true," 
the 24th Congress of the CPSU stated in 1971. "And this, 
of course, is a heavy blow at the positions ot capitalism as 
a whole, as a world social system." 1 

1 24th Congress ot the CPSU, p. 25. 

Chapter 16 



The replacement of free competition by monopoly domi- 
nation and the subsequent development of monopoly capi- 
talism into state-monopoly capitalism has not stopped the 
economic laws of capitalism from operating, but has simply 
modified their forms. The basic economic law of capitalism 
is the law of surplus value, which operates at all stages of 
development of the capitalist mode of production. 

The Difference between Monopoly Super-Profit 
and Super-Profit under Free Competition 

Surplus value appears, as we have seen, in its transmuted 
form as profit. Pursuit of the highest possible profit is char- 
acteristic of capitalism. Every capitalist always strives for 
it Under pre-monopoly capitalism, free competition, how- 
ever, led ultimately to approximately the same average rate 
of profit in different industries for the same amount of capi- 
tal. Individual capitalists managed, by introducing new 
equipment and new ways of exploiting wage labour, to re- 
duce the individual value of commodities compared with their 
social value and so derived super-profit, i.e. a surplus over 
and above average profit. Competition, however, did not 
permit them to receive this surplus for any long period of 

^"under imperialism, the situation has changed fundamen- 
tally The monopolies that occupy the leading positions in 
the sphere of production and circulation, constantly derive 



super-profit which is special, monopoly super-profit differing 
from normal super-pront in being based on their dominance 
and is the result of monopolistic exploitation not only in 
industry but also in the other spheres of the capitalist econo- 
my. Both the old, capitalist methods of exploitation and 
the new, imperialist ones, are used to obtain these profits. 
Pre-monopoly, normal super-profit is a part of surplus value, 
the result of the surplus labour of workers. Monopoly 
super-profit is not reduced solely to the surplus value pro- 
duced in the monopolised undertakings, but includes, in ad- 
dition, part of the surplus value of non-monopoly enterprises, 
part of the value of labour power, and a significant part 
of the value created by small commodity producers in the 
given country and also in other countries, especially de- 
veloping ones. 

When monopolies introduce new equipment and tech- 
nology into their undertakings, they should, of course, receive 
normal super-profit, but it too bears the imprint of monopo- 
ly, since most of the patents on new inventions and pro- 
cesses and the most highly skilled technical staff and labour 
foice are concentrated in the hands of the monopolies. Com- 
petitors are largely deprived of the chance to use these 
achievements of science and engineering in their enterprises. 
Even normal super-profit is therefore consolidated by the 
monopolies, becomes their privilege, and is transformed into 
monopoly super-profit. 

Monopoly super-profit can also be obtained, as a result of 
monopoly prices, without technical innovations, or even if 
technical progress slows down. Individual capitalists can 
obtain normal super-profit, but monopoly super-profit can 
only be obtained by monopolies. Normal super-profit is 
spasmodic and temporary in nature, while monopoly super- 
profit is much more stable. 

On the whole, monopoly profit consists of average profit 
plus monopoly super-profit. Monopolist entrepreneurs, like 
all capitalists in bourgeois society, receive average profit on 
their capital; but, as monopolists, they receive additional 
monopoly super-profit. 

The imprint the domination of monopoly leaves on average 
profit and how the mechanism by which it is formed changes 
will be explained below. 



The Economic Content of Monopoly Profit 

The dominance of monopoly is the all-round sway of a 
handful of very big monopolists over all spheres of the eco- 
nomics, politics, and ideology of capitalist society. Monopo- 
ly profit should therefore not be understood as some sep- 
arate form of surplus value alongside profit of industry 
and trade, or dividends and interest. Monopoly profit is a 
complex and synthesised form of the income of monopolies, 
derived from all spheres of the economy through exploita- 
tion of all strata of the working people of the capitalist 
world. Monopoly profit is based on monopoly capital's domi- 
nance of the non-monopolised sector of the economy, on 
the subordination and use of small-scale, scattered production, 
and on the exploitation of economically underdeveloped 

Qualitatively, high monopoly profit is the economic form 
of the realisation of monopoly domination. Quantitatively, 
it is always higher than the normal profit of the non- 
monopolistic bourgeoisie, i.e. is monopolistically high. 

