Political Economy

POLITICAL ECONOMY
A Beginner’s Course
A. LEONTIEV
First Published by
Co-operative Publishing Society of Foreign Workers in the U.S.S.R.
in 1935
First printed in the Union of Soviet Socialist Republics
Reprinted in the United States in 2014, by

Red Star Publishers
www.RedStarPublishers.org
CONTENTS
CHAPTER I – WHAT IS POLITICAL ECONOMY AND

WHAT DOES IT TEACH?
Marxism-Leninism – the doctrine of the proletariat 7
Class differences under capitalism 8
What are classes? 9
Productive forces and production relations 11
The scope of study of political economy 14
Political economy and the building of socialism 16
Two worlds, two systems 17
The road to socialism lies through the dictatorship of the proletariat 20
Political economy – a militant, class science 23
CHAPTER II – HOW DID SOCIETY DEVELOP TO CAPITALISM?
Our goal – a classless, socialist society 26
Have there always been classes? 26
Primitive clam communism 27
The decay of primitive society 30
Pre-capitalist forms of exploitation 31
The rise and development of exchange 35
The origin of capitalist production 38
CHAPTER III – COMMODITY PRODUCTION
What is a commodity? 41
Two properties of commodities 42
Value is created by labour 43
Abstract and concrete labour 46
Socially necessary labour 48
Simple and skilled labour 49
The market and competition 49
The development of exchange and the forms of value 51
Commodity fetishism 54
The role of money in the system of commodity production 55
The functions of money 57
The law of value – the law of motion of capitalist commodity production 60
CHAPTER IV – THE ESSENCE OF CAPITALIST EXPLOITATION
How the workers are exploited by capital. Labour power – a commodity 63
Primitive accumulation 65
The transformation of money into capital 66
Buying and selling of labour power and its value 68
What is the source of the capitalist’s profits? 69
Surplus labour and surplus value 70
What is capital? 74
Constant and variable capital 75
Rate of surplus value 77
Two methods of increasing surplus value 78
Excess surplus value 79
The struggle around the working day 80
Intensity of labour 81
Capitalism and technical development 82
Wage slavery 83
Slavery in the colonies 85
CHAPTER V – WAGES AND THE IMPOVERISHMENT
OF THE WORKING CLASS UNDER CAPITALISM
Value of labour power and its price 87
Wages a mask of capitalist exploitation 88
Wages and the struggle of the working class 89
Forms of wages 91
Timework 91
Piecework 92
Bonuses and profit-sharing 92
The “sweating system” 93
Scientific organization of labour. The Taylor and Ford systems 93
Payment in kind or in money 94
Nominal and real wages 94
Wages of skilled workers 95
The level of wages in the various capitalist countries 95
Growth of capitalist exploitation 97
Unemployment and the reserve army of labour 98
Supplanting of workers by machinery 99
The general law of capitalist accumulation 100
Impoverishment of the working class 102
Impoverishment of the proletariat and unemployment 102
under conditions of crisis
CHAPTER VI – DIVISION OF SURPLUS VALUE
AMONG THE CAPITALISTS
Equalization of the rate of profit 109
Tendency towards lower rates of profit 112
Commercial capital and its income 114
Forms of commerce, speculation 115
Loan-capital and credit 115
Rate of interest 117
CHAPTER VII – CAPITALISM IN AGRICULTURE
Antithesis between city and village 119
Ground rent 120
Source of ground rent 122
Purchase and sale of land 123
Ground rent and the backwardness of agriculture 124
Large and small scale production in agriculture 125
Distribution of land and the conditions of farmers in capitalist countries 128
Differentiation of the peasantry under capitalism 129
Impoverishment of the peasantry in capitalist countries 130
The peasantry an ally of the proletariat in the revolution 131
CHAPTER VIII – REPRODUCTION AND CRISES
UNDER CAPITALISM
Means of production and means of consumption 133
What is reproduction? 133
Simple and extended reproduction 134
Reproduction under capitalism 134
Capitalist accumulation 135
Concentration and centralization of capitalism 136
Historical tendency of capitalist accumulation 139
Reproduction and sale of commodities 140
Conditions of realization under simple and extended reproduction 142
Contradictions of capitalist reproduction 144
Capitalist crises of overproduction 147
Why are crises inevitable under capitalism? 148
Periodicity of crises 151
The significance of crises 152
CHAPTER IX – IMPERIALISM – THE EVE OF THE
SOCIALIST REVOLUTION OF THE PROLETARIAT
From industrial capitalism to imperialism 156
The teaching of Lenin on imperialism 156
Five features of imperialism 158
The domination of monopoly 159
Cartels, syndicates, trusts 161
Vertical combinations 161
Corporations 161
Monopoly and competition 162
Imperialism as monopoly capitalism 163
Monopoly associations in the most important capitalist countries 165
Finance capital 167
Export of capital 168
Division of the world among unions of capitalists 170
Seizure of the colonies and the division of the world 172
Dumping 173
The law of uneven development under imperialism 174
The law of uneven development and the proletarian revolution 177
The theory of ultra-imperialism 179
The theory of organized capitalism 182
The parasitism and decay of capitalism 185
Imperialism – the epoch of the doom of capitalism 188
CHAPTER X – THE WAR AND THE
GENERAL CRISIS OF CAPITALISM
Imperialism and the collapse of capitalism 192
The imperialist World War 193
Consequences of the World War and the general crisis of capitalism 195
Three periods of the general crisis of capitalism 199
Fascism and Social-Democracy 204
CHAPTER XI – THE CONTEMPORARY
WORLD CRISIS OF CAPITALISM
The economic crisis amidst the general crisis of capitalism 207
A crisis of overproduction 209
The most profound and protracted of all crises 210
The decline in production 212
The decline in the national income and reduction 215
in the national wealth
Unemployment and the conditions of the working class 216
Interweaving of the industrial and agricultural crises 219
The crisis and monopolies 222
The decline in foreign trade 224
The credit crisis, inflation and the struggle for markets 225
The present depression and its peculiarities 229
The eve of a new round of revolutions and wars 230
CHAPTER I
What Is Political Economy and What Does It Teach?
Marxism-Leninism – the doctrine of the proletariat
In its struggle the proletariat is guided by the teachings of Marx, Engels,
Lenin and Stalin. These great teachers and leaders of the proletariat have
forged a powerful weapon. They have created and developed the revolution-
ary theory of the proletariat. The Marxist-Leninist teaching is a guide for the
working class in its struggle under capitalism. Marxism-Leninism is a pow-
erful weapon in the hands of the class conscious workers of all countries
who enter the struggle against capital, and after the triumph of the proletar-
ian revolution it shows the working class the way to conduct successfully the
further struggle against all enemies of socialism, it enables them to carry out
a correct policy ensuring the building of a complete socialist society.
In his explanation of the first draft program of the Bolshevik Party,
Lenin wrote more than thirty years ago that Marxian theory
“...for the first time transformed socialism from a utopia into a
science, established a firm basis for this science and indicated the
road along which to proceed in developing and elaborating this sci-
ence further in all its details. It uncovered the essence of modern
capitalist economy, explaining how the hiring of labour, the pur-
chase of labour power, masks the enslavement of millions of prop-
ertyless people by a small group of capitalists, the owners of the
land, factories, mines, etc. It showed how the entire development of
modern capitalism tends towards the crushing of small enterprises
by large ones, creating conditions which make possible and neces-
sary the establishment of a socialist order of society. It taught one to
distinguish – under the veil of established customs, political in-
trigue, tricky laws and tangled teachings – the class struggle, the
struggle of propertied classes of all sorts with the propertyless
masses, with the proletariat, which leads all the propertyless
masses. It made the real task of the revolutionary, socialist party
clear: not the concoction of plans for the reorganization of society,
not sermons to the capitalists and their henchmen about improving
the conditions of the workers, not the organization of conspiracies,
but the organization of the class struggle of the proletariat and the
leadership of this struggle, the final aim of which is – the capture of
political power by the proletariat and the organization of socialist
society.”*
* Lenin, Collected Works, Vol. II, “Our Program,” p. 491, Russian ed.
7
POLITICAL ECONOMY – A BEGINNER’S COURSE
Marxism was the first to give a scientific approach to the study of the
history of mankind. Bourgeois scientists are powerless to explain the laws of
development of society. They represent the history of society as a continu-
ous chain of pure accidents in which it is impossible to find any definite law
connecting them. Marx was the first to show that social development like
natural development follows definite internal laws. However, unlike the laws
of nature, the laws of development of human society are realized, not inde-
pendently of the will and acts of man, but, on the contrary, through the ac-
tion of the broad human masses. Marxism discovered that the capitalist sys-
tem, by virtue of the contradictions inherent in it, is unswervingly advancing
towards its own destruction. Marxism teaches, however, that the destruction
of capitalism will not come of itself, but only as the result of a bitter class
struggle of the proletariat against the bourgeoisie. The social-democratic
theory that, since society presumably develops according to definite laws,
the working class can sit down with folded hands and wait for these laws to
bring about socialism in place of capitalism is a crass distortion of Marxism.
The laws of social development do not realize themselves automatically.
They forge their way through the class struggle taking place in society.
The proletariat, armed with the Marxist-Leninist teaching, carries on the
struggle for socialism with certainty. It knows the laws of social develop-
ment: with its struggle, its work, its activity, it follows these laws, which
lead to the inevitable destruction of capitalism and the triumph of socialism.
Marxism-Leninism teaches one to lay bare the class struggle of the dis-
inherited against their oppressors. Marxism-Leninism teaches that the only
road to socialism leads through the determined class struggle of the proletar-
iat for the overthrow of the power of the bourgeoisie and the establishment
of its own dictatorship.
Class differences under capitalism
Let us take any capitalist country. Whether it is an advanced or a back-
ward country, the first thing that strikes one is class differences. In splendid
mansions on streets lined with lawns and trees – a few rich people live. In
dirty, smoky houses, squalid tenements or rickety shacks on joyless streets –
live the workers, the creators of the tremendous incomes of the rich.
Under capitalism society is divided into two great enemy camps, into
two opposed classes – the bourgeoisie and the proletariat. The bourgeoisie
has all the wealth and all the power in its hands; it has all the plants, facto-
ries, mines, the land, the banks, the railroads; the bourgeoisie is the ruling
class. The proletariat has all the oppression and poverty. The contrast be-
tween the bourgeoisie and the proletariat – that is the most important dis-
tinction in any capitalist country. The struggle between the working class
and the bourgeoisie – that is what takes precedence over everything else.
The gulf between these two classes grows ever deeper, ever wider. With the
8
WHAT IS POLITICAL ECONOMY
growth of class contradictions the indignation of the masses of the working
class grows, their will to struggle grows, as do their revolutionary con-
sciousness, their faith in their own strength and in their final victory over
capitalism.
The crisis brought untold suffering to the proletariat. Mass unemploy-
ment, lower wages, thousands of suicides of people brought to desperation,
death from starvation, increased mortality of children – these are the joys of
capitalism for the workers. At the same time, the bourgeoisie gets its tre-
mendous incomes as usual.
Thus, for instance, according to German newspapers, 43 directors of the
dye trust get 145,000 marks a year each; 4 directors of the Schubert and
Saltzer Firm – 145,000 each; 2 directors of the Ilse Corporation – 130,000
each; 7 directors of the Mannesmann Corporation – 135.000 each; 22 direc-
tors of the Alliance Insurance Co. – 80,000 each.
Millions of people go hungry so that a handful of parasites may live in
luxury and idleness. This is the picture which capitalism presents, this is the
picture of the class contradictions, sharpened to the extreme by the unprece-
dented crisis.
The interests of the bourgeoisie and the proletariat are opposed to each
other. The bourgeoisie tries to hold on to its rule by all the devices of vio-
lence and deceit. The proletariat tries, in proportion to the growth of its class
consciousness, to do away with capitalist slavery and to substitute the social-
ist order for it.
The bourgeoisie and the proletariat are the basic classes in capitalist
countries. Their inter-relations, their struggle – these are what determine the
fate of capitalist society. However, in capitalist countries, together with the
bourgeoisie and the proletariat, there are other, intermediate strata. In many
countries these intermediate strata are fairly numerous.
The intermediate strata consist of the small and middle peasants (farm-
ers), artisans, and handicraftsmen. These strata we call the petty bourgeoisie.
What makes them kin to the bourgeoisie is that they own land, instruments
and tools. But at the same time they are toilers, and this makes them kin to
the proletariat. Capitalism inevitably leads to the pauperization of the inter-
mediate strata. They are being squeezed out under capitalism. Insignificant
numbers break through into the ranks of the exploiters, great masses are im-
poverished and sink down into the ranks of the proletariat. Hence, in its
struggle against capitalism, the proletariat finds allies in the broad masses of
the toiling peasants.
What are classes?
The bourgeoisie and the proletariat – these are the two main classes in
every capitalist country. The bourgeoisie rules. But the bourgeoisie cannot
exist without the working class. The capitalist cannot prosper if hundreds
9
and thousands of workers will not bend their backs and be drenched in sweat
at his plants and factories. The blood and sweat of the workers are converted
into jingling coin to fill the pockets of the rich. The growth and strengthen-
ing of bourgeois rule inevitably call forth the growth of the working class, an
increase in its numbers and in its solidarity. Thus the bourgeoisie prepares its
own grave-digger. As the capitalist system develops, the forces of the new,
socialist society ripen at its core. Classes, their struggle, the contradictions of
class interests – this is what constitutes the life of capitalist society. But what
are classes? Lenin answered this question as follows:
“What is meant by classes in general? It is what permits one
part of society to appropriate the labour of another. If one part of
society appropriates all the land, we have the classes of landlords
and peasants. If one part of society owns the plants and factories,
shares and capital, while the other part works for them, we have the
classes of capitalists and proletarians.”*
What is the secret, however, which renders it possible for one part of so-
ciety to appropriate the labour of another part of that society? And what are
the reasons for the appearance of whole groups of people that “sow not, but
reap”?
In order to understand this it is necessary to look into how production is
organized in society. Every worker, every toiling farmer knows very well
what production means. People must have food, clothing and shelter in order
to exist. Every toiler knows very well what work it takes to build houses,
cultivate land, produce bread, do the work in plants and factories to produce
the things man needs – because every worker, every toiling farmer, himself
takes part in this work.
By means of labour, people change objects found in nature, adapt them
for their use and for the satisfaction of their wants. In the bowels of the earth
people find coal, iron ore, oil. By their labour they extract these useful ob-
jects and bring them to the surface of the earth. Here the iron ore is smelted
and made into iron. The iron is in turn converted into the most diverse things
– from a locomotive to a pocket knife or needle.
Everyone knows that people do not work singly but together. What
could one man, by himself, do with a coal mine, an iron mine, a plant or a
factory? And first of all, could there be such undertakings altogether without
the united effort of thousands and tens of thousands of people? However, it
is not only on large undertakings that individual effort is unthinkable. Even
the individual peasant working a small plot of land with the help of his old
* Ibid., Vol. XXV, “Speech at the Third Congress of the Russian Young
Communist League,” p. 391, Russian ed.
10
mare could not do so if other people would not furnish him with a whole
number of necessary things. The handicraftsman and artisan who works by
himself could not get very far either without the instruments and materials
which are the product of the labour of others.
We thus see that production proceeds in society. Production is social,
but it is organized in various ways.
In order to produce, land, factory buildings, machinery and raw material
are needed. All these are called the means of production. But the means of
production are dead without human labour, without live labour power. Only
when labour power is applied to the means of production does the process of
production begin. The place and significance in human society of different
classes are determined by the relation of each of these classes to the means
of production. For instance, under the feudal system the principal means of
production – the land – is owned by the landlord. By means of his ownership
of the land, the landlord exploits the peasants. Under the capitalist system all
enterprises, all the means of production, are in the hands of the bourgeoisie.
The working class has no means of production. This is the basis for the ex-
ploitation of the proletariat by the bourgeoisie.
Capitalism was not the creator of classes and class differences. Classes
existed before capitalism, under the feudal system and even earlier. But capi-
talism substituted new classes for the old. Capitalism created new methods
of class oppression and class struggle.
“Classes are large groups of persons, differing according to
their places in the historically established system of social produc-
tion, according to their relations (mostly fixed and formulated in
laws) to the means of production, according to their roles in the so-
cial organization of labour and consequently according to their
methods of obtaining and the size of the share of social wealth over
which they dispose. Classes are groups of persons, of which one
group is able to appropriate the labour of another, owing to a differ-
ence in their respective positions in a definite order of social econ-
omy.”*
Productive forces and production relations
Marxism was the first to disclose the laws of development of human so-
ciety. Marx showed that economics lies at the basis of social development
and that the mainspring of social development is the class struggle. The
struggle of the oppressed classes against their oppressors – this is the fun-
damental motive force of history.
We have already seen that classes differ according to the place they oc-
* Ibid., Vol. XXIV, “The Great Initiative,” p. 337, Russian ed.

11
cupy in a given system of social production. We have also seen that the
place occupied by any class is determined by the relation of this class to the
means of production. In the process of production definite relations are es-
tablished between people.
We already know that social production is variously organized. In capi-
talist countries there is one social system, in the Soviet Union there is a to-
tally different one. In capitalist countries the proletariat is compelled to work
for the capitalist, is subjected to submission and arbitrary rule. There the
plants, the factories, the railroads, the land, the banks – all belong to the
bourgeoisie. The bourgeoisie has all the means of production in its hands.
This makes it possible for the bourgeoisie to drain the life sap out of the
workers, to oppress and enslave the working class. The relations between the
bourgeoisie and the proletariat, between the capitalist oppressors and the
exploited workers, put a decisive stamp on the entire order of any capitalist
country. In the Soviet Union, on the contrary, the proletariat occupies the
ruling position in the plants, the factories and in the entire state.
In the course of production, definite relations are established between
people, between entire classes. These relations we call production relations.
The relations between workers and capitalists can serve as an example of
production relations. Every social .system, every system of social produc-
tion, is characterized by the production relations dominant in it. In the Soviet
Union production relations are entirely different from those in capitalist
countries.
What determines production relations in society, on what do they de-
pend? Marx showed that production relations depend upon the stage of de-
velopment of the material productive forces of society. At different stages of
its development a society commands different levels of productive forces. At
present, production takes place principally at large plants and factories, by
means of complex machinery. Even in agriculture, where for ages the an-
cient wooden plough held sway, complex machinery is being used to an ever
greater extent. In the past, however, human labour was totally different.
Modern complex machinery was not even dreamt of then. In very ancient
times a stone and a stick were the only instruments known to man. Many
thousands of years have elapsed since then. Gradually man discovered newer
and newer methods of work, learned to make mew instruments. Instruments
and machinery are the servants and helpers of man. With their aid human
labour power produces enormous quantities of things which were undreamt
of before. Of course, with the change of the means of production, with the
introduction of new machinery, the very labour of man changes. During the
last century to century and a half, technical progress has been particularly
rapid.
About a hundred and fifty years ago people did not yet know anything
about the steam engine; electricity came into use only about fifty years ago.
12
Railroads have been developed only during the last hundred years. Automo-
biles became common only during the last few decades, tractors – even more
recently. People still remember very well the first appearance of aeroplanes
– it was only a short time before the war. The radio was developed only
since the war.
However, it is not only man’s tools – his inanimate assistants – that
grow and develop. At the same time the living productive forces of society
develop. The greatest productive force consists of the toiling classes them-
selves, man himself. The ability, the skill and the knowledge of man increase
with the development of machines and the growth of technique. There could
be no aviators while there were no aeroplanes, there could be no chauffeurs
before the appearance of automobiles. Man learns not only to work with the
assistance of complicated machines, first of all he also learns to create them,
to construct them.
Together with the development of the productive forces, production re-
lations change. Marx says that social production relations change simultane-
ously with the change and development of the material means of production,
with the change in productive forces.
Further, the transition from one form of class dominance to another is
inseparably linked up with the development of the productive forces of soci-
ety. Thus, for example, the development of capitalism is linked up with the
spread of large-scale production and with the appearance of machines.
We have already seen, for instance, that in primitive times the state of
development of productive forces was very low. Working tools were not yet
developed. Man could only inadequately struggle with nature. Primitive
tribes could only just manage to feed themselves on the products of the hunt.
There were no reserves whatever. Therefore there could not be a system of
classes, where one lives at the expense of the other. The division of society
into classes appears at a higher stage of development of the productive
forces.
Up to a certain point production relations stimulate the development of
material productive forces. Thus, for instance, capitalism radically changed
the old methods of labour, evoked and developed large-scale machine pro-
duction. But at a certain point in their development, the productive forces
begin to contradict the production relations within which they developed.
“From forms of development of productive forces these
relations turn into their fetters. Then comes the period of social
revolution.”*
* Marx, Critique of Political Economy, Preface, p. 12, Charles H. Kerr & Co.,
Chicago, 1908.
13
At the present time we are living in such a period of social revolution.
The production relations of capitalist society have turned into chains ham-
pering the further development of productive forces. Overthrowing the
power of capital, the proletariat breaks these chains. The proletarian revolu-
tion frees the productive forces from the chains of capitalism and opens up
an unlimited scope for their development.
The scope of study of political economy
The capitalist system, resting as it does on the brutal exploitation of the
toiling masses, will not get off the stage of its own accord. Only the heroic
revolutionary struggle of the working class, relying upon its alliance with
the basic mass of peasants and toilers in the colonies, will bring about the
overthrow of capitalism and triumph of socialism the world over.
How is capitalism organized, how is the apparatus organized by means
of which a handful of capitalists enslave the working masses? It is important
to know this in order to take a conscious and active part in the great struggle
which is now going on all over the world between capitalism and socialism.
The development of capitalism leads to the victory of the proletarian
revolution, the triumph of the new, socialist system. This was established by
Marx many years ago. Marx came to this conclusion through a thorough
study of the capitalist system of production, through discovering the laws of
its development and decline.
From this it is clear what tremendous significance there is in political
economy, which, in the words of Lenin, is “the science of the developing
historical systems of social production.” This science occupies a very impor-
tant place in all the teachings of Marx and Lenin.
In his introduction to Capital, Marx says:
“….it is the ultimate aim of this work to lay bare the economic
law of motion of modern society,” i.e., capitalist society.
Marx set himself the task of discovering the law of development of capi-
talist society in order to guide the proletariat in its struggle for freedom.
“The study of the production relationships in a given, histori-
cally determined society, in their genesis, their development, and
their decay – such is the content of Marx’s economic teaching,”*
says Lenin.
The servants of the bourgeoisie try to “prove” that the capitalist system,
capitalist relations, are eternal and immutable. Their purpose is perfectly
evident. They would like to convince the workers that there can be no ques-
tion of the overthrow of capitalism. The fall of capitalism, they say, is the
* Lenin, Marx-Engels-Marxism, “Karl Marx,” p. 15, Moscow, 1934.

