[OPE-L:845] Capital exports and the organic composition of capital

Paul Cockshott (wpc@clyder.gn.apc.org)
Wed, 24 Jan 1996 13:46:51 -0800

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I hope comrades will excuse this posting, it is
out of sequence, in that we should not really be dealing
with it until we get to the book on the world market.
I produced it for the Marxism list, but since it
relates to things that we shall have to work on
in the future, I thought it worth reposting to here.

On the question of Capital Exports

I have been engaged in a dialogue with Adam on the
Marxism list on the coherence of aspects of the
'orthodox' theory of imperialism. He had argued that
one factor preventing the rise in the organic
composition of capital in the first half of this
century had been capital exports.

I challenged this, saying that one could not generalise
this as a statement about all the leading imperial
powers, since some were net importers and some net
exporters of surplus value, and that export of
surplus value was a precondition for capital export.

He replied that of course Britain among other countries
was a net importer of surplus value, that was what
imperialism is all about, but that none-the-less it
was also an exporter of capital.

This position of Adam's is a commonly beleived fallacy
that bears upon our whole interpretation of Imperialism,
and is, I think, a legacy of the rather superficial
political economy in Lenin's pamphlet of the same name.
It is difficult to deal with these questions in the
abstract, so, I will illustrate the point using
contrasting national accounts for value and surplus
value flows for the UK and the US in 1925 a representative
peacetime year in the middle of the century.

My sources for the UK are Feinstein and for the US

United Kingdom 1925

The first thing to look at is the national balance on
trade in material commodities, the so called visible
trade balance. The figures, are in millions of pounds sterling.
Table 1
imports 1208
exports 943
balance -265

This shows that the UK was running a deficit on its
visible trade, the typical situation for the period
in question. In orther words there was a net inflow
of value into the country in the form of commodities.

We now look at the so called invisible trade balance.
This includes some categories that represent commodity
transactions, i.e., exchanges of equivalents, and some
that represent surplus value transfers - non-exchange
transfers. In the categories below, shipping and travel
represent exchanges, the others unequivalenced transfers.
Table 2
a)govt 8
b)shipping 11
c)travel 18
d)financial services 41
e)interest+profits 232
f)private transfers 7
balance 317

The balance on the invisible account is positive.
But it is more meaningfull if we divide the invisible
account into categories that represent commodity
exchanges and categories that represent unequivalenced
transfers to derive the change in overseas assets
plus gold.

Table 3
balance on commodity account -236
balance on surplus value account 288
Growth in holdings of gold 52
and overseas assets

Thus at the end of the year, UK residents and resident
companies ended up owning more overseas assets than
at the start of the year, despite having run a deficit
on the trade account. Did these 52 million represent
capital exports?

No. They represented that portion of the surplus value
accruing to British owned companies operating overseas
that was retained overseas as fresh capital. It was
surplus value produced overseas that was capitalised

When looking at table 3 it must be recognised that
rows 1 and 2 represent quite different things. The
commodity account represents an inflow of value
materialised as use values. The surplus value account
is a purely book keeping entry. It is not a flow of
value into the country. Instead, it represents a rate
of change in the gross titles to overseas assets held
by UK residents. Initially, these titles would be
titles to ownership of foreign currency. For instance
they would include the profits in Rupees of British
companies in India etc.

Of the 288 million pounds worth of Rupees, Rands etc,
236 million were spent overseas to purchase commodities
that were shipped to Britain. That left 52 million
pounds worth that were either converted into gold
and deposited in the Bank of England, or, were used
to buy buildings and plant in India, South Africa,
Australia etc.

Now let us look at whether this would have helped
or hindered the rise in the organic composition of
capital in the United Kingdom.

Table 4
Domestic surplus value
gross profits 510
- stock appreciation -139
- capital consumption -283
+ rent 290
total 378

There was a net flow of 378 million in surplus value
to the property owning classes within the UK.
The total sources of funds of the property owning
classes was thus as shown in Table 5.

Table 5
Consolidated Sources and uses of surplus value
Inflow of surplus 288
invisibles (a,d,e,f)
Domestic surplus value 378
Total funds 666

Net domestic fixed 50
capital formation
Growth in overseas 52
assets + gold reserves
(balance of payments)

Net capital growth 102
Total consumption of 564
surplus value

Thus, the capitalist class acquired title to
surplus value to the monetary value of 666 millions
at home and abroad. Out of this they reinvested
50 million in new plant and equipment in the UK,
spent 564 million on consumption and taxes of one form
or another, and were left with 52 million in gold
and overseas assets.

The assumption behind Adams argument was that the
capitalists needed some means of disposing of their
profits abroad in order to prevent the organic
composition of capital rising. But in practice this
does not seem to have been a problem - the great
majority of their profits were unproductively consumed.
But even to pose the problem in this way is to
reverse the real causality. Within the circulation
process at a national scale, it is the level of
capitalists consumption and investment which jointly
with the international balances determines the income
accruing to capital. Had they decided to invest
more in plant and machinery, their aggregate profits
would in large measure have risen to fund it.

I say in large measure, since some of the investment
would have taken the form of imported means of production
which would have added to the profits of capitalists

The conclusion we can draw is that there were no
capital exports from the UK. Instead, the
UK acted as a drain on the capital stock of countries
like India and Australia as a portion of profits generated
there were converted into revenues to pay for imports
required to meet the luxury consumption of the rich
in the UK.

We can contrast this with the USA which genuinely
was a capital exporter during the 1920's.

United States 1925

imports 4963
exports 5317
balance 354

a)investment income 729
b)gold purchases 36
c)private transfers -362
balance 317

Change in overseas assets
balance on commodity account 354

balance on surplus value account 317
Growth in holdings of gold 671
and overseas assets

In the American case, both the commodity account
and the surplus value account were in surplus. Thus
unlike Britain, US held foreign assets grew not only by
the surplus on property income from other countries,
but also by the surplus on the commodity account.

The US, thus added $354 million to the capital
stocks in overseas countries, whilst allowing
$281 million to accumulate as capital assets in
US foreign subsidiaries, and converting a further
$36 million of foreign generated surplus value
into money capital (gold).

Bearing in mind the then prevailing exchange rate
of $4 = 1 pound, we see that the US and the UK had
approximately the same level of imports. But because
the US was exporting more commodities than it imported,
i.e., was a net capital exporter, its stock of
foreign assets grew at 3 times the British rate
even though its income from overseas investments
was less than 1/2 that of the UK.

This shows not only that a surplus on the trade
account is a precondition for capital export, but
that in the absence of this, the relative international
position of the British capitalist class went into
decline. In the last 25 years we have seen the
process repeated with the US and Japan now occupying
the roles formerly taken by the UK and the US.

Adam remarked that when Lenin wrote about Imperialism
no one saw his description of Imperialism as exporting
capital as in any way controversial - it was just a
description of the world he lived in, and which
everyone recognised.

He may be right that no one saw this as controversial,
without a through review of the economic and socialist
literature of the day, it is impossible to say for
sure, but it has to be born in mind that the intellectual
atmosphere in the Communist International was not
conducive to a critical analysis of Lenin's economic