Monopoly profit reflects the complex set of production 
relations in the epoch of imperialism. Under pre-monopoly 
capitalism, average profit reflected the production relations 
between the whole capitalist class and the whole class of 
wage workers, and the relations between the capitalists them- 
selves in their struggle for the biggest share of the mass of 
surplus value. High monopoly profit reflects the production 
relations between the monopolistic bourgeoisie, on the one 
hand, and all workers and small commodity producers of 
their own country and the working people in economically 
less developed countries, on the other hand. It also reflects 
the relations between the monopolistic and the non- 
monopolistic bourgeoisie, and between the monopolists 
themselves, fighting for the biggest share of the total 
mass of profit. 

Bourgeois economists and reformists conceal the exploita- 
tive and parasitic essence of monopolies either by keeping si- 
lent on the subject of monopoly profit or by making an 
unsubstantiated denial of its existence. Generally, they depict 
monopoly profit as normal super-profit engendered by tech- 
nical progress in large enterprises, and so, to please the 

29— 107C 



monopolistic bourgeoisie, deliberately misrepresent the es- 
sence of monopoly profit and its class content. 

Intensified Exploitation of the Proletariat 

The initial source of monopoly profit is appropriation by 
monopolists of the surplus labour and a significant part of 
the necessary labour of the workers in material production. 

The dominance of monopoly leads to an increase in the 
degree of exploitation of labour in the production sphere, 
the monopolies striving above all to increase the amount 
of surplus labour of the wage workers. To that end, the 
monopolists improve and intensify their methods of obtain- 
ing absolute and relative surplus value, and in pursuit of 
super-profit spend large amounts on research, buy up patents 
on new inventions, and improve the organisational forms 
of production. 

The apologists of imperialism seek to console the prole- 
tariat with the fairy-tale that new technology, by replacing 
human labour, supposedly liberates the workers from exploi- 
tation and itself creates the owner's profit. In automated 
works, only two or three men are on duty on each shift but 
the profits are immense. This means, they say, that Marx's 
conclusions on exploitation of workers being the sole source 
of capitalists' profits are "outdated". 

Where do the profits of the owners of highly mechanised 
and automated enterprises come from then? 

(1) The owners of enterprises equipped with new sophis- 
ticated machinery obtain super-profit as a result of the 
difference between their costs of production and those of 
enterprises with an average level of technical equipment, in 
[his case appropriating part of the surplus value created 
by the workers in the less up-to-date enterprises. 

(2) Under monopoly conditions, a sharp increase in labour 
productivity does not lead to a corresponding fall in prices 
so that, even when the new technology spreads throughout 
capitalist enterprises and the social value of the commodities 
falls, the monopolies' profits remain at the same high level. 


(3) The circle of people involved in producing com- 
modities in automated works consists of far more than just 
the workers employed directly in the production process. 
The higher the level of technology, the more essential various 
auxiliary work becomes. Highly mechanised production is 
out of the question without various research institutions and 
laboratories and without an increase in the numbers em- 
ployed in them. 

Consequently, when new technology is used, exploitation 
is not lessened, but expands, and the number of workers 
exploited by the monopolies increases rather than decreases, 
which means that the mass of surplus value appropriated by 
the monopolies also grows. All the ways and methods of 
developing technology used by monopolies are directed to- 
ward a single goal, higher profits. 

The most important method of deriving monopoly super- 
profit is intensification of labour. By means of various mea- 
sures, the monopolies are constantly compelling workers to 
increase their expenditure of labour per unit of time and 
thereby to increase the volume of output. The introduc- 
tion of new technology and of mechanisation and automa- 
tion in general in monopoly enterprises is accompanied 
not only by a rise in the productivity of labour but also 
by an increase in its intensity. Both bring the monopolists 
enormous super-profits; but in many cases, the monopolies 
intensify labour without introducing any technical in- 

In the days of pre-monopoly capitalism, the main methods 
of intensifying labour were to increase supervision and 
control over work, to increase the number of machines that 
workers had to tend and to establish piece-rate payment. 
Along with the old methods, the monopolies have adopt- 
ed new ways of increasing the intensity of labour. The com- 
monest is to speed up conveyor belts (on flow lines) or the 
overall work rhythm in all sections of production. The most 
detailed time-and-motion studies are carried out using 
electronic instruments and other apparatus. Workers are 
fined for the smallest loss of labour time and sometimes 

The very character of the intensification of labour has 
altered under modern conditions. It usually used to mean an 

29 * 



increase in expenditure of muscular energy. At the present 
level of technology, it may not involve increased expenditure 
of physical labour, but the nervous tension is much higher, 
which is a worse form of intensification, as it has a more 
damaging effect on labour power. 