14
fall of humanity. Humanity, according to them, can only exist on the basis of
the capitalist system. Hence they try to represent all the basic laws of capi-
talism, all the most important social relations of the capitalist system as eter-
nal laws, as immutable relations. Thus it has been – thus it will be, say the
hirelings of the bourgeoisie.
The political economy of Marx and Lenin does not leave a single stone
of this dream edifice of the reactionaries standing. The Marxist-Leninist the-
ory shows how capitalist relations arise from the ruins of the previous sys-
tem, how they develop, and how the development of the ever sharpening
internal contradictions of capitalism inevitably lead to its destruction, lead to
the victory of the socialist revolution of the proletariat – the grave-digger of
the bourgeoisie.
The history of mankind tells us that man lived on this earth for thou-
sands of years knowing nothing of capitalism. This means that the laws
which political economy discloses in capitalist production are neither eternal
nor immutable. On the contrary, these laws only appear together with capi-
talism and disappear with the destruction of the capitalist system which gave
rise to them.
It means, in addition, that political economy cannot confine itself to the
study of only the capitalist order of society, but must also study the previous
epochs in the development of society.
Marxist-Leninist political economy penetrates deeply into all the inner-
most recesses of the capitalist system of coercion and exploitation. It uncov-
ers the true nature of class relations which the learned hirelings of the bour-
geoisie try to befog.
Marxism-Leninism studies the production relations of people in capital-
ist society in their development, in motion. The productive forces of human
society develop, as we have already shown, within the framework of definite
production relations. The development of capitalist society, however,
reaches the point where the productive forces outgrow the limits imposed
upon them by the production relations within the framework of which they
grew and developed for a time. The contradictions between the productive
forces of capitalist society and its production relations then grow sharper and
deeper. These contradictions find their expression in the class struggle be-
tween the bourgeoisie, which defends the system of exploitation, and the
proletariat, which fights for the abolition of all exploitation of man by man.
Marxist-Leninist political economy centres its attention on the develop-
ing contradictions of capitalism, which lead to its destruction and to the tri-
umph of the socialist revolution of the proletariat. The social revolution is
conditioned by the contradictions between the productive forces and the
production relations under capitalism, which find their expression in the
class struggle. These contradictions inevitably grow keener as capitalist so-
ciety develops.
15
Political economy and the building of socialism
Socialism comes to replace capitalism. Under socialism, production re-
lations in society are entirely different in structure from those under capital-
ism. Must political economy study these new relations? Of course it must.
Lenin has shown that political economy is “the science dealing with the de-
veloping historical systems of social production.”
Engels – who was Marx’s closest companion-in-arms – has pointed out
that:
“Political economy, in the widest sense, is the science of the
laws governing the production and exchange of the material means
of subsistence in human society.”*
Consequently, political economy must study not only capitalism, but
also the epochs which preceded it and the order of society which is coming
to replace it.
Does this mean that for all systems of social production the same laws
prevail? Not at all. On the contrary, every system of social production has its
own peculiar laws. The laws which prevail in the capitalist order lose their
force and their significance under socialism.
At present, when socialism is being triumphantly built on a sixth of the
globe, the great practical importance of also studying the economic structure
of socialism and the transition period from capitalism to socialism is clear.
To us theory is not a dogma (i.e., a dead, religious doctrine), but a guide
to action. Theory is of great significance to the revolutionary struggle. The
greatest liberation movement in the world of an oppressed class, the most
revolutionary class in history, is impossible without revolutionary theory,
Lenin has stressed numerous times.
“You know that a theory, when it is a genuine theory, gives
practical workers the power of orientation, clarity of perspective,
faith in their work, confidence in the victory of our cause. All this
is, and must be, of enormous importance for the cause of our social-
ist construction,”† says Comrade Stalin.
Political economy must give a clear and precise understanding not only
of the laws governing the development and decline of capitalism, but also of
the laws governing the new socialist order that arises from the ruins of capi-
talism. Marxist-Leninist political economy throws a bright light on the pic-
ture of the decaying capitalist world and also on the picture of the socialist
* Engels, Herr Eugen Dühring’s Revolution in Science, p. 167, Moscow, 1934.

† Stalin, Leninism, Vol. II, “Questions of Agrarian Policy in the Soviet Union,”
p. 181, Moscow, 1933.
16
world under construction in the U.S.S.R.
It is clear that attempts artificially to confine political economy within
the narrow walls of studying only the capitalist system play into the hands of
the enemies of socialist construction. Such attempts prevent the theoretical
comprehension of the vast experience of the Soviet Union in economic con-
struction, experience of the utmost importance for the working class of the
entire world. Such attempts lead to theory lagging behind practice, to the
separation of theory from practice, which plays into the hands of our ene-
mies. Such a conception of political economy, as a science dealing only with
the capitalist system, is held by many economists, on the initiative of one of
the theoreticians of social-democracy, Hilferding, who attempts an idealist
revision of Marxism. Lenin came out sharply against such a conception.
Two worlds – the world of capitalism and the world of socialism – this
is what at present constitutes the centre of attention in political economy.
Two worlds, two systems
Unprecedented destruction and disintegration are taking place in capital-
ist countries. Beginning with the autumn of 1929 a crisis of unwonted depth
and power has been devastating these countries. This crisis has exceeded any
crisis previously known to the capitalist world in its severity, in its pro-
tracted nature and in the distress it has caused to the toiling masses.
The crisis brought tremendous ruin both to industry and to agriculture.
Because of the lack of markets, production has been curtailed to an ever in-
creasing extent, shutting down plants and factories and throwing millions of
workers out of employment. In the villages the areas under cultivation were
reduced, and millions of farmers ruined. Great quantities of goods were sim-
ply destroyed; in Brazil coffee was dumped into the ocean, in the United
States wheat was used to fire locomotives, milk was spilled into rivers, fish
thrown back into the sea, cattle destroyed, harvests ruined – all in order thus
to reduce the quantity of foodstuffs thrown on the market. At the present
time when the lowest depths of the crisis have already been passed, capital-
ism has succeeded in somewhat easing the position of industry by means of
the utmost intensification of the exploitation of the workers, by increased
robbery of the farmers, by still further pillaging the colonies. Nevertheless,
there can be no talk of any serious economic recovery in capitalist countries,
since capitalism is living through the period of its decline, its disintegration.
The bourgeoisie seeks a way out of the crisis by increasing the exploitation
of the masses of workers, by paving the way for a new imperialist war and
intervention against the U.S.S.R. The bourgeoisie is passing to fascist meth-
ods of rule to an ever greater extent, in an attempt to keep the workers in
.subjection by means of bloody terror.
During the years of this most profound crisis of world capitalism, the
U.S.S.R. has successfully fulfilled its First Five-Year Plan of socialist con-
17
struction in four years. At the present time, the U.S.S.R. is triumphantly car-
rying out the even greater task of the Second Five-Year Plan – the building
of classless socialist society.
The U.S.S.R. has laid the foundation of socialist economy during the
years of the First Five-Year Plan. Socialist large-scale industry – the funda-
mental base of socialism – has grown enormously. Dozens of new industries
have been created that had never before existed in Russia. In particular,
heavy industry, which is the backbone of the entire national economy, has
made great strides forward.
During the period of the First Five-Year Plan, the U.S.S.R. has also ac-
complished the tremendous task of reorganizing agriculture on socialist
principles. The new system of collective farms (kolkhozes), that opened the
door to a well-to-do and cultured life for the millions of peasants, has tri-
umphed in the village. The basic masses of the peasantry, the collective
farmers, have become staunch supporters of the Soviet power, and the last
bulwark of capitalism – the kulak (the rich, exploiting farmer) – has been
routed.
The working class has grown enormously. The living conditions of the
broad masses of workers have improved. The Soviet Union has been trans-
formed into a land of advanced culture. Universal education has been intro-
duced and the illiteracy of tens of millions of people has been done away
with. Millions of children and adults are studying at various schools. Tre-
mendous success has been achieved in the inculcation of socialist labour
discipline. The energy and activity, the enthusiasm of the millions of build-
ers of socialism, have grown tremendously.
“As a result of the First Five-Year Plan, the possibility of build-
ing socialism in one country was for the first time in the history of
mankind demonstrated before hundreds of millions of toilers of the
whole world.” In the Soviet Union “the worker and collective
farmer have become fully confident of the morrow, and the con-
stantly rising level of the material and cultural living standards de-
pend solely upon the quality and quantity of the labour expended by
them. Gone is the menace of unemployment, poverty and starvation
for the toiler of the U.S.S.R. Confidently and joyfully each worker
and collective farmer looks into his future, and presents constantly
rising demands for knowledge and culture.”*
At the same time, in the lands of capital the masses of toilers suffer un-
told and unprecedented privations. The army of unemployed grew with each
* Resolutions and Decisions of the Seventeenth Congress of the C.P.S.U., p. 9,

Moscow, 1934
18
year of the crisis until it reached the stupendous figure of fifty million. This
means that the present crisis doomed to all the tortures of unemployment and
hunger a number of workers who, together with their families, exceed the
population of the biggest capitalist country – the United States of America.
Now that the lowest point of the crisis has been passed not only is there no
improvement in the conditions of the masses of workers, but, on the con-
trary, their conditions are continually growing worse. The slight increase in
production in capitalist industry is taking place primarily at the expense of
the increased exploitation of the employed workers and the greater intensity
of their labour.
“Amidst the surging waves of economic shocks and military-
political catastrophes the U.S.S.R. stands out alone, like a rock, con-
tinuing its work of socialist construction and its fight to preserve
peace. While in capitalist countries the economic crisis is still rag-
ing, in the U.S.S.R. progress is continuing both in the sphere of in-
dustry and in the sphere of agriculture. While in capitalist countries
feverish preparations are in progress for a new war, for a new redis-
tribution of the world and spheres of influence, the U.S.S.R. is con-
tinuing its systematic and stubborn struggle against the menace of
war and for peace; and it cannot be said that the efforts of the
U.S.S.R. in this sphere have been quite unsuccessful.”*
After the end of the civil war in Russia, after the transition to economic
construction, Lenin said: “Now we exert our main influence upon the inter-
national revolution by our economic policy.” Hence the tremendous interna-
tional significance of the victory of socialism in the U.S.S.R. is evident. The
workers of capitalist countries, groaning under the pressure of the crisis, un-
der the yoke of fascism, look upon the U.S.S.R. as the fatherland of the
world proletariat. The success of the U.S.S.R. encourages the workers of
capitalist countries to struggle. The world-historical triumphs of socialism in
the U.S.S.R. are a tremendous factor in the world socialist revolution.
The capitalists and their lackeys are beginning to think with anxiety
about the fate of the capitalist system. The radical difference, the gulf be-
tween the turbulent socialist construction in the Soviet Union and the decay
of capitalism, is all too striking. To whom does the future belong – to com-
munism or to capitalism – this is the question which the foes of socialism
now put before themselves ever more frequently.
The struggle of two systems (i.e., social orders) – capitalism and social-
ism – that is the central issue of our times; Two diametrically opposite
* J. Stalin, Report on the Work of the Central Committee of the C.P.S.U. to She
Seventeenth Congress of the C.P.S.U., p. 8, Moscow, 1934.
19
worlds are facing each other: the world of labour, the world of the workers’
government, the world of socialism – in the Soviet Union; the world of the
bourgeoisie, the world of profit hunting, the world of unemployment and
hunger – in all other countries. The banner of the workers of the U.S.S.R.
carries the slogan: “Those who do not work shall not eat.” On the banner of
the bourgeoisie could be written: “The worker shall not eat.” It is clear that
the conscious workers of the entire world consider the Soviet Union their
socialist fatherland.
But the capitalist system of violence and oppression will not vanish by
itself. It will perish only as a result of the struggle of the working class. Only
the revolutionary struggle of the conscious proletariat will push capitalism,
which has become unbearable to the great masses of workers, into the grave.
Capitalism or socialism? With the establishment of the Soviet Union
this question arose in its full import. Capitalism or socialism? This question
becomes more acute with the growing successes of the U.S.S.R. and the
growing disintegration of capitalism.
The road to socialism lies through the dictatorship or the proletariat
In all capitalist countries power is in the hands of the bourgeoisie.
Whatever the form of government, it invariably covers the dictatorship of
the bourgeoisie. The purpose of the bourgeois state is to safeguard capitalist
exploitation, safeguard the private ownership of the plants and factories by
the bourgeoisie, the private ownership of the land by the landlords and rich
farmers.
For socialism to triumph, the rule of the bourgeoisie must be over-
thrown, the bourgeois state must be destroyed and the dictatorship of the
proletariat must be substituted in its place. The transition from capitalism to
socialism is possible only by means of an unremitting class struggle of the
proletariat against the capitalists, by means of a proletarian revolution and
the establishment of a proletarian state. Only by establishing its own state
can the working class proceed with the building of socialism and create a
socialist society.
The Social-Democrats claim that socialism can be attained without a
revolution, without establishing the dictatorship of the proletariat, that so-
cialism can be “introduced” democratically, through parliament, that by get-
ting a majority the workers can legislate socialism. But the bourgeoisie hav-
ing in its hands all the machinery of force (the police, the army, etc.) will
never allow real representatives of labour to get to power. So far as the So-
cial-Democrats are concerned, they could get the power – and in fact they
were allowed to assume power in a number of capitalist countries – just be-
cause they have defended and defend not the interests of the proletariat but
those of the bourgeoisie. While in power they not only passed no laws “in-
troducing socialism” but did not even try in the least to improve the condi-
20
tions of the workers. Quite the contrary, they supported the bourgeoisie in
attempts to lower wages, reduce unemployment doles, etc.
Despite the hypocritical assertions of the Social-Democrats, the road to
socialism does not lead through parliament nor through bourgeois democ-
racy. There is only one road from capitalism to' socialism – and that is the
one pointed out by the Communists – the road of proletarian revolution, of
the destruction of the bourgeois state machinery, of the dictatorship of the
proletariat.
“Between capitalist and communist society,” says Marx, “lies a
period of revolutionary transformation from one to the other. There
corresponds also to this a political transition period during which
the state can be nothing else than the revolutionary dictatorship of
the proletariat.” *
It was this road, the only correct, the only possible road to socialism,
that the proletariat of Russia took in 1917.
In the Soviet Union the working class won political power for itself. The
October Revolution established the rule of the proletariat, the dictatorship of
the working class. The working class strives to capture state power not
merely for power’s sake. State power in the hands of the proletariat is a
means for building the new, socialist society.
“Its purpose is to create socialism, to do away with the division
of society into classes, to make all members of society workers, to
take away the basis for the exploitation of man by man. This pur-
pose cannot be realized at once, it requires a fairly long transition
period from capitalism to socialism, because the reorganization of
production is a difficult matter, because time is required for all the
radical changes in every field of life, and because the enormous
force of petty-bourgeois and bourgeois habits in economic man-
agement can be overcome only by a long, persistent struggle. That
is why Marx speaks of the entire period of the dictatorship of the
proletariat as the period of transition from capitalism to socialism.”†
The transformation from capitalism to socialism cannot be accom-
plished at once. A fairly long transition period is unavoidable. During this
period state power is in the hands, of the working; class, which is building
socialism.
* Marx, Critique of the Gotha Programme, p. 44, International Publishers, New

York, 1933.
† Lenin, Collected Works, Vol. XXIV, “Greeting to the Viennese Workers,” p.
314, Russian ed.
21
The dictatorship of the bourgeoisie means the repression of the vast ma-
jority of the population in the interests of a handful of parasites. The dicta-
torship of the proletariat means the repression of a small group of exploiters
in the interests of the vast majority of the population, in the interests of the
entire mass of toilers. The proletariat uses its dictatorship to destroy all ves-
tiges of exploitation of man by man. On capturing political power the prole-
tariat becomes the ruling class: it manages all socialized production, crushes
the resistance of the exploiters, guides the intermediate, vacillating elements
and classes. Having become the ruling class, the proletariat begins the work
of creating a system of society without classes, either ruling or subordinated,
since there will be no classes or class distinctions whatever.
Under socialism the division of society into classes is done away with,
abolishing class contradictions and the class struggle, doing away with the
division into exploiters and exploited. But the road to classless, socialist so-
ciety lies through a period of the bitterest class struggle.
Lenin has incessantly stressed the fact that the dictatorship of, the prole-
tariat is a period of long, persistent class struggle against the exploiters,
against the remnants of the former ruling class. He wrote:
“Socialism is the abolition of classes. The dictatorship of the
proletariat has done everything possible to abolish these classes. But
it is impossible to destroy classes at once. Classes have remained
and will remain during the period of the dictatorship of the proletar-
iat. The dictatorship becomes unnecessary when classes disappear.
They will not disappear without the dictatorship of the proletariat.
Classes have remained, but each of them has changed its aspect un-
der the dictatorship of the proletariat; also their interrelations have
changed. The class struggle does not disappear under the dictator-
ship of the proletariat, it only assumes other forms.”*
Having assumed other forms, the class struggle under the dictatorship of
the proletariat becomes more persistent. And this is only to be expected: the
former ruling classes will do anything to win back their lost position. The
exploiters stop at nothing, are ready to commit the worst crimes against the
interests of the vast majority of the toilers in order to prevent the end of their
rule.
“The abolition of classes is a matter of a long, difficult and
stubborn class struggle, which, after the overthrow of the rule of
capital, after the destruction of the bourgeois state, after the
establishment of the dictatorship of the proletariat, does not
* Ibid., “Economics and Politics in the Epoch of the Dictatorship of the

Proletariat,” p. 513, Russian ed.
22
disappear, but only changes its form, becoming, in many respects,
more bitter.”*
The entire history of socialist construction in the U.S.S.R. brilliantly il-
lustrates the truth of this principle expressed by Lenin. The tremendous vic-
tories of socialist construction have been achieved in the process of an un-
remitting and most bitter struggle against all the remnants of the old order of
exploitation. The Soviet Union achieved most important and decisive victo-
ries over all the forces of the bourgeoisie. But their resistance grows
stronger.. Their methods of struggle against socialism become more vile.
Having suffered total defeat in open battle, the kulaks, traders, all the rem-
nants of the previous exploiting classes, try to sneak into Soviet enterprises
and institutions and attempt to undermine the powerful socialist structure by
means of sabotage, thievery, etc. The most wide-awake vigilance on the part
of the proletariat, the utmost strengthening of the proletarian dictatorship are
therefore essential.
“A strong and powerful dictatorship of the proletariat – that is
what we must have now in order to shatter the last remnants of the
dying classes and to frustrate their thieving designs.”†
Classless society cannot come of itself. It must be won. For this purpose
it is necessary actively to overcome the tremendous difficulties on the road
to socialism. It is necessary to crush the resistance of all the relics of the old
exploiting system. It is necessary to mobilize the energy and activity of the
millions of builders of socialism. It is necessary to resist any and all devia-
tions from the general line of the Party. Unfailing alertness is necessary with
respect to all attempts at distorting the Marxist-Leninist teaching.
The dictatorship of the proletariat is that power which accomplishes the
building of classless, socialist society. The dictatorship of the proletariat is
the leading force in the society that builds socialism. Therefore, in studying
the transition from capitalism to socialism, in studying the structure of so-
cialism, the dictatorship of the proletariat is the centre of attention of politi-
cal economy.
Political economy – a militant, class science
The bourgeoisie is interested in hiding the laws of the inevitable decline
of capitalism and triumph of communism. Bourgeois professors of econom-
ics – these “learned henchmen of the capitalist class,” as Lenin expresses it –
serve capitalism truly and faithfully, glossing over and embellishing the sys-
* Ibid., “Greeting to the Viennese Workers,” p. 315, Russian ed.