Monopolists try to find and introduce methods of inten- 
sifying exploitation that bear no external resemblance to 
ways long ago unmasked and that would seem like more 
"humane” relations between capitalists and workers. Thus 
the old, classical sweating systems of Taylor, Gantt, Rowan, 
and Halsey in the USA, for example, have gradually dropped 
out of use. The systems that have taken their place, how- 
ever, while outwardly seeming liberal, in reality ensure a 
higher level of intensification. Thus, the present time-rate 
system in imperialist countries, in conjunction with the prac- 
tice of so-called human relations, ensures a greater inten- 
sification of labour than the piece-rate systems previously 

The intensity of labour often reaches such a level that it 
cannot be compensated in any way by improvement in the 
workers' standard of living. In other words, labour power 
is directly destroyed in the interests of higher profit. The 
steady growth of cardiovascular and psychoneurotic illnesses 
among workers and the increase in the number of industrial 
accidents are eloquent evidence of this. 

The traditional piece-rate systems, which still play quite 
a significant role, are being fundamentally altered. The 
latest piece-rate sweating systems differ in being extremely 
complex, both in the calculation of norms and of wages. 
Thus, the old Bedaux system now uses a scale of 26 points 
and a host of coefficients to evaluate jobs, including such 
factors as the worker's "moral qualities", "comradely spirit", 
"prestige", "enjoyment of responsibility", and so on. They 
make it extremely difficult for workers to understand their 
actual wages and give the monopolists the chance to be 
completely arbitrary over wages. All the most recent wage 
systems (the system of "analytical job evaluation", "profit- 
sharing", group piece work, etc.) are aimed at enabling the 
monopolies to obtain as high super-profit as possible by 
increasing labour intensity to the extreme, and, at the same 
time, countering the growing organisation and cohesion of 


the proletariat. All these systems are presented as signs of 
"human relations”, "social partnership", and so on. 

The employment of foreign workers to do heavy and 
unhealthy work has become widespread in monopoly enter- 
prises in Western Europe. In the FRG, for example, there 
were around two million such workers in 1973 (mainly 
Turks, Greeks, Spaniards and Italians). They comprised 14 
per cent of those employed in industry and 25 per cent in 
construction jobs. As a rule, they are paid at the lowest rates, 
deprived of all bonuses (which constitute 40 per cent of 
real wages for the national workers) and live under much 
worse conditions. It is not by chance that even the bourgeois 
press calls foreign workers the "negroes of Europe . Exploi- 
tation of immigrants and foreign workers yields West Ger- 
man, British, French, and other imperialist countries' mo- 
nopolies enormous super-profits. 

Given the domination of monopolies, the introduction of 
new technologies into their enterprises and the raising of 
productivity and the intensification of labour enable monopo- 
lies to consolidate the super-profit so obtained and to con- 
vert it into a stable source of monopoly profit. 

By raising the intensity and productivity of labour, mo- 
nopoly capital also intensifies the degree of exploitation of 
the working class. The rate of surplus value (s’) in the manu- 
facturing industry of the USA has been calculated by Soviet 
economists to be approximately 350 per cent at present. 

The increase in the intensity of labour raises the value 
of labour power and should be accompanied by a correspond- 
ing rise in workers' wages; but in reality wages either do not 
grow at all or do so to a lesser degree than work tension 

Apart from the surplus value created by wage workers, 
the monopolies appropriate a significant proportion of the 
value of labour power. The growth of relative overpopulation 
promotes a lowering of wages in comparison with the value 
of labour power. No one has defined the value of the commo- 
dity labour power in the capitalist world, but a so-called sub- 
sistence minimum is calculated for the average American 
family. According to official US statistics, a quarter of Ameri- 
can families at the beginning of the 1970s had an annual 
income 50 per cent below the "poverty line , while more than 



30 million Americans had an annual family income of only 
a third of this level. 

According to the Brookings Institution, the poorest 20 
per cent of Americans receive only 3.2 per cent of the US 
national income, while the rich 20 per cent of Americans 
receive 46 per cent, and the richest 5 per cent alone appro- 
priate 19.1 per cent of the national income. 