† Stalin, “Results of the Five-Year Plan,” in the symposium: From the First to
the Second Five-Year Plan, p. 54, Moscow, 1933.
23
tem of oppression and slavery. Bourgeois economists mask and befog the
real laws governing capitalist production. They try to perpetuate capitalism.
They depict capitalism as the only possible order of social life. According to
them the laws of capitalism are eternal and immutable. By such falsehoods
they try to save capitalism from its inevitable destruction.
At the head of the revolutionary struggle of the working class stands the
Communist Party. Only firm leadership on the part of the Communist Party
ensures the victory of the proletariat. All the enemies of communism veno-
mously hate the Communist Party. They strive in every way possible to split
it, to destroy its unity, and rejoice at any deviation from its general line
within the ranks of the Party.
Political economy is a sharp weapon in the struggle against capitalism,
in the struggle for communism. Political economy, like all sciences, and pri-
marily sciences dealing with human society and the laws of its development,
is a class science.
The proletariat is surrounded by hosts of enemies. A bitter class struggle
is in progress. In this struggle all attacks upon the general line of the Com-
munist Party, all attempts to undermine it either in theory or in practice bring
grist to the mill of the enemy. That is why a vigilant and unrelenting struggle
must be maintained against all deviations from the general line of the Party,
a struggle against open Right opportunism as well as against all kinds: of
“Left” deviations.
Counter-revolutionary Trotskyism is of special service to the bourgeoi-
sie in its struggle against the revolution, in its preparations for a new inter-
vention against the U.S.S.R. As one of the varieties of social-democracy,
Trotskyism particularly furnishes the imperialist bourgeoisie with all sorts of
slanderous fabrications about the revolutionary movement in various coun-
tries and about the Soviet Union. Trotskyism is an advance post of the
counter-revolutionary bourgeoisie.
Stalin in his letter of the autumn of 1931 to the editors of the Russian
magazine, Proletarskaya Revolyutsia* entitled “Questions Concerning the
History of Bolshevism,”† called the attention of the Communist Party to the
necessity of a relentless struggle against all the attempts of an ideology
hostile to Leninism to penetrate into the Communist Party, and particularly
to the necessity of a determined resistance to all sorts of attempts “to
smuggle the disguised Trotskyist rubbish into our literature.” The
representatives of trends hostile to the proletariat now try to smuggle in their
views subtly, unnoticeably. All such attempts must be vigorously resisted.
Any show of toleration towards these hostile views, any rotten liberalism
* The Proletarian Revolution.

† See Stalin, Leninism, Vol. II, pp. 393-405.
24
with respect to them, is a direct crime against the working class and its
struggle for socialism.
The class enemies of the proletariat try in every way to misconstrue po-
litical economy and to adapt it to serve their own interests. Bourgeois and
Social-Democrat economists trump up all sorts of concoctions in an attempt
to save capitalism. They also try to make use of political economy for their
own ends in their struggle against the Soviet Union.
One of the most important tasks in the study of political economy, there-
fore, is to conduct a relentless struggle against all anti-Marxian and devi-
ationist trends.
REVIEW QUESTIONS
1. What aim does Marxism-Leninism set before the proletariat?
2. How do the productive forces of society change?
3. In what way do the various systems of social production differ?
4. What are classes?
5. How does the abolition of classes take place?
6. What is the subject of study of political economy?
7. Of what importance is the study of revolutionary theory to the proletariat?
8. Why is political economy a class science?
9. Of what does the Party character of political economy consist?
25
CHAPTER II
How Did Society Develop to Capitalism?
Our goal – a classless socialist society
The Russian revolution of October (November) 1917 opened up a new
chapter in the history of mankind. It set as its aim the building of socialism.
Under socialism, the exploitation of man by man is done away The task of
the second five-year period, upon which the U.S.S.R. entered in 1933, is the
building of a classless, socialist society.
In his speech to the congress of collective farm shock brigade workers
in February 1933, Comrade Stalin said:
“The history of nations knows not a few revolutions. But these
revolutions differ from the October Revolution in that they were
one-sided revolutions. One form of exploitation of the toilers made
way for another form of exploitation, but exploitation, as such,
remained. Certain exploiters and oppressors made way for other
exploiters and oppressors, but exploitation and oppression, as such,
remained. The October Revolution alone set itself the aim – of
abolishing all exploitation and of liquidating all exploiters and
oppressors.”*
In order to understand thoroughly the full significance of the struggle for
a classless, socialist society, it is necessary to know the essence of class so-
ciety. It is necessary to remember of what classes society is constituted un-
der capitalism. One must keep in mind what classes are and clarify the ques-
tion as to whether classes have always existed. One must understand in just
what way capitalist society differs from all other forms of class rule. Finally,
one must thoroughly master the questions as to what course the struggle of
the working class must follow in order to destroy capitalist slavery, and as to
what the laws of development and decay of the capitalist system are.
Have there always been classes?
The menials of capitalism do their utmost to prove that the division of
society into classes is inevitable. It is important to the defenders of the mon-
eybags to depict things as if the existence of exploiters and exploited were
an eternal and necessary condition of the existence of any society. As far
back as in ancient Rome, when the exploited rebelled against their masters, a
certain defender of the ruling class told a fable in which he compared society
with the organism of an individual; just as in the individual, presumably,
* Stalin, Speech at the First All-Union Congress of Collective Farm Shock

Brigade Workers, p. 8, Moscow, 1933.
26
HOW DID SOCIETY DEVELOP TO CAPITALISM?
hands exist to do the work, and the stomach to take food, just so must soci-
ety have people to do all the work and others to take the fruit of the workers’
labour. As a matter of fact all the later apologists of the rule of the exploiting
classes, in their struggle against the destruction of the system of exploitation
of man by man, have not gone very much further than this miserable fable.
In reality it has been incontrovertibly proven that the human race lived
for many thousands of years without any class division, class rule or exploi-
tation. As is well known, man evolved from the animal kingdom countless
ages ago. Man has never lived segregated, by himself, but always in groups.
During the first stages of human development these groups were small.
What united the individual members of such groups? It is clear that what
united them was their common struggle for existence, their common labour
in obtaining food.
Primitive clan communism
Man had to conduct his struggle with nature during the primitive stages
of development under exceedingly difficult conditions. A stick and a stone –
that was all the weapons man was limited to tor many thousands of years.
Numerous dangers surrounded him at every step. He was almost powerless
against the tremendous forces of nature, about whose laws he knew nothing
at all.
Under these circumstances men lived in small communities, clans. They
worked in common and used the fruit of their joint labour in common also.
There could be no inequality at these low stages of human development
since people got only enough products by hunting, herding cattle or very
primitive agriculture for a bare existence.
All peoples lived in such primitive clan communes during the first peri-
ods of their development. Such primitive communes continued to exist even
up to very recent times in many remote corners of the earth which remained
uninfluenced by the more developed countries. The pressure of the European
bourgeoisie, which grabbed all these corners of the earth, of course worked
havoc with such organization. A thousand or fifteen hundred years ago,
however, the forefathers of some of these Europeans also lived in such a
primitive clan system.
Thus we see that up to the rise of class division in society, primitive clan
communism prevailed. There were different forms of this system among dif-
ferent tribes and peoples. But, irrespective of these differences, the primitive
stage of development of all peoples shows a complete similarity in the prin-
cipal features of the social organization.
The first stages of social development, in which primitive communism
existed, proceeded at an exceedingly slow rate of evolution. During hun-
dreds, even thousands of years, conditions of life practically did not change
or changed extremely slowly. Man took the first steps in his development
27
with tremendous difficulty. Generation followed generation and social con-
ditions did not change noticeably. Very slowly indeed man learned to perfect
his tools and his methods of work.
What were the social relations under primitive communism? The primi-
tive community or clan was usually small in numbers: with the technical
development existing at the time a large clan could not hope to feed all its
members. Labour in such a community was organized more or less accord-
ing to a plan. All members of the community had definite occupations. The
men, for instance, hunted. The women stayed at home with the children and
also had to till the soil. Upon returning from the hunt the game was divided
according to established, time-honoured custom.
“The population was very small in numbers. It was collected
only on the territory of the tribe. Next to this territory was the hunt-
ing ground surrounding it in a wide circle. A neutral forest formed
the line of demarcation from other tribes. The division of labour
was quite primitive. The work was simply divided between the two
sexes. The men went to war, hunted, fished, provided the raw mate-
rial for food and the tools necessary for these pursuits. The women
cared for the house, and prepared food and clothing; they cooked,
wove and sewed. Each sex was master of its own field of activity:
the men in the forest, the women in the house. Each sex also owned
the tools made and used by it; the men were the owners of the
weapons, of the hunting and fishing tackle, the women of the
household goods and utensils. The household was communistic,
comprising several, and often many, families.* Whatever was pro-
duced and used collectively, was regarded as common property: the
house, the garden, the long boat.”†
Under conditions of primitive communism there could be no place for
social groups living on unearned income. There was no exploitation of one
part of the community by another in the framework of primitive commu-
nism. At that stage of human development, the instruments of labour were
very simple, so that there could be no question of private property in tools:
everyone was able, without much labour, to prepare for himself a spear, a
stone, a bow and arrow, etc. At the same time there was no private property
* “Especially on the northwest coast of America; see Bancroft. Among the

Haidahs of the Queen Charlotte Islands some households gather as many as 700
members under one roof. Among the Nootkas whole tribes lived under one
roof.” – F. E.
† Engels, The Origin of the Family, pp. 192-93, Charles H. Kerr & Co.,
Chicago, 1902.
28
in land. The land was the common property of the entire community, the
clan. It was just this remnant of communal land ownership that proved most
enduring among the peasantry even ages after the development of class divi-
sion in society. During later stages of social development the peasant com-
mune was frequently maintained artificially by the exploiters and the class
state in order to facilitate the exploitation of the peasantry, collect taxes, etc.
In other cases, on the contrary, the ruling classes destroyed communal life in
the village in order to clear the field for the free development of capitalism.
Communal ownership of land remained even after agriculture had be-
come the predominant, the principal form of labour. The land which was
given to individual peasant families to cultivate was redistributed from time
to time. It remained the communal property of the village and was frequently
distributed among the various households by means of drawing lots. Com-
munal ownership of pasture land remained even longer. A common pasture
for the entire village was by no means rare even after the rule of capital had
been established.
Thus, before the rise of class distinctions in society primitive clan com-
munism prevailed. In this order of society also there were various features
peculiar to the different peoples and tribes. However, in spite of these pecu-
liarities, the primitive stage of development among all peoples bore the
greatest similarity in the fundamental attributes of the system of society.
Bourgeois scientists, afraid of communism and the abolition of private
property, try to represent things as if the existence of society and even of
man himself is inconceivable without private property. The actual history of
human society refutes this fabrication of the servants of capitalism most un-
equivocally. As a matter of fact, private property, like the division of society
into classes, appears only at a comparatively late stage of social develop-
ment. People lived for many thousands of years without the least conception
of private property.
Under primitive communism there was no state. The state appeared
later, with the rise of private property and the division of society into classes.
Lenin in his lecture on the state said the following:
“In primitive society, when people lived in small clans, in the
lowest stage of their development, in a state near to savagery, in the
epoch from which modern civilized man is separated by several
thousands of years, at that time there were as yet no signs of the ex-
istence of the state.” This “was the time when there was no state,
when social connections, society itself, discipline and the labour
distribution were maintained by the force of custom, traditions, by
the authority or respect enjoyed by the elders of the clan or the
women, who at that time not only had equal rights with men, but
sometimes even greater rights, when there was no special category
29
of specialists to rule. History shows that the state is a special appa-
ratus for the coercion of people, coming into being only where and
when there has been a division of society into classes – that is, a di-
vision into such groups of people of which one can constantly ap-
propriate the labour of others, where one exploits the other.”*
We thus see that the division of society into a class of exploiters and a
class of exploited is not at all an eternal and inevitable feature of each and
every social system. On the contrary, we see that society existed for a very
long period of time without knowing anything of classes, or exploitation, or
private property.
The decay of primitive society
In primitive times man proceeded very slowly upon the road of devel-
opment, but nevertheless there was progress. Human society never remained
in a totally static condition. Tools slowly but surely were perfected. People
learned to use the previously incomprehensible forces of nature. The discov-
ery of fire played a tremendous role. Then the savages learned to make a
bow and arrow for hunting purposes. Having begun with a stick and a stone,
man gradually learned to make the stick into a spear and to grind the stone
so as to make it better adapted for hunting purposes. A new stage was
reached when the art of pottery making was achieved, when man learned to
make vessels from clay. The taming of the first domestic cattle and the culti-
vation of grain played a tremendous part. Thus cattle-raising and agriculture
began. With the discovery of how to smelt iron from the ore, and the inven-
tion of writing, the primitive period ends and the era of civilization begins.
In the Manifesto of the Communist Party, Marx and Engels have written that
beginning with this point the entire history of human society is the history of
class struggles.
How did classes originate? The appearance of classes is most closely
connected with the entire process of social development. The domestication
of cattle leads to the separation of cattle-raising tribes from the remaining
masses of the clan groups in primitive society. This is the first great social
division of labour. From this point on different communities have different
products. The cattle-herding tribes have the products of cattle-raising:
animals, wool, meat, hides, etc. A basis is established for the exchange of
products among the tribes. At first the exchange is conducted by the elders
of the clan communities; cattle is the main article of barter. Barter at first
takes place at points where various tribes meet; barter takes place, at first,
between different communities and not between separate members of the
communities.
* Lenin, Collected Works, Vol. XXIV, “On the State,” pp. 365-66, Russian ed.
30
At the same time, with the growth of the population, the old methods of
work prove inadequate. The ever increasing number of people cannot feed
themselves by means of these methods. There is a beginning of plant cultiva-
tion – the first steps in agriculture. Tilling of the soil, under those circum-
stances, inevitably brings about a much closer connection of some families
with their part of the cultivated land. Thus the basis for private property is
laid.
“The increase of production in all branches – stock raising, ag-
riculture, domestic handicrafts – enabled human labour power to
produce more than was necessary for its maintenance. It increased
at the same time the amount of daily work that fell to the lot of
every member of a gens, a household or a single family. The addi-
tion of more labour power became desirable. It was furnished by
war; the captured enemies were transformed into slaves. Under the
given historical conditions, the first great social division of social
labour, by increasing the productivity of labour, adding to wealth,
and enlarging the field of productive activity, necessarily carried
slavery in its wake. Out of the first great division of social labour
arose the first great division of society into two classes – masters
and slaves, exploiters and exploited.”*
To the extent that man masters new forms and methods of labour, a fur-
ther development of the division of labour takes place. People learn to make
utensils, all kinds of tools, various kinds of weapons, etc. This gradually
brings about the separation of artisanship from agriculture. All this greatly
widens the basis for the development of exchange.
The dissolution of primitive communism leads to the transfer of cattle
from communal to private ownership. Land and tools also become private
property. With the inception of private ownership the basis is laid for the rise
and growth of inequality.
“The distinction between rich and poor was added to that be-
tween free men and slaves. This and the new division of labour con-
stitute a new division of society into classes.”†
Pre-capitalist forms of exploitation
With the decay of primitive communism the division into exploiters and
exploited arises in society. People appear who live upon the labour of others.
The exploitation of one class by another – that is what characterizes the dif-
ferent stages of development of class society. The forms of exploitation,
* Engels, The Origin of the Family, p. 195.

† Ibid., p. 198.
31
however, the methods by means of which one class lives at the expense of
another, change with the different stages of development.
“Slavery, which reaches its highest development in civilization,
introduced the first great division of an exploited and an exploiting
class into society. This division continued during the whole period
of civilization. Slavery is the first form of exploitation characteristic
of the antique world. Then followed serfdom in the Middle Ages,
and wage labour in recent times. These are the three great forms of
servitude characteristic of the three great epochs of civilization.
Their invariable mark is either open or, in modern times, disguised
slavery.”*
We have already seen that classes differ in their positions within a defi-
nite system of social production, according to their relations to the means of
production. Each of the three main forms of society based on exploitation –
slavery, serfdom and capitalism – has, in this respect, its own individual fea-
tures. Every one of these forms of the exploiting society is distinguished by
its own structure of social production, its own type of production relations.
The system of slavery is met with in the most diverse epochs of the his-
tory of mankind. Slavery is the most ancient form of exploitation. It occurs
upon the very threshold of the written history of human society.
Under slavery the exploited class is the property of the exploiters. The
slave belongs to his owner just as a house, land or cattle. In ancient Rome,
where slavery flourished, the slave was called a “talking tool,” as distin-
guished from “mute tools” and “semi-mute tools” (cattle). A slave was con-
sidered a chattel belonging to his master who did not have to answer for the
murder of his slave. The slave-owner considered the slave as part of his
property, and his wealth was measured by the number of slaves he owned.
The slave-owner made his slave work for him. Slave labour is labour per-
formed under compulsion, under threat of punishment. Slave labour was
distinguished by its low productivity. Technical improvement was exceed-
ingly slow under conditions of slavery. The tremendous structures built with
slave labour were erected by means of the muscular effort of colossal armies
of slaves who worked with the simplest kind of tools. The slave-owner had
no reason to try to lighten the labour of the slave.
What is the limit of exploitation under slavery? Under slavery not only
the tools and instruments of labour belong to the slave-owner, but the la-
bourer himself. The slave is the property of his master. The slave-owner
feeds and maintains his slaves because the death of a slave is a loss to him,
decreases his wealth. So long as the exchange of products was undeveloped,
* Ibid., p. 214.
32
every slave-owner made his slaves produce only the things needed within his
own estate. The life of the ruling classes under slavery was characterized by
an insensate luxury and waste. But however great the luxury, there were lim-
its to slave labour, as beyond a certain definite amount excess products could
not be utilized. Under slavery the growth of wealth is circumscribed within
comparatively narrow limits. This is what caused the dearth of technical de-
velopment under the system of slavery.
Together with class dominance the state comes into being as an appara-
tus of coercion, compelling the majority of society to work for the exploiting
minority. In the slave-owning society of old the state was confined in a nar-
rower frame than it is at the present time. Means of communication were
still little developed, mountains and seas presented obstacles which were
difficult to surmount. Various forms of the state – the monarchy, the repub-
lic, etc. – were already present under slavery. Nevertheless, whatever the
form of the state was, it still remained an organ of the dominance of the
slave-owners. Slaves in general were not regarded as members of society.
Slave-owning society, particularly in ancient Greece and ancient Rome,
reached a high level of scientific and artistic development. However, it was a
culture erected on the bones of countless masses of slaves.
During periods of frequent wars the number of people who were made
slaves often grew tremendously. The lives of the slaves were extremely
cheap and the exploiters made their conditions of life altogether intolerable.
The history of slavery is one of bloody struggle between the exploiters and
the exploited. Uprisings of slaves against their masters were suppressed with
merciless cruelty.
Slave revolts shook slave-owning society to its very foundations, particu-
larly in the last period of its existence. Having conquered a series of countries
in the most remote corners of the world as it was then known to the Romans,
the Roman Empire had attained to enormous power, when it began to totter
more and more under the stress of the contradictions that were rending the
whole fabric of the society of that time. Especially famous is the slave rebel-
lion which broke out in Rome about two thousand years ago under the leader-
ship of Spartacus, who mobilized a huge army against the regime of the slave-
owners. The revolts of the slaves could not bring victory to the exploited,
could not put an end to exploitation in general. The slaves were not in a posi-
tion to set themselves a clearly perceived goal. They could not create a strong
organization to lead their struggle. Frequently the slaves were mere pawns in
the hands of the various factions of the ruling class who were fighting among
themselves. Nevertheless, the civil war and the slaves’ revolts dealt a severe
blow to the slave-owning order of society and prepared the soil for its destruc-
tion. However, in place of slavery a new form of the exploitation of man by
man appeared. This form, which prevailed during the Middle Ages, was feu-
dalism, the last stage of whose development was serfdom. Feudalism under-
33
went a comparatively long process of development. Under feudalism the tre-
mendous mass of the peasantry was exploited by a small group of feudal bar-
ons. The barons took into their own hands the supreme power over the land
worked by the peasants. For the right of working the land, the peasants had to
submit to a host of feudal services for their lords.
So long as natural economy prevailed, i.e., production for direct use and
not for exchange, feudal exploitation was circumscribed by comparatively
narrow limits. The feudal lords took a certain amount of the agricultural
products from the peasants for their own use. The greater part of these prod-
ucts were used up by the lord and his armed guard, and only a small portion
went in exchange for arms, some overseas goods, etc. The development of
exchange, however, led to a gradual increase in the appetites of the feudal
lords. Now they not only squeezed from the peasant the tribute that went for
the use of the lord and his menials, but the amount of tribute exacted for
purposes of exchange for other goods continually grew. As the exchange of
goods developed, the possibilities for increased exploitation of the peasantry
by the feudal lord became greater. The growth of exchange destroyed the old
patriarchal relations between the feudal lord and the peasants dependent
upon him and led to the rise of serfdom.
Serfdom represents a form of the severest kind of exploitation of the
peasantry by the landlords. Under serfdom the basic means of production –
the land – is in the hands of the landlords. The landlords appropriate the land
which has been tilled by a number of generations of peasants. But they are
not content with this. Taking advantage of the powers of the state which is
also in the hands of the landlords, they turn the previously free peasants into
their serfs. The peasants are attached to the land and become practically the
property of the landlord.
Trying in every way to augment their income, the landlords increase the
exploitation of their serfs. Exchange is already fairly well developed at the
time of serfdom. Overseas trade takes on considerable proportions. Mer-
chants furnish the serf-owning landlords with all kinds of overseas goods.
Money becomes more and more important. In order to get more money the
serf-owner squeezes more and more labour out of his peasants. He takes
away land from the peasants, limits their allotments, and, in place of these,
sets up his own fields upon which he makes these same peasants work.
Corvée service is introduced: the peasant must work the lord’s field for three
to four days a week and can work his own allotment only on the other days.
In other cases the serf-owning landlords appropriate ever increasing parts of
the harvest from the peasants’ fields by the system of making the peasants
pay quit-rent.
The exploitation of the serfs evoked the bitterest struggles of the peas-
ants against their landlords. The history of every country shows a great
number of peasant rebellions. There were peasant uprisings in many coun-
34
tries during the period of serfdom (in Germany, France, England, Russia).
Some of these uprisings lasted for decades. For tens of years these countries
were in the throes of civil war. The uprisings were suppressed mercilessly by
the landlords and their governments. This struggle of the peasants against
the landlords was utilized by the rising bourgeoisie in order to hasten the fall
of serfdom and to substitute capitalist exploitation for serf exploitation.
Here is what Stalin says about the substitution of one social form for
another:
“'The revolution of the slaves liquidated slavery and abolished
the slave form of exploitation of the toilers. In its place it introduced
the feudal rulers and the serf form of exploitation of the toilers. One
set of exploiters took the place of another set of exploiters. Under
slavery the ‘law’ permitted the slave-owner to kill his slaves. Under
the serf system the ‘law’ permitted the serf-owner ‘only’ to sell his
serfs.
“The revolution of the serf peasants liquidated the serf-owners
and abolished the serf form of exploitation. But in place of these it
introduced the capitalists and landlords, the capitalist and landlord
form of exploitation of the toilers. One set of exploiters took the
place of another set of exploiters. Under the serf system the ‘law’
permitted the sale of serfs. Under the capitalist system the ‘law’
permits the toilers ‘only’ to be doomed to unemployment and pov-
erty, to ruin and death from starvation.
“It was only our Soviet revolution, only our October Revolution
that put the question, not of substituting one set of exploiters for an-
other, not of substituting one form of exploitation for another – but
of eradicating all exploitation, of eradicating all and every kind of
exploitation, all and every kind of rich man and oppressor, old and
new.”*
The rise and development of exchange
We have already seen that exchange originated in the very ancient times
of human history. Together with the first steps in the division of labour in
society, the foundation was laid for the rise of exchange. At first exchange
took place only between neighbouring communes; each exchanged its excess
products for those of the other. However, having originated at the border
between communes, exchange soon exerted a destructive influence upon
relations within the commune. Money appeared. At first those products
which were the principal objects of exchange served as money. Thus in
* Stalin, Speech at the First All-Union Congress of Collective Farm Shock

Brigade Workers, p. 8.
35
many cases when exchange took place with cattle-raising clans or tribes,
cattle served as money. The wealth of a tribe – and after the appearance of
private property, the wealth of an individual – was measured by the number
of head of cattle owned.
Natural production, however, prevailed for a long time after the rise of
exchange. The production of goods not intended for exchange is called natu-
ral production. On the other hand, the production of goods for sale on the
market, for exchange, is called commodity production.
It is natural production which prevails during slavery and feudalism.
Pre-capitalist forms of exploitation arise and develop on the basis of the
prevalence of natural production. Only the gradual development of exchange
undermines the foundations of these forms of society.
Here is what Engels says about this stage of development:
“We all know that in the early stages of society products were
used by the producers themselves and that these producers were or-
ganized spontaneously in more or less communistic communes; that
the exchange of surplus products with outsiders, which is the prel-
ude to the transformation of products into commodities, is of later
date, at first occurring only between individual communes belong-
ing to different tribes, but later coming into effect also within the
commune and materially helping to break them up into larger or
smaller family groups. But even after this breaking up, the heads of
families conducting exchange remained working peasants produc-
ing almost everything necessary to satisfy all their demands within
their own economy with the help of the members of the family and
only obtaining an insignificant part of objects of necessity from out-
side in exchange for surplus products of their own. The family is not
only occupied in agriculture and cattle-raising, it also works up the
product from these into articles ready for use, in places it still grinds
flour with the hand mill, it bakes bread, spins, dyes, weaves linen
and wool, tans leather, erects and repairs wooden houses, makes
tools and instruments of labour, often does carpentry and forge
work, so that the family or family group is, in the main, self-
sufficient.
“The few things such a family has to obtain by exchange or
purchase from others consisted, even as late as the beginning of the
nineteenth century in Germany, mainly of the products of artisans,
i.e., of such things as the peasant is not at all incapable of preparing
himself but which he did not produce himself only because either
the raw material was not accessible to him or because the purchased
36
article was much better or very much cheaper.”*
Thus natural production prevails not only under slavery and in the Mid-
dle Ages, but also under new conditions. Commodity production is by no
means prevalent at the inception of capitalism. Only the development of
capitalism strikes a mortal blow at natural production. Only under capitalism
does commodity production, production for sale, become the decisive, the
predominant form of production.
Within pre-capitalist society, commodity production develops to an ever
greater extent together with an increase in the division of labour. Of particu-
lar significance is the separation of handicraftsmanship from agriculture.
Whereas the peasant agriculturist conducts his husbandry mainly as natural
production, the same cannot be said of the artisan. Handicraftsmanship is,
from the very beginning, clearly of a commodity-producing character. The
artisan producing a pair of boots or a set of harness, a plough or horseshoes,
clay or wooden vessels, works from the very start for the market, for sale.
But unlike commodity production under capitalism, the artisan works with
instruments of labour which are his own. As a rule he applies only his own
labour power. Only later, with the development of cities, does the artisan
begin to hire apprentices and journeymen. Finally, the artisan usually works
upon local raw material and sells his commodities in the local market. When
things are produced for sale on the market but without wage labour we have
simple commodity production as distinguished from capitalist commodity
production.
“Previous to capitalist production,” says Engels, “that is to say,
in the Middle Ages, small-scale production was general, on the ba-
sis of the private ownership by the workers of their means of pro-
duction: the agricultural industry of the small peasant, freeman or
serf, and the handicraft industry of -the towns. The instruments of
labour – land, agricultural implements, the workshop and tools –
were the instruments of labour of individuals, intended only for in-
dividual use, and therefore necessarily puny, dwarfish, restricted.”†
Wherein lies the difference between simple commodity production arid
capitalism? The artisan, handicraftsman, small-scale farmer own their tools,
raw material and means of production. They work by themselves, producing
their goods with the aid of these means of production. Under capitalism it is
different. There the plants and factories belong to the capitalists and in them
work hired labourers who do not have their own means of production. Sim-
ple commodity production always precedes capitalism. The capitalist system
* Engels, Supplement (Nachtrag) to Vol. Ill of Capital, German ed., 1895.

† Engels, Herr Eugen Dühring’s Revolution in Science, p. 301.
37
could not arise without simple commodity production. The latter prepares
the way for capitalism.
In its turn the development of simple commodity production inevitably
leads to capitalism. Small-scale commodity production gives birth to capital.
One of the misinterpretations of Marxism is the attempt to deny the ex-
istence of simple commodity production as the historical precursor of capi-
talism. The political significance of this distortion of Marxism is clear. The
fact of the matter is that even in the period of the prevalence of capitalism
throughout the world many remnants of the former system still remain, a
great number of the elements of simple commodity production, many mil-
lions of small peasants, artisans and handicraftsmen. These masses of petty
commodity producers, independent in appearance, but in reality groaning
under the unbearable yoke of capitalism, constitute a reserve from which the
proletariat draws its allies in the struggle for the socialist revolution. The
distortion of the role and significance of simple commodity production
forms a basis for the negation of the role of the basic mass of the peasantry
as an ally of the proletarian revolution. This distortion lies at the basis of the
counter-revolutionary theory of Trotskyism.
The attempt to separate simple commodity production from capitalism
by a sort of Chinese wall is a no less crude distortion of Marxist-Leninist
theory. Lenin constantly stressed the fact that small-scale commodity pro-
duction daily, hourly, gives birth to capitalism. The negation of this principle
leads, for instance, under conditions prevailing in the U.S.S.R., to views like
those held by the Right opportunists who advocated the perpetuation of
small-scale production in the village, leads to a lack of understanding of the
necessity of the socialist transformation of the village on the principles of
large-scale social production.
The origin of capitalist production
Capitalism originated within the feudal-serf system. The oldest forms of
capital are commercial and usurer capital. The merchant played an ever
more important role as exchange developed within the old natural economy.
The merchant capitalist furnished the serf-owning landlords with all kinds of
luxuries, making much profit thereby. Part of the tribute which the landlord
squeezed out of his serfs thus found its way into the pockets of the merchant
– the representative of commercial capital. With the development of com-
merce, usury also flourished. Great lords – landlords, kings, governments –
needed increasing sums of money. The mad luxury and waste, the endless
wars devoured tremendous sums of money. Thus the basis arose for the ac-
tivities of money-lenders. Lending money to the feudal lords at exorbitant
interest, the usurer grabbed a large share of the tribute squeezed out of the
labour of the serfs.
Commercial and usurer capital taking firm root in the life of feudal soci-
38
ety unflaggingly undermined and broke down the foundations of this society.
With the growth of commerce the exploitation of the serfs by the landlords
grew continually stronger. The excessive exploitation undermined the foun-
dations of serfdom – peasant economy. It was impoverished, the peasants
became paupers leading a hungry existence, incapable of giving a large in-
come to the landlord. At the same time usurer capital grasped the feudal es-
tate in its tentacles, squeezing the life out of it. The decay of serfdom pre-
pared the way for the rise of capitalist production.
Commercial capital at first engaged only in trade. Commerce was car-
ried on with the products furnished by artisans and serfs as well as with
products imported from distant countries. With the growth of commerce,
however, these sources of products become inadequate. Small-scale handi-
craft production could supply only a limited mass of commodities, sufficient
merely for the local market. When commerce began to operate in more dis-
tant markets the necessity arose for extending production.
But only capital could secure such an extension of production. Small-
scale commodity production was powerless here; its possibilities were nar-
rowly circumscribed. A transition then took place from small-scale to capi-
talist production, which destroyed the pre-capitalist forms of exploitation
only to substitute for them the last form of exploitation of man by man –
capitalist exploitation.
Here is how Lenin describes this transition from small-scale production
to capitalism:
“Under the old conditions almost all the wealth was produced
by small-scale husbandmen who constituted the overwhelming ma-
jority of the population. The population lived settled down in the
villages, producing the greater part of their products either for im-
mediate use or for the small markets of local settlements, scarcely
connected with neighbouring markets.
“These same petty husbandmen worked for the landlords, who
made them produce only the things needed for their own immediate
use. Domestic products were given to the artisans to be worked on,
and these also lived in the villages or journeyed in the neighbour-
hood to take on work.
“But with the liberation of the serfs these conditions of life of
the mass of the people underwent a complete change: instead of
small-scale artisans’ shops, large factories began to appear, which
grew very rapidly, pushing out the small-scale handicraftsmen, turn-
ing them into wage labourers and compelling thousands of work-
men to work together, producing tremendous quantities of com-
modities which were sold all over Russia.
“Small-scale production is replaced by large-scale production
39
everywhere and the masses of workmen are already simply hired
men working for wages for a capitalist who owns tremendous capi-
tal, builds tremendous workshops, purchases masses of materials
and pockets all the profits of this mass production of the united
workmen. Production has become capitalist and it presses relent-
lessly and mercilessly upon the small husbandmen, destroying their
settled life in the village, compelling them to wander over the coun-
try from end to end as simple labourers, selling their labour to capi-
tal. Ever greater and greater portions of the population are torn
away from the villages and from agriculture to collect in the cities,
factory and industrial towns and settlements, forming a distinct
class of people having nothing of their own, a class of wage labour-
ers, proletarians living only by the sale of their labour power.”*
REVIEW QUESTIONS
1. How did people live before the appearance of class society?
2. How did classes originate?
3. What are the basic historical forms of class exploitation?
4. What are the relations between the exploiters and the exploited under the
system of slavery?
5. What are the relations between the exploiters and the exploited under the
system of serfdom?
6. What is the distinguishing feature of capitalist exploitation?
7. How does exchange arise and develop?
8. Why does small-scale commodity production give rise to capitalism?
* Lenin, Collected Works, Vol. I, “Explanation of the Program,” pp. 428-29,

Russian ed.
40
CHAPTER III
Commodity Production
Capitalist production has two important distinguishing features. First,
under capitalism commodity production prevails. Secondly, not only the
product of human labour, but labour power itself becomes a commodity.
Capitalism is inconceivable without commodity production. On the
other hand, commodity production existed long before the rise and develop-
ment of capitalism. However, it was, only under capitalism that commodity
production became universal.
Therefore, in order to study the capitalist method of production, it is
necessary first to study commodity production, its peculiarities and laws.
In capitalist countries production is carried on without a plan. All the
factories and plants belong to the capitalists. Every one of these enterprises
produces commodities for sale on the market. But no one tells the capitalist
what commodities or what quantities of them his enterprise must produce.
The owner of the plant or factory may increase or decrease production, or
altogether close his place, as he wishes. The capitalists do not care whether
the population has the necessities of life: food, clothing, etc. Every plant or
factory owner thinks about only one thing: how to get more profit. If an un-
dertaking seems profitable to him he regards it with great eagerness. If there
is no profit in sight he will not trouble with it.
Such a system, where production is entirely in the hands of capitalists
who manage production with the sole interest of extracting as much profit
for themselves as possible by exploiting the toiling masses, exists at the pre-
sent time all over the world, except in the Soviet Union where the govern-
ment is in the hands of the working class and where there is planned econ-
omy.
Under capitalism anarchy of production prevails; there is and can be no
planned management of social production.
“Capital organizes and regulates the labour within the factory for the
further oppression of the worker, in order to increase its own profit. But in
social production as a whole, chaos remains and grows greater, bringing on
crises when the accumulated wealth finds no purchasers and millions of
workers perish or go hungry, not finding work.”*
What is a commodity?
We must now try to understand the subtle mechanism which distin-
guishes the anarchy of production prevailing under capitalism. In capitalist
society commodity production prevails. Suppose a factory belonging to a
* Lenin Collected Works, Vol. XVII, “The Taylor System – Enslavement of

Man by Machinery,” p. 248, Russian ed.
41
capitalist produces castor oil. Does it mean that the owner drinks all the cas-
tor oil himself? Or a capitalist shop produces coffins on a mass scale; it is
clear that the coffins are not for the owner. Tremendous plants produce great
quantities of steel and iron; it is clear that the owner does not want the metal
for himself. All the various products manufactured in capitalist enterprises
are produced for sale, for the market. All products of labour manufactured
for sale and not for one’s own use are called commodities.
We have already seen that commodity production only gradually un-
dermines and destroys the previous natural economy under which every
family or commune produced by themselves everything they needed. The
system of natural economy existed for ages. The previous, pre-capitalist
forms of exploitation – slavery and feudalism – existed side by side with the
prevailing system of natural economy. Not so capitalism. This system is
from its very inception bound up with the development of exchange, the de-
velopment of commodity production.
“The wealth of those societies in which the capitalist mode of
production prevails presents itself as an immense accumulation of
commodities, its unit being a single commodity,”*
With these words Marx’s chief work, Capital, begins. In this work Marx
set himself the aim of discovering the economic laws governing capitalist
society. Marx begins his work with an analysis of the commodity, with the
disclosure of the laws governing the production of commodities.
Two properties of commodities
The product of human labour must always satisfy some human want,
otherwise it would not be worth expending labour on it. This property of
every product of labour is called its use value. The use value of a clock, for
instance, is that it tells us the time. Many things that are not at all the product
of human labour have a use value, like water at its source, for instance, or
fruit growing wild. Use value is met with in both natural production and
commodity production. The grain the peasant raises for his own use satisfies
his need for food. Grain therefore has a use value.
But the grain which a peasant in a capitalist country produces for sale
becomes, as we have seen, a commodity. This grain continues to possess use
value because it satisfies the human need for food; but if it should lose this
property for some reason (if it should rot, for instance, and become unfit for
use), no one would buy it.
At the same time this grain acquires another important property. This
grain has become a commodity; it can be exchanged for any other commod-
ity. What strikes one here first is that a commodity has the property of being
* Marx, Capital, Vol. I, p. 1, Swan, Sonnenschein & Co., Ltd., 1908.

42
COMMODITY PRODUCTION
exchangeable, that it is exchanged for a number of other commodities.
This new feature of a product, which it acquires when it becomes a
commodity, i.e., when it is produced for exchange, plays an enormous role
in commodity economy.
“A commodity is, firstly, something that satisfies a human
need; and, secondly, it is something that is exchanged for something
else. The utility of a thing gives it use value. Exchange value (or
simply, value) presents itself first of all as the proportion, the ratio,
in which a certain number of use values of one kind are exchanged
for a certain number of use values of another kind; Daily experience
shows us by millions upon millions of such exchanges that all and
sundry use values, in themselves very different and not comparable
with one another, are equated to one another.”*
Between the use value and the value of a commodity there is a contra-
diction. To its producer a commodity is of no use value, it has use value for
others. On the other hand, to the purchaser of a commodity for use the com-
modity has just a use value, and to him the commodity is no longer a value.
When the producer exchanges his commodity he gets its value in return, but
he can no longer utilize the use value of the commodity as the latter is al-
ready in someone else’s hands. A commodity is a product made not for im-
mediate use but for sale on the market. A commodity is thus the agent of a
definite social connection. It is the agent of the connection existing-between
the producer of the commodity and society as a whole. The connection is,
however, not a direct one. Society does not tell each producer just what and
how much to produce. Under commodity production there is not nor can
there be planned, conscious guidance of the entire process of production in
society.
Value is created by labour
Upon what does the value of a commodity depend? Some commodities
are dear, others cheap. What is the reason for this difference in value? Use
values of commodities differ so widely that they cannot be compared quanti-
tatively. For example, what is there in common in the use value of pig iron
and roast beef? Consequently we must look for the secret of value not in use
value hut in something else. Marx says:
“If then we leave out of consideration the use value of com-
modities, they have only one common property left, that of being
products of labour.”†
* Lenin, Marx-Engels-Marxism, “Karl Marx,” p. 15.