Monopolisation in the Sphere of Circulation. 
Intensification of the Exploitation 
of Small Commodity Producers 

Under imperialism, the sphere of circulation plays an 
important role in providing monopoly profits. The domina- 
tion of monopolies in the economy results in a significant 
share of the value and surplus value created in the various 
sectors of production being redistributed through the sphere 
of circulation in favour of the monopolies. Monopoly prices 
play a leading role in this. 

In Marx's definition, a monopoly price is one that exceeds 
the price ot production and value ot commodities. In order 
to maintain selling prices at their monopoly level and to 
prevent supply from exceeding demand, monopolies strive 
so to regulate their production as to keep up market tension. 
They resolutely oppose the invasion of new home or foreign 
capital into their industry, and by buying up patents on new 
techniques and technology they prevent new inventions and 
processes from coming into common use and so counter any 
fall in price. Such methods help them maintain the prices of 
their products at a high monopoly level and redistribute the 
value created in the various spheres of production in their 
own favour. 

At the same time, monopolies buy commodities from small 
producers and non-monopoly capitalists (outsiders) at mo- 
nopoly low prices, i.e. at less than their value and price of 

Each monopoly strives for unlimited and continuous price 
increases on its own commodities; but its drive comes up 
against objective limits set by the law of value and the 
other economic laws of capitalism. The non-monopolised 



sector of the economy cannot be finally eliminated by the 
monopolies because then the foundations of their own domi- 
nation would be undermined. That means that high and low 
monopoly prices cannot be used to redistribute all the surplus 
value created in the non-monopolised sector in favour of 
the monopolies. Redistribution, however, does take place, 
without doubt, and a fundamental one at that, which 
significantly cuts the rate of profit on non-monopolised 

High monopoly prices can exist not only with rising selling 
prices, but also when they are constant or even falling. The 
monopolies can maintain prices constant even when value 
is decreasing. The price of a commodity is a monopoly price, 
when its selling price is falling, provided its value is drop- 
ping even more rapidly. 

The specific nature of a monopoly price is that two 
dialectically connected but opposing forces operate on it 
directly, competition and monopolisation. The force of com- 
petition works objectively to convert a monopoly price into 
an ordinary market price, i.e. to bring it close to value, or, 
rather, to the price of production. The force of monopoli- 
sation, on the contrary, works to make a monopoly price 
deviate as much as possible from the price of production. 
The higher the degree of monopolisation and the strong- 
er the monopoly, the more monopoly price exceeds the 
price of production and the greater the monopoly super- 

High monopoly prices are associated with additional 
exploitation of the working class as purchaser of commodi- 
ties belonging to the monopolies. During the circulation of 
commodities, the monopolies draw off an additional pro- 
portion of the necessary labour of workers and convert it 
into a source of monopoly profit. 

With the help of the price mechanism, the monopolies 
rob and ruin small commodity producers. The "scissors" of 
monopoly prices consists in small producers being compelled 
to sell their output at monopoly low prices and to buy 
industrial goods at monopoly high prices. 

Peasants and small farmers usually produce a product 
that requires further processing in an industry that is 
exclusively in the hands of the monopolies. The latter buy 



up the output of the small producers at low monopoly prices 
and sell it in processed form at high monopoly prices to 
the urban consumer. Some of the difference between the 
consumer's expenditure on foodstuffs and the farmer's share 
consists of the costs of processing, but a larger proportion 
is monopoly profit. The practice of fixing monopoly prices 
is a double robbery of both the producers and the con- 

In buying agricultural machinery, equipment, fertilisers, 
and so on, from monopolies, at high monopoly prices, the 
small producers lose yet another part of the value' they have 
created. The "price scissors" leads to a significant cut in 
the real incomes of those who till the soil. In 1974 
alone, for example, the incomes of farmers in the USA 
fell in current prices by 17.6 per cent compared with 
1973, and significantly more, by 29.6 per cent, in constant 

The peasantry are plundered and ruined under imperial- 
ism also by usury, especially by mortgages. 

Because of the technical progress of agriculture in in- 
dustrially developed capitalist countries in the post-war 
period, monopoly capital is no longer content with exploiting 
the peasantry through the sphere of circulation (the "price 
scissors", credit on dictated terms, and so on), but is in- 
creasingly penetrating directly into the sphere of agricul- 
tural production, with so-called vertical integration of agri- 
culture and industry taking place. In signing contracts wi