† Marx, Capital, Vol. 1, p. 4.
43
The value of a commodity is determined by the amount of human labour
expended in its production.
So long as exchange is infrequent, products are exchanged in accidental
ratios. When a primitive hunter met a member of an agricultural tribe or
commune and exchanged some meat for grain the ratio was determined by
accidental circumstances. But things changed radically, parallel with the
development of exchange.
With the destruction of natural economy, the ratio of exchange came
continually closer to the amount of labour spent on the object exchanged.
When under simple commodity production a peasant exchanges some grain
for an axe made by an artisan he gives the latter an amount of grain which
represents approximately the same amount of labour as that spent in making
the axe.
Here is how Engels pictures the exchange of commodities according to
their values under conditions of simple commodity production before the
rise of capitalism:
“The peasant of the Middle Ages therefore knew fairly accu-
rately the labour time requisite for producing the things he obtained
by exchange. The blacksmith and waggoner worked in his sight, as
did the tailor and shoemaker who, in my own youth, went from hut
to hut among our Rhenish peasants making clothes and shoes from
home-made cloth and leather. Both the peasant and also those he
purchased from were themselves labourers: the articles exchanged
were the products of their own labour. What did they expend to
produce these objects? Labour and only labour; for the replacement
of working tools, for the production of raw material and for its
working up they expended nothing but their own labour power; how
could they then exchange these products of theirs for those of other
workers otherwise than in proportion to the labour expended on
them? Not only was the labour time expended on these products the
sole appropriate measure for the quantitative determination of the
magnitudes involved in the exchange, but any other measure was al-
together unthinkable. Or does anyone believe that the peasant and
the artisan were so foolish as to exchange a thing that took ten
hours’ labour for something that took only one labour hour? For the
entire period of peasant natural economy no other exchange is pos-
sible than that in which the quantities of commodities exchanged
tended more and more to be measured by the amount of labour in-
corporated in them....
“The same is true of the exchange of peasant products for those
of city artisans. At first this takes place directly, without the inter-
mediation of the merchant, on market days in the towns where the
44
peasant sells his products and makes his purchases. Here also the
peasant knows not only the conditions under which the artisan
works but the latter knows also the conditions of peasant labour. For
he is himself still a peasant to a certain extent, he not only has a
kitchen garden and an orchard, but frequently also a strip of arable
land, one or two cows, pigs, poultry, etc.” *
A number of self-evident facts confirm the truth that commodities are
exchanged according to the labour incorporated in them. Very many com-
modities which were once very dear become fairly cheap, because with
modern technical development less labour is required to produce them.
Thus, for instance, aluminium, from which kitchenware and a number of
other things are now manufactured, was a few decades ago eight or ten times
as expensive as silver. It cost about $225 a kilogram then. But with the de-
velopment of electro-technical science it became possible to produce alu-
minium with much less labour so that before the war the price fell almost to
27 cents a kilogram, a thousand times cheaper. It became so cheap only be-
cause so much less labour is now required to produce it.
Thus the value of a commodity depends upon the amount of labour
spent in producing it. If we produce a greater quantity of commodities with
the same amount of labour, we speak of the increased productivity of labour;
on the other hand, when less is produced, we speak of a decrease in produc-
tivity. It is self-evident that increased labour productivity means a decrease
in the amount of labour that must be spent in order to produce a single one
of the given commodities. As a result there will be a decrease in the value,
each commodity of this particular kind will be cheaper. A decrease in pro-
ductivity would, on the contrary, bring about dearer commodities. It is there-
fore said that productivity of labour and the value of each unit of the com-
modities produced are in inverse proportion (i.e., when one rises the other
falls, and vice versa). That is why Marx says,
“The value of a commodity... varies... inversely as the produc-
tiveness of the labour incorporated in it.”†
The value of a commodity is given to it by the labour spent in producing
it. The value of a commodity is nothing but a definite quantity of labour time
congealed (or incorporated) in the commodity. But value only manifests it-
self when one commodity is compared with another. Let us assume that the
same amount of labour is incorporated in one ton of iron as in one kilogram
of silver. Then a ton of iron will be equal in value to a kilogram of silver.
The value of a commodity expressed in comparison with the value of an-
* Engels, Supplement (Nachtrag) to Vol. III of Capital.

45
other commodity is its exchange value. Exchange value is the form in which
value shows itself. At the same time it must be clearly remembered that in
this form we have only the value representing the labour time incorporated
in the commodity.
Under developed commodity production when commodities are ex-
changed by means of money, every commodity is compared with a definite
sum of money. The value of the commodity is expressed in terms of money.
Exchange value becomes the price of the commodity. Price is only the value
of a commodity expressed in terms of money.
Abstract and concrete labour
In order to understand the contradiction inherent in commodities it is
necessary to observe the peculiarities of the labour which produces com-
modities.
In exchanging commodities people compare the most varied kinds of la-
bour. The labour of a cobbler differs very much from the labour of a foun-
dry-man. The labour of a miner resembles the labour of a tailor very little.
Every single commodity contains the labour of some particular profession or
some particular branch of industry. What is common to all commodities is
human labour in general, or, as it is sometimes expressed, abstract human
labour as distinguished from the concrete (i.e., specific) labour of each sepa-
rate branch of production.
“All the labour power of a given society, represented in the sum
total of values of all commodities, is one and the same human la-
bour power. Millions and millions of exchange transactions prove
this.”*
Every particular commodity represents only a definite part of this
.general human labour.
Concrete labour produces use value. The concrete labour of the cobbler
produces boots, the concrete labour of the miner – coal. The value of these
commodities, however, expresses simply human labour, the expenditures of
human labour in general under commodity production.
“On the one hand all labour is, speaking physiologically, an ex-
penditure of human labour power, and in its character of identical
abstract human labour, it creates and forms the value of commodi-
ties. On the other hand, all labour is the expenditure of human la-
bour power in a special form and with a definite aim, and in this, its
character of concrete, useful labour, it produces use values.”†
* Lenin, Marx-Engels, Marxism, “Karl Marx,” p. 16.

46
The same labour is both concrete and abstract in commodity production:
it is concrete in so far as it produces use value, and abstract in so far as it
produces value. On the one hand, every producer produces definite use val-
ues, say, boots, coal, cloth, etc. This represents the concrete labour of the
cobbler, the miner, the weaver, etc. But on the other hand, the same cobbler,
miner and weaver produce the value of the boots, coal, cloth. They produce
these not for their own immediate use, but for exchange on the market. They
produce boots, coal, cloth, as commodities possessing value. And value is
produced by abstract, universal, human labour.
From the very beginning commodities reveal their dual nature: as use
value arid value. We now see that labour also, the labour embodied in these
commodities, the labour applied in capitalist production, has a dual
character.
The difference between concrete and abstract labour appears in the con-
tradiction between use value and value. Use value is the result of concrete
labour, whereas value is the result of abstract labour.
It is perfectly evident that this division of labour into concrete and ab-
stract labour exists only in commodity production. This dual nature of labour
reveals the basic contradiction of commodity production. In commodity pro-
duction all the work of an individual member of society becomes, on the one
hand, a particle of the entire mass of social labour and, on the other hand, it
is the particular work, the individual labour of different, separate workers. It
is clear, therefore, that the contradiction between abstract and concrete la-
bour arises only with commodity production and vanishes as soon as com-
modity production disappears.
“A man who produces an article for his own immediate use, to
consume it himself, creates a product, but not a commodity. As a
self-sustaining producer he has nothing to do with society. But to
produce a commodity, a man must not only produce an article satis-
fying some social want, but his labour itself must form part and par-
cel of the total sum of labour expended by society. It must be sub-
ordinate to the division of labour within society. It is nothing with-
out the other division of labour, and on its part is required to inte-
grate them.” *
In commodity economy the work of each separate worker represents
only a particle of social labour as a whole. The work of each weaver, miner
or mechanic becomes part of the general chain of social production. Each
separate work constitutes only one of the links in this chain. But at the same
time, each separate work in commodity production is independent. The la-
* Marx, Value, Price and Profit, p. 38, Moscow, 1933.

47
bour of individuals becomes social, in the sense that each producer is con-
nected with thousands of others in his work. But the labour of separate indi-
viduals is not co-ordinated on an all-social scale. Quite the contrary, the la-
bour of individual workers is separate, scattered.
“The production of commodities is a system of social relation-
ships in which different producers produce various products (the so-
cial division of labour), and in which all these products are equated
to one another in exchange.”*
This contradiction, consisting in the social nature of the individual la-
bour of independent producers, arises with commodity production and dis-
appears with it.
In natural economy this contradiction does not exist. Let us imagine a se-
cluded peasant economy in some far away, isolated corner of the world. This
economy is almost completely cut off from the rest of the world; everything
needed is produced on the farm. Labour here is not a portion of the labour of
society as a whole, labour here is of a distinctly separate and individual nature.
Hence the contradiction characteristic of commodity production does not exist
here. However, if we take social society, the interdependence of the labour of
individual members of society is even greater in comparison with capitalism,
but here also the contradiction of commodity production does not exist: the
labour of each worker has become social, has become an organized part of the
general labour. The separate, scattered character of the labour of each worker
has disappeared. The fruit of the labour of all becomes the property of society
as a whole and not of individual owners.
Socially necessary labour
If the value of a commodity is determined by the quantity of labour ex-
pended upon its production, it might seem that the lazier or the more unskil-
ful a man, the more valuable his commodity.
Suppose there are two cobblers working side by side. One is a fast, effi-
cient worker and makes a pair of boots in a day. The other is a lazy drunkard
and it takes him a week to finish one pair of boots. Does it mean that the
boots of the second cobbler have more value than those of the first? Of
course not. When we say that the value of a commodity is determined by the
quantity of labour expended upon its production, or the labour crystallized in
it, we have in mind the labour time that, as Marx says, is
“...required to produce an article under the normal conditions of
production and with the average degree of skill and intensity preva-
lent at the time. The introduction of power looms into England
* Lenin, Marx-Engels, Marxism, “Karl Marx,” p. 16.

48
probably reduced by one-half the labour required to weave a given
quantity of yarn into cloth.”*
The hand loom weaver now had to work eighteen or twenty hours a day
instead of the nine or ten hours he had worked previously. Nevertheless, the
product of his twenty hours of labour now represented only ten hours of so-
cial labour, or ten hours of labour socially necessary to convert the given
amount of yarn into cloth. Hence the product upon which he spent twenty
hours had no more value than the product of ten hours had previously.
It thus appears that the value of a commodity depends, not upon the la-
bour which in each separate instance was expended upon its production, but
upon the labour which is required on the average for its production, or, as it
is expressed, upon the social average or the socially necessary labour.
Simple and skilled labour
We must also distinguish between simple labour and skilled labour. Let
us take a mason and a watchmaker. An hour of labour of the mason cannot
be equal to an hour of labour of the watchmaker. Why? To learn the trade of
mason one does not have to spend much time in preparatory training. It is a
simple labour, easily learned. Anyone can easily become a mason (or, say, a
common labourer). A watchmaker (or a chemist) is a different matter. In
order to become a watchmaker one must spend, say, about three years in
learning the trade. If the future watchmaker decides to spend a long time in
learning the trade, it is only because he expects to get paid for this later.
How? In that for a watch, upon the making of which he spent twenty hours,
he gets on the market commodities produced by simple or unskilled labour
in, say, thirty hours. In such a case one hour of skilled (or, as it is sometimes
called, complex) labour is equal on the market to one and a half hours of
simple labour.
What would happen if no difference were made in exchange between an
hour of simple and an hour of skilled labour? Then the supply of skilled la-
bour would be considerably curtailed. Watchmakers, chemists and other
such skilled people would become fewer and fewer. Hence there would be
fewer and fewer watches, chemicals, etc., on the market, and prices for such
commodities would go up. Then an hour of labour of a watchmaker would
once more become equal to an hour and a half or even two hours of simple
labour. Then it again becomes advantageous to learn a skilled trade.
The market and competition
We have seen that the value of a commodity is determined by the so-
cially necessary labour expended upon its production. Does this mean that in
the system of commodity production every commodity can always be ex-
* Marx, Capital, Vol. 1, p. 6.

49
changed for its full value? Of course not. For this it would be necessary for
every commodity produced to have a purchaser immediately. It would be
necessary for supply and demand always to balance each other. Can this
really happen?
In the system of commodity production there is no organ in society
which could tell the individual producer what commodities and in what
quantities he should produce. So long as the greater part of production is for
immediate use and only a small share of the surplus gets to the market, the
role of the market is not very great. But with the expansion of commodity
production the market becomes more and more important.
Each separate commodity producer works at his own risk. Only after the
commodity has been produced and is taken to the market does he find out
whether there is a demand for his commodity or not.
The price of a commodity is the monetary expression of its value. But
price always vacillates according to the conditions of the market. A struggle
about the price of the commodity takes place at the market between seller
and buyer. Competition among the sellers on the one hand, and among the
buyers on the other, decides the question of the price at which the commod-
ity is to be sold. The price of a commodity, therefore, does not always corre-
spond to its value. The price is sometimes higher, sometimes lower than the
value of the commodity. The value, however, always remains the centre or
axis about which the price oscillates.
If more of a commodity has been produced than there is a demand for,
then the supply exceeds the demand and its price falls below its value. When
the price falls below the value it means that the producer of the given com-
modity will not be repaid for all the labour he has expended on it. It will
therefore pay him better to produce some other commodity for which there
is more demand. The production of the first commodity will be curtailed.
But then the relation between supply and demand will become more advan-
tageous for this commodity, and after a while its price may rise again to the
level of its value and even higher.
Only in this way, by means of continuous fluctuations, is the law of
value realized. Commodities sell at their value only in the event of supply
exactly equalling the demand. This happens, however, only as a rare
exception.
“The theory of value assumes and must assume an equal supply
and demand, but it does not assert that such an equality is always to
be observed or can be observed in capitalist society.”*
* Lenin, Collected Works, Vol. II, “Articles on the Question of the Theory of
Markets,” p. 407, Russian ed.
50
The law of value appears as a blind force of the market. Every individ-
ual producer must submit to this blind force. As Marx expresses it, this force
acts like the falling of a house. This means that the individual producer can
never know beforehand what the all-powerful market will require of him.
The law of values acts behind the back of the individual producer. Commod-
ity production is characterized, as we have seen, by anarchy, i.e., by the ab-
sence of any order, any conscious plan for society as a whole. The law of
values acts as an impersonal, unconscious power in a society where anarchy
of production prevails.
The development of exchange and the forms of value
From the preceding chapters we already know that commodity produc-
tion did not come into existence at once in its developed form. On the con-
trary, exchange only gradually undermines and destroys the previous natural
economy. The change from natural economy to commodity economy is pro-
longed over many centuries.
Under developed commodity economy one commodity is not exchanged
directly for another. Commodities are bought and sold, they are converted
into money. The form in which their value is manifested is money. However,
in order to understand the monetary form of value, we must acquaint our-
selves with the less developed forms, corresponding to the earlier stages of
development of commodity production and exchange.
When production still has a primarily natural character, and the ex-
change is effected by chance, we have the elementary, single, or accidental
form of value. One commodity is exchanged for another: the skin of an ani-
mal, let us say, is exchanged for two spears. Those distinguishing features,
which become prominent when exchange and commodity production have
reached their utmost development and expansion, are already contained in
embryo in this still completely undeveloped form of value.
In the given instance, the simple form of value serves as an expression
of the value of the skin, receives its expression in the form of two spears. We
see that the value of the skin is not expressed directly, but only relatively, in
relation to the value of two spears. Two spears serve here as the equivalent
of one skin. The value of the skin is expressed by means of the use value of
two spears.
Thus we see here that the use value of one commodity (two spears)
serves as an expression of the value of another commodity (a skin). The
value and the use value are divided as it were, the value is separated from the
use value. Here the skin figures only as the value, the two spears only as the
use value. The value of the skin becomes, so to speak, separated from its use
value and is equated to another commodity. From this the conclusion can be
drawn that the value of a commodity cannot be expressed in terms of itself
alone, to express this value there must be the bodily form of another com-
51
modity, an equivalent.
Even in the simple form of value the distinguishing feature of the com-
modity equivalent is that the use value of this commodity serves as the ex-
pression of its opposite – value.
“The body of the commodity that serves as the equivalent figures as the
materialization of human labour in the abstract and is at the same time the
product of some specifically useful concrete labour.”*
Accordingly concrete labour serves here as the expression of abstract
labour, individual labour – as the expression of social labour.
The simple form of value exists only so long as exchange bears an abso-
lutely single, accidental character. As soon as exchange is somewhat more
widely developed, this form of value changes into the total or expanded
form of value in which not two commodities, but a much wider circle of
commodities, are equated to each other. In this form each commodity can be
exchanged not only for another commodity, but for a whole series of com-
modities. For example, the skin can be exchanged not only for two spears,
but for a pair of shoes, for an oar, for a piece of cloth, or for a sack of corn.
The total or expanded form of value will, therefore, appear as follows:
{
2 spears
1 pair of shoes
1 skin = 1 oar
1 piece of cloth
1 sack of corn, etc.
We have this form of value when some product of labour, cattle for in-
stance, is habitually exchanged for various other commodities, not as an ex-
ception but as a general rule.
The expanded form of value is a further stage in the development of the
form of value. The value of one commodity is expressed in different com-
modities, belonging to different owners of commodities. The division be-
tween value and use value is here made still more evident. The value of the
skin is here opposed to its use value as something common to a series of
other commodities.
However, even the expanded form of value does not satisfy the demand,
which grows with the development of exchange.
The development of exchange makes the shortcomings of this system of
exchange more and more manifest. These shortcomings are done away with
by the next, more developed form of value, namely, the general form. The
general form of value naturally grows out of the total, or expanded form. In
the expanded form of value one commodity is most frequently exchanged, and
* Marx, Capital, Vol. I, p. 27.

52
therefore its value is expressed in a whole series of other commodities. Let us
suppose that this commodity is cattle. Let us say that one ox is exchanged for
one boat, for three pairs of shoes, for three sacks of corn, for twenty arrows,
etc. We have only to reverse this series of exchange relations and we will have
the general or universal equivalent form of value, as follows:
}
1 boat
3 pairs of shoes
= 1 ox
3 sacks of corn
2 0 arrows, etc.
In the universal equivalent form of value, the value of all commodities
finds expression in one and the same commodity. The commodity which
expresses the value of the other commodities serves as the universal equiva-
lent. This commodity is readily taken in exchange for any other commodity.
Thus the inconvenience which accompanies the total or expanded form of
value is eliminated. Here the separation of value from use value becomes
still greater. All commodities express their value in a single commodity. It
becomes the function of one commodity to express the value of all other
commodities. The entire world of commodities is split into two opposite
groups: the universal equivalent by itself makes one group, and the other
group consists of all the other commodities.
The money form of value differs only slightly from the universal form.
When the precious metals – gold and silver – definitely become the fixed
universal equivalent, we have the transition from the universal form of value
to the money form. In the money form the particular social function, i.e., the
expression of the value of all commodities, is embodied in one particular
commodity. This commodity, gold or silver, is pre-eminent in the commod-
ity world. Before it becomes money, gold must first be a commodity. But,
having become money, gold acquires a number of new properties in connec-
tion with its role as money.
Value is a specific social relation between persons which is expressed as a
relation between things. The value of a commodity cannot be expressed in
terms of itself. It can only be expressed with the help of another commodity.
The exchange relation between one commodity and another, or its exchange
value, serves as the expression of its value. We have seen the development of
the form of value from the simple to the money form. The development of the
form of value is linked with the development of the contradictions which are
inherent in commodities. The contradictions between use value and value
emerge more and more clearly in the process of the development of exchange
and the corresponding forms of value. In money this contradiction is ex-
pressed most fully. Money becomes the one and universal means of the ex-
pression of value. All other commodities counterbalance money as use values.
53
Commodity fetishism
Under planned socialist production it is clear to every worker that he is
part of an organized body. Under socialism the production relations between
people become clear and obvious. The connection between each individual
worker and enterprise and all other workers and enterprises is self-evident
and clearly understood.
It is not so in a society where commodity production prevails. With
commodity production the production relations between people appear as
relations between things. When a cobbler sells a pair of boots he has made
and with the money thus obtained buys bread at the baker’s for himself and
his family, we have a definite production relation, a definite connection be-
tween people according to production. The bread baked by the baker serves
the needs of the cobbler, and the boots made by the cobbler will perhaps go
to the baker. It follows, therefore, that the work of the baker is needed to
satisfy the needs of the cobbler; the work of the cobbler is needed to satisfy
the needs of the baker. Thus there is a definite connection between the cob-
bler and the baker, a definite relation according to production. But how is
this connection revealed? In what is it expressed? We have already seen. It
reveals itself in the process of exchange. Commodities are objects that
change hands from one producer to another. Bread goes from the baker to
the cobbler. Boots go from the cobbler to the merchant and from the mer-
chant to the same baker. However, commodities do not simply change
hands. Everyone knows that the cobbler gives up the boots he has made only
after he has received a corresponding amount of money for them – their
price. The baker acts in exactly the same way. Thus, under the system of
commodity production, production relations among people are revealed as
the movement of things – commodities.
Value is the relation between persons who produce commodities. But
this relation presents itself as a relation between things – commodities. This
production relation is concealed by a material cover, hidden behind the
movement of things. The value of a commodity seems just as natural a prop-
erty of the commodity as, say, its colour or weight; it is said, for instance:
this bread weighs half a pound and is worth five cents. A commodity be-
comes a very puzzling thing. The fate of the producer is closely tied up with
that of his product. If our cobbler cannot sell the boots he will stay without
bread. If the price of boots falls – he can buy so much less bread. Why can-
not the cobbler sell the boots, or why does he get less for them this time than
he got before? The cause lies in the changes which have taken place in the
economic life, in the production relations of people in capitalist society, say
a crisis has come, or the workers are buying boots more seldom because of a
reduction in wages. The real cause will, however, long remain unknown to
the cobbler and when he does find it out it will generally be in a distorted
way. For the connection between the cobbler and the rest of the producing
54
world is centred in his commodity – boots, in their value which is realized
on the market.
The fact that under commodity production the relations between persons
according to production acquire the appearance of relations between things –
commodities – and that commodities, hence, acquire peculiar social proper-
ties, we call commodity fetishism (fetishism generally is the worship of
imaginary, supernatural properties ascribed to an object – a fetish). Under
capitalism all production relations between persons in society are hidden
under a cover of things. All production relations between persons under
capitalism appear as relations between things, as relations connected with
things. This masks the real meaning of capitalist relations, veils them, hides
their real character, gives them an illusory appearance. That is why it is very
important to unmask, to understand, the puzzle of commodity fetishism that
permeates all relations under capitalism.
Marx was the first to solve the riddle of commodity fetishism. Marx was
the first to reveal the social relations between persons, where up to his time
only the mysterious properties of things had been seen. He was the first to
show that value is a social relation between people in the commodity pro-
duction system.
“Political economy begins with commodities, begins with the moment
when products are exchanged for one another – whether by individuals or by
primitive communities. The product that appears in exchange is a commod-
ity. It is, however, a commodity solely because a relation between two per-
sons or communities attaches to the thing, the product, the relation between
producer and consumer who are here no longer united in the same person.
Here we have an example of a peculiar fact, which runs through the whole of
economics and which has caused utter confusion in the minds of the bour-
geois economists: economics deals not with things but with relations be-
tween persons and in the last resort between classes; these relations are,
however, always attached to things and appear as things. This inter-
connection, which in isolated cases it is true has dawned upon particular
economists, was first discovered by Marx as obtaining for all political econ-
omy, whereby he made the most difficult questions so simple and clear that
now even the bourgeois economists will be able to grasp them.”*
The role of money in the system of commodity production
Nowadays it seldom happens that one commodity is directly exchanged
for another. The producer usually sells the commodities he produces for
money, and for the money realized buys the commodities he needs. Why
then do we speak of the exchange of commodities? The fact is that money
here really acts as an intermediary in the exchange of commodities. The
* Engels, Ludwig Feuerbach, Appendix, pp. 99-100, Moscow, 1934.

55
capitalist sells his products and gets a definite sum of money for them. But
he is not interested in this money as such. He needs this money to buy new
raw material and machinery, to hire workmen, to expand production.
The exchange of commodities through the medium of money is, how-
ever, radically different from the direct exchange of commodities. The intro-
duction of money leads to a further growth and development of the contra-
dictions inherent in commodities.
Money is not introduced by consent or agreement, it comes into use
spontaneously. Only with the aid of money can the all-sided social connec-
tion established between the separate individual producers under the com-
modity production system be realized.
The contradiction between concrete and abstract labour, as we have
seen, is expressed in the contradiction between the use value and the value
of a commodity. With the introduction of money a further development of
this contradiction takes place. The commodity acquires the twofold character
of commodity and money. When exchange takes place by means of money,
the owner of the commodity receives in exchange for it money which incor-
porates the value of the commodity.
The value of the commodity is now expressed in its price, i.e., in a defi-
nite amount of money. It is not enough that the commodity has been pro-
duced – it must be exchanged for money. It must be sold, its price must be
realized. If it cannot be sold – it means the producer has laboured in vain.
Money is a universal commodity, the universal equivalent. Money is the
embodiment of value, the embodiment of abstract labour. Money is the
stamp with which the market puts its label of social recognition on com-
modities, transforming them from products of private labour to those of so-
cial labour.
But in this there already lies the danger that the products of one or an-
other producer may not be converted into money. If it proves impossible for
the commodity producer to convert his commodity into money it means his
private, individual labour has not become a part of social labour. This means
that due to the anarchy prevailing in production he has futilely spent his la-
bour, raw material and tools on the production of a commodity which cannot
be sold. It is clear that in money, commodity fetishism is even more acutely
apparent. In capitalist commodity production all social production relations
are, as Marx points out, gilded or silvered. Supernatural powers are ascribed
to money. Being a product of social development money acquires an alto-
gether extraordinary force and power in this society.
“Being the highest product of the development of exchange and
of commodity production money masks and hides the social charac-
ter of individual labour, the social tie between the various producers
56
whom the market brings together.”*
Money plays an important part in the transition from small-scale com-
modity production to capitalism. The bosses who have grown rich, acquiring
their wealth by hook or by crook, amass it in the form of money. Capital first
originates in the form of money.
The functions of money
Money has a number of functions in commodity economy. Every com-
modity is sold for a definite sum of money. This sum of money is called the
price of the commodity. Thus, price is value expressed in terms of money.
The value of a commodity is measured by money. The measurement of the
value of a commodity in money is the premise of the exchange of the com-
modity, its purchase or sale. Before a commodity can be bought or sold, it is
essential to know its price. Thus money plays the role of a measure of value.
The value of a commodity is determined by the working time spent on
its production. However, value cannot be expressed by the socially neces-
sary working time. In buying or selling a pair of boots, for example, it is not
said that the boots cost twenty hours of labour but that they cost, let us say,
$10. We have explained this previously. The value of a commodity x can be
expressed only through the medium of another commodity. It is not known
beforehand whether the time spent on the production of the boots will actu-
ally be taken into account. Perhaps, if the market is flooded, the boots will
be sold not for $10, but only for $5. This would mean that the twenty work-
ing hours actually spent on the production of the boots would have to be
exchanged for a product of only ten working hours. The price of a commod-
ity is constantly fluctuating round its value, these fluctuations manifesting
themselves in the fact that the cost of a commodity may be first above, then
below the value, or vice versa.
To be a measure of value, money itself must be a commodity and pos-
sess value. One cannot, for example, measure weight by means of an object
which has no weight. But must money actually be present when the value is,
measured? Obviously not. We can evaluate an enormous number of com-
modities without having a cent in our pockets. Money fulfils its function as a
measure of value theoretically, as ideal money. From this it is clear that the
question of the amount of money also plays no part in this function.
The decisive moment for a commodity comes after it is priced in money.
It must be sold, i.e., exchanged for money. An exchange of goods accom-
plished by means of money is called the circulation of commodities. It is
clear that the circulation of commodities is inseparably linked up with the
circulation of money itself. When a commodity goes out of the hands of the

57
seller into the hands of the buyer, money goes out of the hands of the buyer
into the hands of the seller. Here money plays the part of the means of circu-
lation, or the means of commodity turnover.
To fulfil the role of the means of circulation, money must actually be
present. Here it emerges not as ideal money, but as real money. Everybody
knows that you cannot buy a pinch of snuff with “ideal money.” You can
imagine a million dollars but you will not be able to buy anything with your
imaginary million, whereas with every really existing dollar you can obtain a
commodity of corresponding value.
In one important respect the requirements for the means of circulation
are different from the requirements for the measure of value. To be the
means of circulation, money must not necessarily possess a value of its own.
In all probability the seller of the commodity takes money in exchange not
for the sake of any value of its own, but in order to change it in its turn for
another commodity, i.e., to buy another commodity. While it is serving as
the means of exchange, money does not lie in the pockets of individual per-
sons, it continues its uninterrupted movement in the direction of the inverse
movement of commodities. Consequently, money here plays only a transient
part. This is precisely why full value money – gold – can be replaced in this
function by its substitutes, or symbols of itself. Such substitutes for gold are
bank notes, paper currency, silver and copper coins without full value, etc.
These substitutes for gold (or tokens of value) have either no value at all, or
much less than that which they represent. As the moon shines with the re-
flected light of the sun, they reflect the value of the real money – gold.
To fulfil the function of the means of circulation a definite amount of
money is required. In order to sell a commodity worth a thousand dollars,
there must actually be not any sum of money, but precisely the thousand
dollars. On the other hand, this same thousand dollars which is paid for the
given commodity can afterwards serve as the circulating medium for other
commodities worth a thousand dollars. But commodities are bought and sold
in many places simultaneously. Therefore, the amount of money necessary
at a given moment depends on the sum total of the prices of all the com-
modities in circulation; the sum total of the prices in its turn depends on the
quantity of commodities in circulation and on the price of each individual
commodity.
The amount of money that will be needed, for example in the course of a
year, depends not only upon these two quantities, but also upon the rapidity
of the currency of money: if the circulation takes less time, less money is
needed for the process of circulation, and vice versa.
The twofold nature of commodities – as goods and as money – opens the
way for the further development of the contradictions of commodity produc-
tion. When commodities are exchanged directly for each other a sale is at the
same time a purchase. Money makes it possible to separate the sale from the
58
purchase. The commodity producer can sell his goods and for a time keep the
money realized. However, when many producers try to sell without buying,
this results in an obstruction in the market. Money thus already opens the way
for crises, while the further development of commodity production and its
transformation into capitalist production make crises inevitable.
When the commodity owner has sold his commodity, he often puts aside
the money he has received. Money is the “universal representative of mate-
rial wealth.”* In the capitalist world, money can be converted at any mo-
ment into any commodity. The difficulty is to convert the commodity into
money and not the money into a commodity. Therefore money is the best
means of accumulation, or the means for amassing great wealth. Under capi-
talism the passion for profit knows no bounds. The thirst for enrichment acts
as a spur towards the accumulation of the greatest possible amount of
money.
In its role as the means of amassing wealth, money must be money in
the full sense of the word. For this it must possess value of its own, just as
for the fulfilment of its function as a measure of value. At the same time it
must always be present in its real aspect: one cannot accumulate money
which is merely ideal, one can only accumulate that money which really
exists. Thus it must also possess that property which it possesses in its func-
tion of circulating medium.
In developed capitalist society a man who accumulates money merely
out of a passion for accumulation is rarely met with. The man who hoards
money or simply amasses wealth in its money form is characteristic of the
earliest stages of capitalism. The capitalist entrepreneur is no longer blinded
by the golden glitter of money. He knows that in order to increase his wealth
he must extend his production, his turnover, he must extract more unpaid
labour from his workers. However, even modern capitalism (or the bank that
serves it) must from time to time engage in the accumulation of money. To
extend production it must have a definite sum of money which it must spend
all at once. In the course of a certain time it accumulates this sum.
Moreover, money functions also as a means of payment. Selling and
buying are frequently accomplished on credit. The purchaser buys a com-
modity and pays its price only after a fixed time. This function of money
reflects a further wide development in exchange. The link between individ-
ual commodity producers becomes stronger. Their interdependence in-
creases. Now the buyer becomes the debtor, the seller is transformed into the
creditor. When the time approaches for payment the debtor must obtain the
money regardless of all else. He must sell his commodity so as to be able to
pay his debt. What will happen, if he cannot find a buyer and he cannot clear

59
his debt? This will deal a blow not only to his own production, but also to
the production of his creditor, who will not receive back that which he gave
on credit. In this way the possibility of crises, which is already inherent in
the function of money as a means of circulation, becomes still more acute.
The function of money as a means of payment introduces new condi-
tions into the law which determines the quantity of money needed for circu-
lation. To those trends which ensue from the function of money as the circu-
lating medium are added new trends arising from its function as a means of
payment. Formerly, the quantity of money needed to serve for circulation
depended on the sum total of the prices of the goods in circulation, and the
rapidity of the currency of the money. Now the following new circumstances
are added. First of all, from the total prices of the commodities in circula-
tion, it is necessary to subtract the sum total of the prices of those commodi-
ties which are sold on credit. On the other hand, we must add the sum total
of the prices of those commodities which were sold on credit but for which
payment is due. Furthermore, we must take into cognizance the sum total of
the payments which balance each other because the sellers and buyers of the
various commodities are interconnected.
Finally, money plays the part of universal money. In the trade between
individual states, gold is a commodity differing from all other commodities
only in that it is accepted by everyone. Therefore the equilibrium in the trade
between various countries is maintained by means of gold. Let us suppose,
for example, that England has exported commodities to America to a greater
value than she has imported from America. Then America must transfer a
quantity of gold to England to compensate for the difference.
It is customary to replace gold by bits of paper which represent it. If this
paper money is issued in quantities not greater than is necessary for com-
modity .circulation, if it can be freely exchanged for gold, then its purchas-
ing power is stable. Capitalist governments, however, often issue a greater
amount of paper money to cover their needs, particularly during wars and all
kinds of catastrophes. Then money is devaluated. At the present time, when
capitalism is experiencing the severest crisis, a number of bourgeois gov-
ernments have taken this step. At first money was inflated in a number of
secondary countries but soon the greatest capitalist governments, England
and the U.S.A., went the same way.
The law of value – the law of motion of capitalist commodity production
The social connection between, individual producers of capitalist com-
modity-producing society is veiled, befogged. This social connection is
manifested in the exchange of commodities. In commodity production la-
bour acquires the form of value. Commodities are exchanged according to
their value, i.e., in accordance with the amount of the socially necessary ab-
stract labour embodied (congealed) in them. All the contradictions inherent
60
in capitalist commodity production are to be found in embryo in commodi-
ties, in their value, in the exchange of commodities.
“Marx, in his Capital, at first analyses the simplest, the most
ordinary, fundamental and commonplace thing, a relation that has a
mass appearance and is to be observed billions of times in bourgeois
(commodity) society: the exchange of commodities. In that simple
phenomenon (in that ‘cell’ of bourgeois society) the analysis reveals
all the contradictions (respectively the embryos of all contradic-
tions) of modern society. The subsequent exposition shows the de-
velopment (both growth and movement) of these contradictions and
of this society in the Σ* of its parts, from beginning to end.” †
The law of value is the law of motion of capitalist commodity produc-
tion. This motion appears in the form of a further development of the con-
tradictions, the germs of which are inherent in value. These contradictions
are manifested most sharply during crises. Anarchy of production, character-
istic of the capitalist commodity producing system, appears in its most naked
form during crises. The contemporary capitalist crisis bears the most elo-
quent evidence of this. During a crisis, the contradictions between the pro-
ductive forces and the production relations, contradictions which draw capi-
talism towards its inevitable doom, stand out sharply.
With the historical development of commodity production and its trans-
formation into capitalist production, as capitalism develops further, the con-
tradictions inherent in commodities and value grow and become more com-
plex. The growth of the contradictions inherent in commodities reflects a
gigantic historical stride of capitalist development.
“Marx traced the development of capitalism from the first
germs of commodity economy and simple exchange, to its highest
forms, to large-scale production.”‡
Showing how Marx traces this great historical process of development,
embracing many centuries, Lenin also shows how the contradictions origi-
nate, the germs of which already exist in commodities:
“Where the bourgeois economists saw a relation of things (the
exchange of one commodity for another) Marx revealed a relation
between men. The exchange of commodities expresses the connec-
tion between individual producers by means of the market. Money
signifies that this connection is becoming closer and closer, insepa-
* Greek letter used in mathematics to indicate the term sum.

† Lenin, Marx-Engels-Marxism, “On Dialectics,” p. 209.
‡ Ibid., “The Three Sources and Three Component Parts of Marxism,” p. 53.
61
rably combining the entire economic life of the individual producers
into one whole. Capital signifies a further development of this con-
nection: the labour power of man becomes a commodity....
“Capital, created by the labour of the worker, presses upon the
workers, ruins the petty owners and creates an army of
unemployed....
“By beating petty production, capital leads to the increase of the
productivity of labour and to the establishment of a monopoly posi-
tion for associations of the biggest capitalists. Production itself be-
comes more and more social; hundreds of thousands and millions of
workers are linked up in a systematic economic organism, but the
product of the collective labour is appropriated by a handful of capi-
talists. Anarchy of production, crises, a furious hunt after markets,
and the insecurity of existence for the masses of the population, are
on the increase.”*
The development of the contradictions of capitalism, at the same time,
lays a basis for the final triumph of the proletariat.
“Capitalism has been victorious all over the world,” writes
Lenin, “but this victory is only the eve of the victory of labour over
capital.”†
REVIEW QUESTIONS
1. What is the difference between natural production and commodity pro-
duction?
2. What determines the value of a commodity?
3. What labour is called socially necessary labour?
4. What is the difference between concrete and abstract labour?
5. What is the role of the market in the commodity production system?
6. How does the law of value act?
7. How does capitalism differ from simple commodity production?
8. Can commodity production exist without money?
* Ibid., pp. 52-3.

† Ibid., pp. 53.
62
CHAPTER IV
The Essence of Capitalist Exploitation
How the workers are exploited by capital. Labour power – a commodity
The exploitation of the working class by the bourgeoisie prevails in all
capitalist countries. The working class and the bourgeoisie – these are the
two basic classes facing each other in every capitalist country. We must
study the conditions that make it possible for the bourgeoisie to appropriate
the fruits of the labour of the worker. We must understand the secret of capi-
talist exploitation, which was revealed by the great teacher of the proletariat
– Marx.
What is the secret of capitalist exploitation? How does it come about?
What is the secret of the enrichment of the capitalists? By what invisible
chains is the worker fettered to his exploiter? Why does one class grow rich
on the impoverishment of the other?
Marxian theory gives a clear and precise answer to every one of these
questions. The Marxian teachings explain to us the inner structure of the
capitalist world, uncover all the inner springs of its development and its in-
evitable collapse.
In a previous chapter we have studied simple commodity production and
its basic law – the law of value. Simple commodity production inevitably
produces capitalist elements in its midst. Simple commodity production
grows into, is transformed into, capitalism. The law of value is the law of the
development of commodity production. This development leads to capital-
ism. Together with this development also grows the power of the elemental
law of value.
What is capitalism? Lenin answers this question as follows:
“Capitalism is commodity production at the highest stage of
development, when labour power itself becomes a commodity.”*
Under commodity production things are produced not for immediate use
but for exchange, for the market, for sale. The law of value governs produc-
tion and exchange of commodities. Commodities are exchanged in accor-
dance with their value, i.e., in accordance with the quantity of socially nec-
essary labour needed to produce them.
Capitalism does not abolish commodity production and its laws. On the
contrary, under capitalism commodity production reaches its highest stage
of development. Under capitalism the laws governing commodity production
enforce their rule to an even greater extent. Hence the laws of capitalist pro-
*Lenin, Imperialism, the Highest Stage of Capitalism, Chap. IV, p. 59, Moscow,
1934.
63
duction are based upon the laws of commodity production and primarily
upon the law of value.
“Capitalist production is marked from the outset by two pecu-
liar traits,” says Marx. “1) It produces its products as commodities.
The fact that it produces commodities does not distinguish it from
other modes of production. Its peculiar mark is that the prevailing
and determining character of its products is that of being commodi-
ties. This implies, in the first place, that the labourer himself acts in
the role of a seller of commodities, as a free wage worker, so that
wage labour is the typical character of labour....
“2) The other specific mark of the capitalist mode of production
is the production of surplus value as the direct aim and determining
incentive of production. Capital produces essentially capital, and
does so only to the extent that it produces surplus value.”*
The framework of commodity production expands under capitalism. A
new commodity appears, which did not exist under the system of simple
commodity production – labour power. What sort of commodity is this?
Marx answers this question as follows:
“By labour power or capacity for labour is to be understood the
aggregate of those mental and physical capabilities existing in a
human being, which he exercises whenever he produces use value
of any description.”†
In other words, labour power is man’s capacity for labour, his capacity
for productive activity.
Marx says:
“The capitalist buys labour power in order to use it; and labour
power in use is labour itself.”‡
Under capitalism labour power becomes a commodity. But is labour
power always a commodity? By far not always, of course. Take the petty
producer. He works on his own strip of land or in his own workshop himself.
He sells his produce, but he does not sell his labour power. He uses his la-
bour power himself. It is clear that he can do this only so long as he pos-
sesses his own strip of land or workshop. Take away his tools or bench from
the artisan, take away the strip of land from the petty farmer – and they can
no longer apply their labour power in their own undertaking.
* Marx, Capital, Vol. III, pp. 1025-26, Charles H. Kerr & Co., 1909.
† Ibid., Vol. I, p. 145
‡ Ibid.
64
THE ESSENCE OF CAPITALIST EXPLOITATION
What then remains for them to do? In order not to starve they are com-
pelled to apply for work to the capitalist who owns the factory, the land, the
plant or the railroad. But what does hiring out to a capitalist mean? It means
– selling one’s labour power.
We thus see that definite conditions or prerequisites are necessary for
the rise of capitalism. It is necessary, for some members of society to have in
their hands all the means of production (or sufficient money for the purchase
of these means) and on the other hand, it is necessary that there should be a
class of people who are forced to sell their labour power.
“The historical prerequisites to the genesis of capital are: first,
accumulation of a considerable sum of money in the hands of indi-
viduals under conditions of a comparatively high development of
commodity production in general, and second, the existence of
workers who are ‘free’ in a double sense of the term: free from any
constraint or restriction as regards the sale of their labour power;
free from the land or from the means of production in general, i.e.,
of propertyless workers, or ‘proletarians,’ who cannot maintain their
existence except by the sale of their labour power.”*
Primitive accumulation
Capitalism arises on the ruins of the preceding social order – the land-
lord (feudal) economy. Capitalism grows on the soil of petty commodity
production. Capitalism effects a radical transformation of the previously
existing social relations.
How did the capitalists really get rich? At the beginning of the capitalist
era, some three or four hundred years ago, the then foremost European coun-
tries (Spain and Portugal, Holland and England) had developed a wide over-
seas trade. Intrepid travellers discovered routes to the distant and rich coun-
tries of the East – India and China; America was discovered. The invention
of gunpowder made it easy for the Europeans to overcome the resistance of
the native populations of these countries. All America was turned into a se-
ries of colonies. The robbing of the richest overseas countries was one of the
most important sources of primitive accumulation of European capital, espe-
cially English. Another source was war among the countries of Europe itself,
and the pillage of the vanquished countries. Finally the robbing of the people
of their own country by means of usury, robbing by means of overseas trade
at usurious prices, and partly direct robbery (especially piracy) are not the
least important methods employed in the history of the birth of capital.
But the accumulation of wealth is only half the problem the solution of
which is necessary for the appearance of capitalist production. The second

65
half is the obtaining of a sufficient number of free hands.
No man will go to work for a capitalist so long as he has the possibility
of working independently. It is necessary to take away the means of produc-
tion from the petty producer in order to compel him to take to the market all
that remains to him – his labour power. Another necessary condition for
wage labour is that people must be personally free so that they can move
freely from place to place, so that they can freely dispose of their labour
power.
These conditions did not exist under serfdom, which prevailed every-
where in Europe. That is why capitalism destroys the previously existing
serfdom.
But it is not enough for the interests of capital to free the peasant – he
must also be placed in a position where he is compelled to look for work at
the enterprises of the capitalist. True, capital obtains a certain number of
wage labourers from among the artisans and handicraftsmen it ruins, but this
number is insufficient – new enterprises demand vast masses of workers.
Moreover, capital must always have a reserve of a certain number of work-
ers, as we shall see later.
Hence, simultaneously with the “liberation” of the peasantry from serf-
dom, another, no less important “liberation” is effected. The peasant is “lib-
erated” from the land on which he worked. To the peasant is left (and gener-
ally, he must buy it, at that) only that portion of the land which fed him un-
der the landlord. Insufficiency of land drives the peasantry into the claws of
capital. “Excess” labour leaves the village and constitutes the reserve army
of wage labourers at the disposal of capitalist industry.
Thus primitive accumulation creates the necessary prerequisites for the
rise of capitalism. It creates the necessary conditions without which capital-
ism cannot exist. We have already seen what these conditions are. They are,
on the one hand, accumulation of wealth in the hands of a small portion of
society and, on the other hand, the transformation of a vast mass of workers
into proletarians having no means of production and therefore compelled to
sell their labour power. Primitive accumulation thus effects the separation of
the producer from his means of production. This separation is brought about
by the cruellest methods of robbery and plunder, murder and violence. After
these conditions for the rise of capitalism have been created they further en-
trench themselves by the very process of capitalist production. When work-
ers bend their backs at a capitalist factory they multiply the wealth of their
exploiter. But they themselves remain the same dispossessed proletarians
compelled to sell their labour power.
The transformation of money into capital
At first capital emerges in the form of money. Therefore money plays a
prominent part in the transition from small-scale production to capitalism.
66
At a certain stage of the development of commodity production money
is transformed into capital. The formula for commodity circulation used to
be C (commodity) – M (money) – C (commodity), i.e., the sale of one com-
modity for the purchase of another. The general formula for capital is the
reverse of this, M – C – M, i.e., buying for the purpose of selling (at a
profit).
What is the difference between these two formulae? The formula C – M
– C is characteristic of simple commodity production. Here one commodity
is exchanged for another. Money serves only as a medium of exchange. Here
the purpose of the exchange is clear – the shoemaker, let us say, exchanges
his boots for bread. One use value is exchanged for another. The commodity
producer hands over the commodity which he does not need and receives in
exchange another commodity which he needs.
The formula for the circulation of capital is of an entirely different char-
acter. The capitalist goes to the market in possession of a certain sum of
money. The point of departure here is not the commodity, but money. With
his money the capitalist buys certain commodities. However, the movement
of capital does not end with this. The commodity of the capitalist is con-
verted into money. Thus the starting point and the finishing point of the
movement of capital coincide: the capitalist had money in the beginning and
he has money in the end. But, as is well, known, money is always the same,
it does not differ qualitatively, it differs only quantitatively. Money is unlike
other commodities which are distinguished by their great qualitative diver-
siveness. Thus the entire movement of capital would be quite absurd if at the
end of the movement the capitalist had only as much as he had at first. The
whole reason for the existence of capital, the whole meaning of its move-
ment, is that at the end of this movement more money is withdrawn from
circulation than was put in at the beginning. The goal of capital is the extrac-
tion of profit. Its formula is not selling in order to buy again, as in the case of
the simple commodity producer, but buying in order to sell and extract
profit.
But in what way is this profit obtained? If the capitalist buys any ordi-
nary commodity with his money and then sells it above cost price, he en-
riches himself, but only at the expense of other capitalists – either at the ex-
pense of those whom he tricks by buying the commodity and not paying its
actual price, or at the expense of those to whom he sells the commodity for
more than its price, or at the expense of both. But the capitalist class cannot
prosper by cheating itself, by the mutual trickery of the individual capitalists.
Then how is profit obtained? Obviously, the capitalist who goes to the mar-
ket with his money must find a commodity of a special kind. It must be a
commodity that creates value while it is being used. And under capitalist
conditions there is such a commodity. This commodity is labour power.
67
Buying and selling of labour power and its value
Under commodity economy every commodity is sold at its value. What
does the worker sell? He sells his labour power, which is essential for the
capitalist to conduct his enterprise.
But we know that every commodity has its value and that this value is de-
termined by the labour time necessary to produce this commodity. What is
the value of that commodity which the worker sells – the commodity, “la-
bour power”?
It is perfectly evident that a person can work only when he is able to
maintain his existence: feeds and clothes himself, and has a place to rest his
head. It is understood that a human being can perform work only when he
satisfies his wants, at any rate his most elemental needs. If a worker is hun-
gry, if he has no clothes, he becomes unfit for work, he loses his labour
power. It can therefore be considered that the production of labour power
consists in the satisfaction of the most elemental needs of the worker.
But we also know that all those things which go to satisfy the needs of
man (food, clothing and shelter) are commodities under capitalism and can-
not be obtained free of charge. A definite quantity of labour is spent in pro-
ducing them and this determines their value. Thus the value of the commod-
ity called “labour power” is equal to the value of those commodities the
worker must consume in order to maintain his existence and that of his fam-
ily, in order to recuperate his labour power and to secure future labour power
for the capitalists.
“The value of labour power is determined by the value of the
necessaries of life habitually required by the average labourer.”*
But the value of these commodities depends on the labour necessary to
produce them.
In other words, the value of the commodity called labour power is de-
termined by the quantity of labour necessary to produce this peculiar com-
modity, while this commodity, as we have already said, consists of the food,
clothing, etc., consumed by the worker. It is this value of the commodity
called “labour power” that is paid for by the capitalist in the form of wages.
The capitalist owns a plant: buildings in which there is machinery,
warehouses in which there are raw material and fuel, all kinds of auxiliary
material. All this is dead without human labour. Therefore a capitalist hires
workers. With this he buys the last commodity necessary. Now everything is
in order. Production can begin. The workers begin to work, the enterprise is
started, the machinery is in motion.
Having hired the labourer, bought his labour power for a definite time,

68
the capitalist makes him work. In this lies the entire purport of his purchase
of labour power.
One must not confuse labour power with labour. Labour power and la-
bour are not one and the same thing. Labour power is the ability of people
to work. Labour is the creator of value, but it cannot itself become a com-
modity. The commodity is labour power.
We know that there is a distinction between, say, a locomotive and the
motion of the locomotive. The locomotive may stand still at a station. In this
case there is a locomotive but there is no motion. But the .locomotive pos-
sesses the ability to move; when necessary it begins to move. In the same
way labour power may remain unused, if its owner is unemployed, for in-
stance. But inasmuch as the unemployed worker still has labour power, pro-
vided he has not fallen ill or does not drop from hunger, he may at a suitable
moment begin to work just as the locomotive may begin to move after a long
stop.
The price of a commodity, as we have already seen in a previous chap-
ter, may be above or below its value. However, unlike most other commodi-
ties, with respect to labour power there is always a tendency for the price to
stay below its value. This means that the worker does not get a sufficiency of
the means of subsistence necessary to cover all his wants. If we say that the
value of labour power is determined by the value of the means of subsistence
necessary to maintain the existence of the worker, we do not at all mean to
assert that the worker always receives for his labour power its full value. On
the contrary, in the vast majority of cases he is compelled to sell his labour
power at a price below its value. However, even when the worker receives
the full value of his labour power, the capitalist gets surplus value from pro-
duction and this serves as a source of enrichment to him.
What is the source of the capitalist’s profits?
We have already seen how commodities are exchanged at their value.
Now let us see how the value created by some people goes into the pockets
of others.
Starting in business the capitalist purchases everything necessary for
production: machinery, raw material, fuel. He also buys the necessary labour
power by hiring workers. Production begins at the factory: fuel is burned,
the machinery operates, the workers labour, the raw material is transformed
into commodities. When the commodities are ready, they are sold and with
the money obtained the capitalist can begin the cycle all over again.
What is the value of the commodities thus produced? Their value con-
sists, first of all, in the cost of the commodities spent in their production: the
wear and tear of machinery, the fuel consumed, and the raw material used
up. Let us assume that the value of all this was 3,000 hours of labour. Then a
new value enters, created by the workers at the particular factory. Let us as-
69
sume that 20 men worked 10 hours a day each for 5 days. It is easy to see
that by this they have created a value of 1,000 hours of labour. Thus the full
value of the new commodity which the capitalist has is 3,000 + 1,000 =
4,000 hours of labour.
The question now arises, what did this cost the capitalist himself? It is
quite evident that for the wear and tear of machinery, for the fuel burned and
for the raw material, the capitalist had to pay their full value, i.e., a sum of
money equivalent to 3,000 hours of labour. But in addition to this 3,000
hours of labour, 1,000 hours of labour spent by the wage workers also en-
tered into the value of the new commodity. Did the capitalist also pay out to
his workers the equivalent of 1,000 hours of labour? Herein lies the solution
of the whole secret of capitalist exploitation.
The capitalist pays the 20 workers the value of their labour power for 5
days. That is, he pays them a sum sufficient to produce their labour power
for 5 days. It is easy to understand that this sum amounts to less than 1,000
hours. The amount of labour the worker spends at the factory is, of course,
one thing; while the value of the commodities needed to maintain his capac-
ity to work is quite another.
“...the value of labour power and the value which that labour
power creates in the labour process are two entirely different magni-
tudes,”* says Marx.
To return to our example, we may assume that the value of the labour
power of one worker amounts to 5 hours of labour. Then the capitalist will
pay his workers a sum of money equivalent to 500 hours of labour.
Let us now total up. The capitalist’s expenditures then amount to 3,000
+ 500 = 3,500 hours of labour. But the value of the commodities, as we have
seen, was 3,000 + 1,000 = 4,000 hours of labour.
Surplus labour and surplus value
Where does the capitalist’s profit come from? It is now easy to answer
this question. The profit is the fruit of the unpaid labour of the workers. This
profit is the fruit of the additional or, as it is called, the surplus labour of the
workers, who during 5 hours of the day produce a value equal to their wages
and during the other 5 hours produce surplus value which goes into the
pockets of the capitalist. The unpaid portion of labour is the source of sur-
plus value, the source of all profit, all unearned increment.
“The wage labourer sells his labour power to the owner of land,
of factories and instruments of labour. The worker uses one part of
the labour day to cover the expenditure for the maintenance of him-
* Ibid., p. 174.
70
self and his family (wages), and the other part of the day he toils
without remuneration and creates surplus value for the capitalist
which is the source of profit, the source of wealth of the capitalist
class.
“The doctrine of surplus value is the corner-stone of the eco-
nomic theory of Marx.”*
The Marxian doctrine of surplus value discloses the secret of capitalist
exploitation. That is why this teaching is an invaluable weapon in the hands
of the proletariat struggling for the destruction of capitalism, for the creation
of the new communist society. That is why the bourgeoisie and its “learned”
henchmen rage against the Marxian doctrine of surplus value. That is why
they are continually trying to “refute” and to “destroy” this teaching.
The Marxian doctrine of surplus value is based, as we have seen, on his
teaching of value. That is why it is important to keep the Marxian teaching of
value free from all distortion, because the theory of exploitation is built on it.
We can now sum up our investigation of the sources of enrichment for
the capitalists. This summary can best be made by citing the concise and
clear exposition of the teaching on surplus value which we find in the works
of Lenin:
“Surplus value cannot arise out of the circulation of commodi-
ties, for this represents only the exchange of equivalents; it cannot
arise out of an advance in price, for the mutual losses and gains of
buyers and sellers would equalize one another; and what we are
concerned with here is not the individual but the mass, average, so-
cial phenomenon. In order that he may be able to receive surplus
value, ‘Moneybags must... find... in the market a commodity whose
use value possesses the peculiar property of being a source of
value’† – a commodity, the actual process of whose use is at the
same time the process of the creation of value. Such a commodity
exists. It is human labour power. Its use is labour, and labour creates
value. The owner of money buys labour power at its value, which is
determined, like the value of every other commodity, by the socially
necessary labour time requisite for its production (that is to say, the
cost of maintaining the worker and his family). Having bought la-
bour power, the owner of money is entitled to use it, that is, to set it
to work for the whole day, twelve hours, let us suppose. Meanwhile
in the course of six hours (‘necessary’ labour time) the labourer
* Lenin, Marx-Engels-Marxism, “The Three Sources and Three Component

Parts of Marxism,” pp. 52-3.
† Marx, Capital, Vol. I, p. 157.
71
produces sufficient to pay back the cost of his own maintenance;
and in the course of the next six hours (‘surplus’ labour time) he
produces a ‘surplus’ product or surplus value, for which the capital-
ist does not pay him.”*
In ancient times, when people had not yet emerged from a state of sav-
agery, primitive man spent all his strength and energy to obtain the bare ne-
cessities of life. The savage just managed to keep himself from dying of
hunger by means of the things his labour brought him.
When primitive man struggled against hunger with difficulty there could
be no social inequality among people, as there is none, say, among animals.
The introduction of surplus labour creates the possibility for the rise of ine-
quality, the possibility of the exploitation of man by man. The surplus labour
of some people goes for the benefit of others: the product of this surplus la-
bour falls into the hands of the higher class in society which exploits the
lower classes.
Such a situation persists up to and including the capitalist era. True, the
forms of exploitation change. Exploitation has different aspects in the slave-
holding, feudal and capitalist systems, but in essence it remains the same. It
consists of the appropriation of the surplus labour of the entire society by the
ruling class.
“The essential difference between the various economic forms
of society, between, for instance, a society based on slave labour,
and one based on wage labour, lies only in the mode in which this
surplus labour is in each case extracted from the actual producer,
the labourer.”†
Capital did not invent surplus labour, Marx pointed out. Everywhere,
wherever society consists of exploiters and exploited, the ruling class ex-
tracts surplus labour from the vast masses of the toiling and exploited popu-
lation. Under capitalism, however, the thirst for surplus labour assumes a
more insatiable character than under any previous form of class society.
Under slavery and serfdom, while natural production predominated,
there were definite limits to the amount of surplus labour appropriated. The
slaveholder or feudal lord squeezed as much labour out of the masses ex-
ploited by them as was necessary to satisfy their needs or desires. Under
capitalism, on the contrary, there are no limits to the thirst for surplus labour.
The surplus labour which the. capitalist squeezes out of the worker is trans-
formed into ringing coins, which can again be set to work as new, supple-
mentary capital, bringing new surplus value. The capitalist method of pro-
* Lenin, Marx-Engels-Marxism, “Karl Marx,” pp. 17-18.

† Marx, Capital, Vol. I, p. 200.
72
duction is distinguished by its insatiable thirst for surplus labour. Under
capitalism the tendency to increase the exploitation of the worker knows no
bounds. The capitalists neglect no means to increase the exploitation of their
wage slaves.
It is perfectly clear that with the destruction of the capitalist system,
with the abolition of capitalist exploitation, the extraction of surplus labour
from the workers for the benefit of the capitalist stops. An end is put to the
division of the working day into necessary and surplus hours, in the sense in
which it is divided under the domination of capital. Here is what Marx says
about this:
“Only by suppressing the capitalist form of production could
the length of the working day be reduced to the necessary labour
time. But, even in that case, the latter would extend its limits. On
the one hand, because the notion of ‘means of subsistence’ would
considerably expand, and the labourer would lay claim to an alto-
gether different standard of life. On the other hand, because a part
of what is now surplus labour would then count as necessary labour:
I mean the labour of forming a fund for reserve and accumulation”*
(a reserve of the means of production and subsistence which will
permit of the expansion of industry and recompense for possible
losses, among others, those due to accidents).
These words of Marx give the key to an understanding of the state of
things in the socialist economy of the U.S.S.R. where exploitation of the
workers no longer exists.
In the socialist enterprises of the U.S.S.R. for the first time in history,
class exploitation has been torn up by the roots. In Soviet enterprises there are
no two classes with opposing interests, as there are in capitalist enterprises.
The enterprises are the property of the Soviet state, of the proletarian dictator-
ship. The class owning the plants and factories, and the class labouring at
these enterprises is one and the same class. Under Soviet conditions the
worker does not sell his labour power to a representative of an alien and hos-
tile class. There is not and there cannot be any production of surplus value in
the socialist economy of the U.S.S.R. The excess created by the labour of the
worker over and above his earnings goes to cover the collective requirements
of that same working class and its dictatorship: for the general needs of the
country, for socialist accumulation, for defence requirements, etc.
The inventions of the Trotskyists to the effect that the industries of the
U.S.S.R. presumably are state capitalist and not socialist are therefore noth-
ing but malicious counter-revolutionary slanders. With these slanders Trot-
* Ibid., pp. 539-40.

73
skyism tries to cover up its traitorous attempts to undermine the work of so-
cialist construction) in the U.S.S.R.
What is capitalism?
We have analysed the production of surplus value. We have studied the
dynamics of the appropriation of the unpaid labour by the capitalists. We
have seen that the only source of unearned increment for the capitalists is the
labour of the proletarians. Now let us take a closer look at the invisible force
which compels millions of people to submit to the caprices of a handful of
capitalists. We must more closely examine the power of capital, analyse
what capital is.
The exploitation of the workers by the capitalists is possible only be-
cause, under capitalism, all wealth is concentrated in the hands of the bour-
geoisie. The capitalists own all the means of production and existence, the
workers have neither the one nor the other. The bourgeoisie has monopo-
lized (that is, taken exclusive possession of) all the wealth of society.
“The characteristic features of capitalist society which arose on
the basis of commodity production are the monopoly of the most
important and vital means of production by the capitalist class and
big landlords; the exploitation of the wage labour of the proletariat
which, being deprived of the means of production, is compelled to
sell its labour power; the production of commodities for profit and,
linked up with all this, the planless and anarchic character of the
process of production as a whole.”*
This is how the capitalist system is characterized in the Program of the
Communist International.
Under capitalism the proletariat is deprived of the means of production.
By means of production we understand those things that are of prime neces-
sity for man to work with. It is easy to note that the means of production
consist of several most important parts. These are, first of all, the instru-
ments of labour, from the cobbler’s simple awl to the most complex and in-
tricate machines in modern plants and factories. Further there is the raw ma-
terial which must be used. The raw material for boots is leather; for the
smelting of iron, iron ore is the raw material; for the weaving of calico, cot-
ton is the raw material. Finally, there are a number of accessory materials
needed for work, such as oil, sand, lime, etc.
The lot of these different elements of the means of production in work is
not the same. The instruments of labour last a long time. In a textile mill the
same looms will weave many pieces of fabric. The materials used have quite
* The Program of the Communist International, p. 1, Modern Books, Ltd.,

London, 1929.
74
a different fate. The raw material disappears in the process of production – it
is transformed into an entirely new product. The leather in the hands of the
cobbler becomes boots, cloth in the hands of the tailor becomes a suit, ore at
a metallurgical plant is made into iron; the accessory materials are also com-
pletely used up in the process of work: fuel vanishes in heating the factory
boilers, oil disappears in the machinery.
Under capitalism these means of production, without which no work is
possible, are in the hands of the bourgeoisie. This gives the bourgeoisie tre-
mendous power over society. In the hands of the bourgeoisie the means of
production become means of exploitation because they are concentrated in
comparatively few hands while the vast mass of the population is deprived
of them and must therefore sell its labour power.
Capital is not a thing, but a definite social relation, said Marx. Things –
means of production and all other kinds of commodities – in the hands of the
bourgeoisie in themselves are not capital. Only a definite social system
makes these things into means of exploitation, converts them into carriers of
that social relation which we call capital. Capital is “a special, historically
definite, social production relation.” (Lenin.)
It is the social relation between the class that owns the means of produc-
tion and the class which, deprived of the means of production, is therefore
compelled to undergo exploitation. Since in capitalist society the means of
production are bought and sold, they are commodities. And as commodities
they have value and can be converted into money (i.e., sold); on the other
hand, for money one can always obtain means of production (purchase
them). Hence, to put it differently, capital can be defined as a value which
brings surplus value (by squeezing it out of wage labour). But value is noth-
ing but crystallized labour. Value is the result of labour. Value is expended,
dead labour. That is why Marx says that “capital is dead labour, that, vam-
pire like, only lives by sucking living labour....”*
Constant and variable capital
In order to understand capitalist exploitation fully, it is necessary to dis-
tinguish between constant and; variable capital.
We have already seen that the full value of a commodity includes the value
of the raw material and fuel used as well as a part of the value of the ma-
chinery, etc. The quantity of the value does not change: as much value is
carried over into the new commodity as represents the original value of this
part of capital used. Hence we call this part of capital – factory buildings and
machinery, raw material and fuel – constant capital.
But we also know that another very important element enters into the

75
value of the new commodity – the value produced by the workers at the fac-
tory. If there are 100 workers at an enterprise working 10 hours a day each,
and an hour’s work has a value of, say, 50 cents, then the entire new value
produced by them each day is equal to $500.
We already know that the wages which the workers receive are less than
the new value which they produce. The size of the wages corresponds only
to that part of the newly created value which is represented by the labour
necessary to maintain the workers, while the additional labour produces sur-
plus value which goes into the pockets of the capitalist.
If the necessary labour amounts to 5 hours a day, then the capitalist pays
$2.50 a day to the worker, or $250 to the 100 workers. Thus the part of the
capital which the capitalist used to purchase labour power amounts to $250,
while the value created by that labour power amounts to $500. We thus see
that part of the capital has been doubled in the process of production, dou-
bled, of course, not by itself, but because of the appropriation of the unpaid
surplus labour of the workers. Hence we call the part of the capital used for
the purchase of labour power (i.e., for the payment of wages to the workers)
variable capital.
For the capitalist there is another distinction in capital. He keeps close
track of that part of his capital which has a quick turnover, distinguishing it
from that part which turns over slowly. The capitalist calls the factory build-
ings and machinery, which last for a long time, his fixed, capital; on the
other hand, he calls that part of his capital which has a quick turnover his
working capital. The latter includes the capital which is expended for raw
material, fuel and wages for the workers.
In the process of production, and consequently of circulation also, these
portions of capital play different parts. They last for different periods of
time. The buildings of a factory can stand up for, say, fifty years. Conse-
quently, only one-fiftieth part of the value of these buildings will be incorpo-
rated in the value of the annual production. The entire value expended by the
capitalist on these buildings returns to him only in the course of fifty years.
A machine will work for, say, fifteen years. Then its value returns to the
capitalist in the price of the finished commodities only in fifteen years; in
each one of these fifteen years the capitalist receives, through the sale of his
commodities, only one-fifteenth of the value of the machine. On the other
hand, the raw material and the fuel is entirely consumed in the manufacture
of the commodity. If the manufacturer has converted a thousand bales of
cotton into a finished product and has then sold his commodity, the entire
expense for raw material is returned to him at once and in full. The same is
true of labour power.
The division of capital into constant and variable capital does not coin-
cide with its division into fixed and working capital.
Constant capital includes fixed capital and in addition that part of the
76
working capital which goes for raw material, fuel and auxiliary materials. In
general, constant capital goes for the purchase of expended (or, as it is
called, dead) labour necessary for production. On the other hand variable
capital is used only for wages to the workers.
These two methods of dividing capital can be illustrated as follows:
Division According to Part of Capital Division According
Rate of Turnover to Role in the Process
of Exploitation
Fixed capital Factory buildings Constant capital
Machinery
Working capital Raw material, fuel, Variable capital
auxiliary material
Wages
It is very important to distinguish these two methods of dividing capital.
The division into constant and variable capital shows at once what the true
and only source of surplus value is. The division into fixed and working
capital confuses the real creator of surplus value – labour – with other ele-
ments which add no new value. Thus the method of dividing capital which is
customary in capitalist practice masks, befogs the essence of capitalist ex-
ploitation.
Rate of surplus value
In our example the workers produce $500 worth of new value a day and
receive in the form of wages only $250. It is evident that the other $250 are
appropriated by capital in the form of surplus value.
It is very important to know what part of the labour of the worker gets to
the pockets of the capitalist. Then we shall have a definite measure to show
the degree of capitalist exploitation.
Such a criterion is the rate of surplus value. By the rate of surplus value
we mean the ratio of surplus value to variable capital, or, in other words, the
ratio of unpaid labour to necessary labour. In our example, the rate of sur-
plus value will have the following appearance:
$250 surplus value__
= 100 per cent
$250 variable capital
If the rate of surplus value is equal to 100 per cent, it means that the
worker’s labour is equally divided into necessary and surplus labour, that
surplus value is equal in magnitude to variable capital, that the worker is
paid for only half his labour and that the other half is appropriated by the
capitalist.
Two methods of increasing surplus value
77
It is perfectly evident that every capitalist tries to get as much surplus
value as he possibly can. How does he achieve his purpose?
The simplest way would be to hire more workmen and expand produc-
tion. If 100 workers produce surplus value amounting to $250, 200 will net
the capitalist $500. But to double production, additional capital is necessary.
If the capitalist has such additional money, or means in general, he will natu-
rally do so. This is very clear and simple.
The question is, however, how to increase surplus value without increas-
ing the amount of capital outlay. Here the capitalist has two ways.
We have seen that the working day consists of two parts – paid, neces-
sary labour and unpaid, surplus labour. Let us assume that the working day
is 12 hours, of which 6 hours are the paid part, and of which the other 6
hours consist of surplus labour. Let us represent this working day by a line
divided into 12 parts, every division representing an hour, thus:
12 hours
6 hours 6 hours
Necessary labour Surplus labour

Under these circumstances, the capitalist can increase the amount of
surplus value he receives by lengthening the working day. Since necessary
labour remains unchanged, the part falling to surplus labour will be greater.
Let us assume that the working day has been increased to 14 hours. Thus we
shall get the following picture:
14 hours
6 hours 8 hours

In this case we have an increase in the absolute surplus value: the vol-
78
ume of surplus value increases because of an absolute increase of the work-
ing day as a whole.
There is also another way of increasing the amount of surplus value.
What will our working day look like if the capitalist finds some way of re-
ducing the amount of necessary labour? It is easy to answer this. Let us as-
sume that the necessary labour has been reduced to 4 hours. Then the work-
ing day will look like this:
12 hours
4 hours 8 hours
In this case we have an increase of the relative surplus value: the vol-
ume of surplus value increases exclusively by changing the ratio of neces-
sary to surplus labour while the working day as a whole remains unchanged.
Formerly we had the ratio 6:6, and now we have 4:8 – a result of reducing
the necessary labour time.
But how is this reduction of necessary labour time achieved?
The development of technical improvements leads to enhanced labour
productivity. Less labour is expended on the production of the means of sub-
sistence of the worker. The value of these means is reduced. By the same
token, the value of labour power is reduced, decreasing the amount of neces-
sary labour and increasing the relative amount of surplus value.
In order to reduce the amount of necessary labour the capitalist employs
the wives and children of the workers. Then the entire family receives in
wages approximately as much as was previously received only by the head
of the family. When, with increased technical development, the role of the
worker is reduced to watching the machine and performing merely very
simple operations, male labour can very well be replaced by children or
women. The capitalists prefer this kind of labour because it is cheaper: a
woman worker is generally paid only half as much as a man whose place she
takes; the pay for the work of children is even less.
Excess surplus value
The following method of augmenting the relative surplus value should
be especially noted. Every capitalist tries in all ways to increase his profits.
79
For this purpose he introduces all kinds of improvements which lower the
cost of production. For this purpose he buys new machinery, introduces new
technique to increase the productivity of labour. So long as these technical
innovations introduced by the capitalist remain unknown to other enterprises
of the same field he receives super-profits, excess surplus value. The com-
modities cost him less, whereas he sells them at the same price as before or
only slightly under this price.
An individual enterprise usually keeps such an advantage for only a very
short time. Other enterprises also introduce technical improvements. Since
the value of commodities is determined by the average socially necessary
labour contained in them, the general introduction of technical improve-
ments leads to a fall in the value of each commodity unit and thus the indi-
vidual enterprise is deprived of its special advantage.
Under capitalism, the main driving force of technical progress is the
possibility of getting super-profits. The race for excess surplus value pro-
duces an increase in relative surplus value, as it brings about a reduction in
the amount of labour needed to produce the workers’ means of subsistence.
Excess surplus value is only another form of relative surplus value.
The struggle around the working day
It is perfectly clear that for the capitalist, the simplest way to augment his
profits is to increase absolute surplus value. No new technical improvements
are needed for this, it is only necessary to lengthen the working day. And in
fact the capitalists always try to extend the working day to the utmost. If they
could do so, they would make the worker labour more than twenty-four hours
a day. Lengthening of the working day, however, has its natural physical lim-
its. Moreover, this incurs the ever more determined opposition of the workers.
That is why the capitalists cannot limit themselves to attempts at increasing
absolute surplus value. Together with this they also struggle for relative sur-
plus value, which promises them unlimited possibilities.
At the dawn of the capitalist era an extremely long working day pre-
vailed in all countries. Technical development was still weak, and, most im-
portant of all, the working class was scattered and not prepared for battle,
hence the production of absolute surplus value predominated everywhere.
In some cases the working day consisted of almost the entire twenty-
four hours. The worker only got a few hours for sleep, the rest of the time
belonged to the capitalist. It is easy to imagine what an effect such murder-
ous exploitation had upon the life of the workers.
A long working day is still common in many countries. In China, for in-
stance, the working day in many factories is sixteen to eighteen hours long;
even in underground work, in the coal mines, the working day is as exorbi-
tantly long. And such a long working day prevails not only for men but also
for women and young children.
80
In capitalist society, says Marx, the free time of one class is obtained by
turning the entire life of the masses into working time.
As soon as the proletarian begins to struggle for better conditions he ad-
vances the demand for limiting the working day as one of his first demands.
Laws limiting child labour and the length of the working day appeared in the
older capitalist countries (in England and then in France) only in the forties
of the last century. Labour legislation everywhere appeared only after the
severest struggles on the part of the working class, The bourgeois govern-
ment, defending the (interests of its capitalist class as a whole, consents to
the enactment of such laws only under pressure of the labour movement on
the one hand and from consideration of the necessity of preserving the lives
of the working population on the other hand, as without workers there would
be no profits for the capitalists.
In most of the highly developed countries the ten-hour day prevailed
prior to the World War; the working day was shorter only in some cases of
underground work (in coal and metal mines). There were some limitations of
child labour and the work of women (the limitation of night work).
After the World War, when the sweep of the labour movement threat-
ened the very existence of capitalism, the bourgeoisie in many countries
made concessions. In 1919 a special proposal was even drawn up in Wash-
ington to introduce the eight-hour day on a world scale, but nothing came of
this. In the following years, when capital took the offensive, most of the
concessions were withdrawn. A general onslaught against the eight-hour day
was made by the capitalists everywhere and in most countries the eight-hour
day does not exist any longer.
Intensity of labour
One of the favourite methods of squeezing more surplus value out of the
workers is by increasing the intensity of labour. It can be arranged that the
worker shall spend more labour, spend more energy in the same interval of
time. In such a case he will produce more value; hence the surplus value
falling to the capitalist will also increase.
With machinery the intensity of labour is often increased by speeding up
the machine. The worker must make an effort to keep up with the machine.
If he fails to do so he loses his job. In other cases the capitalists try to get the
workers to work more and more intensively by means of special methods of
payment.
Excessive intensity of labour is just as injurious to the health and life of
the worker as an excessively long working day. When the length of the
working day is limited by law, the capitalists find a “way out” for them-
selves by an unlimited increase in the intensity of labour. In most capitalist
enterprises the intensity of labour is so great that the worker prematurely
loses his ability to work, ages too soon, is subject to various diseases. For
81
the capitalists, intensification of labour is a well-tried method of augmenting
the exploitation of the worker, of increasing the degree of his enslavement.
Capitalism and technical development
At the present time the decaying capitalist system, finding itself in the
grip of a severe and protracted crisis, manifests itself as the foe of technical
progress. The capitalists and their learned servants often try to represent ma-
chinery as being the cause of all the trouble. Too many machines, they say,
too many steel monsters robbing honest people of work. Too many products
produced by these machines, which then find no market. The workers know,
however, that it is not the machine in itself which brings unemployment,
crises, etc. The reason for these evils is the capitalist system with its deep-
rooted contradictions. It is not the machine that robs the worker of bread, but
the capitalist application of the machine as a means of exploitation.
Under the conditions of the present crisis, the bourgeoisie evince a
predilection for returning from machine production to hand labour. And it is
not a rare thing for them to put into practice these mad schemes so inimical
to progress. In America, while many steam shovels and dredges stand idle,
thousands of people are made to labour with the pick and shovel on public
works. Under these conditions the U.S.S.R. is the only country in the world
today which continually progresses towards the adoption of the newest and
most advanced technique in all fields. The country where socialism is being
built holds high the flag of technical progress.
Modern technical engineering increases the productivity of labour hun-
dreds and thousands of times.
A worker can make 450 bricks a day by hand. A modern brick-making
machine turns out about 400,000 bricks a day for every worker employed on
it, i.e., about 1,000 times as many.
A hand-power flour mill turns out 450-650 pounds of low grade flour. A
modern flour mill in Minneapolis (U.S.A.) turns out 13,000,000 pounds of
the best grade flour a day to every worker employed, or about 20,000 times
as much.
A modern shoe factory can produce 83 pairs of shoes per worker every 6
days, as against 1 pair which could be produced by a worker working by
himself.
Modern moribund capitalism, however, is incapable of utilizing these
possibilities. Even before the present crisis the application of the newest
technical developments met with tremendous difficulties even in the richest
capitalist country – the United States of America.
In 1929 there were 2,730 brick-making plants employing 39,000 work-
ers and making 8,000,000,000 bricks, whereas 6 to 7 modern plants with
only 100 workers each could completely satisfy the U.S.A. market.
In 1929 there was a total of 6,500,000,000 pounds of flour produced in
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the United States. In order to produce this quantity of flour, with the normal
production capacity of the Minneapolis flour mill mentioned above, only 17
workers would be needed. As a matter of fact, however, there were not 17
workers but 27,028 employed in the flour-mill industry of the United States.
In the shoe industry, even in 1929, that is, in the period of greatest pros-
perity, 205,640 workers produced 365,000,000 pairs of shoes which gives,
not 83 pairs, but approximately 35 pairs a week per worker.
An almost infinite number of such examples could be enumerated.
It is important to keep in mind that in its period of youth and prosperity
capitalism brought with itself a tremendous growth of the productive forces
of human society. Until the rise of capitalism no one even dreamed of mod-
ern large-scale industry, its high technical development, modern means of
transport and communication. It was capitalism that brought with it machine
production. It called to life the tremendous wealth that lay buried in the
bowels of the earth. It evolved a tremendous advanced technique, lightening
human labour considerably and increasing its power over nature.
However, capitalism places all this development of the productive
forces of society at the service of the murderous exploitation of one class by
another. The most perfect means of production is used by the capitalist sys-
tem as the most perfect means of squeezing surplus value out of the working
class. The race for gain, the race for profit – this is the motive power of capi-
talist industry. An increase in profit – this is the purpose for which the capi-
talist introduces new technical achievements.
That is why the further development of productive forces under capital-
ism means the further intensification of the exploitation of the working class,
the further enrichment of a handful of capitalists at the expense of the im-
poverishment of the great masses of the people. But at the same time, by
creating gigantic enterprises of a high technical order, by greatly increasing
the technical powers of human labour, capitalism prepares the material basis
for socialism, prepares the material conditions and the prerequisites for the
realization of the aims for which the proletariat is struggling. It is in this, in
the preparation of the necessary prerequisites for the triumph of the proletar-
ian revolution, that the historical role of capitalism lies.
Wage slavery
There is nothing more disgusting than the hypocrisy of the bourgeoisie
who assert the “equality” of rich and poor, the well-fed and the hungry, the
drone and the over-worked labourer. In reality the bony hand of hunger
drives the worker into bondage to the capitalist more effectively than the
severest legislation. Capitalism leads to a continual worsening of the condi-
tions of life of the proletariat. Capitalism leads to ever greater poverty
among the broad masses of workers. Hunger becomes an ever more frequent
guest in working class quarters.
83
Marx says:
“The Roman slave was held by fetters; the wage labourer is
bound to his owner by invisible threads. The appearance of inde-
pendence is kept up by means of a constant change of employers,
and by the fictio juris [legal fiction] of a contract.”*
And in fact, the .worker is free to leave his employment at one capitalist
enterprise only to get to another one belonging to another capitalist.
Under the pretence of fighting against forced labour the capitalists con-
ducted a campaign against the Soviet Union. It is hard to imagine anything
more base than this outburst of modern slave-drivers against the only free
socialist country in the world, under the slogan of fighting for the freedom of
labour. The Soviet Union is the only country in the world where wage slav-
ery has been put to an end, where tremendous masses of .workers have, for
the first time in human history, acquired the opportunity of sane and free
labour for themselves, for the benefit of a socialist system where there are no
exploiters and no exploited.
Throughout the entire capitalist world the working masses are chained
with invisible fetters to exhausting, hateful labour the fruit of which only
serves to further their enslavement, to intensify capitalist bondage. Creating
untold wealth for a handful of drones, the workers themselves suffer more
and more from hunger and privation. “The place of the slave-driver’s lash is
taken by the overlooker’s book of penalties,”† said Marx about capitalist
enterprises. Without doubt, the fine-book of the foreman – the eternal threat
of losing one’s job and dying of hunger – affects the present-day worker no
less than the lash of the slave-driver.
But even the lash of a foreman is by no means a rarity in modern capi-
talist countries. In a number of countries, especially in the colonies, the most
authentic slave labour exists for the benefit of the capitalist. Capital makes
sufficient profits from “free” wage labour. But where circumstances permit,
it is not averse to utilizing slave labour.
Even in the most highly developed capitalist countries we may find con-
ditions similar to slave conditions.
Under the conditions of the economic crisis the bourgeoisie gladly em-
ploys the-most genuine forced labour in various forms of “labour service,”
primarily unemployed youth. In the German “labour service” camps, hun-
dreds of thousands of young workers live in conditions of an army barracks
regime; they receive a miserable pittance for the most arduous labour. At the
same time, German fascism forces the camp inmates to go through military

† Ibid„ p. 424.
84
training, preparing them as cannon fodder for its military adventures.
In America Negro slave labour still exists. There are about 12,000,000
Negroes there, mostly workers and small-scale farmers. After the formal
abolition of slavery in 1863 most of the Negro labourers were forced into a
state of abject dependence upon their employers.
In the Southern states in many cases the landlord gives the Negro family
a strip of .land, seed, food and the necessary tools until harvest time. The
tenant farmer has to turn over his entire harvest to the landlord who
reimburses himself for his initial outlay. But the landlord always manages to
keep the Negro in debt to him. If the Negro has, say, 100 bales of cotton,
which can fetch $600 on the market, the landlord will contrive to show that
he has invested $800. Thus, if the Negro leaves the entire harvest in the
hands of the landlord, he will still owe the landlord $200 and be compelled
to renew the agreement on the same conditions. This deception is practised
from year to year. If the Negro applies to a court of justice no one pays any
attention to him: the word of a white man cannot be refuted by the word of a
Negro. The landlords are not only masters on their own plantations, they
have unlimited power in the entire community and when one of them asserts
something before a “court of justice” it is law. In the South the landlord
dictates the conditions under which the Negro must work. If the Negro dares
to be indignant at the unlawful acts of his master and tries to run away he is
immediately hunted down by the police with the help of trained police dogs.
When the Negro is caught he is considered a vagrant or deserter and is
returned to his landlord.
The landlord resorts to other tricks to procure cheap labour power which
is applied under the most slavish conditions.
When the landlord needs labour power he calls upon the local court, and
the police arrest the necessary number of workers. All kinds of fictitious
charges are placed against the arrested men. The court imposes fines on the
Negroes, who are unable to pay them and thus are forced into virtual slavery
to the landlord who pays the fine for them, deducting it from their future
wages.
Slavery in the colonies
But the most terrible form of forced labour exists in the colonies, where
the imperialists turn the native population into absolute slaves. At gold and
other mines, on plantations and on road work in colonial countries forced
labour is employed on a broad scale.
In South Africa, according to the Masters and Servants Act if a native
runs away from his master he is treated as a criminal and is forced to return.
Everywhere a passport is required of him to show that he has worked for a
European. If his passport is not in order he is arrested and returned to his
previous employer or compelled to work for another.
85
In the mining industry, especially at the gold and diamond mines, the
native workers live in special abodes, called compounds, surrounded by
barbed wire fences. The native worker has no right to leave his prison for the
entire period of his hire. No outsider is permitted to enter within the fence;
armed guards stand continuous watch. His average wage is less than half a
dollar a day and on this he must feed himself. For this miserable wage he
must toil for twelve to fourteen hours a day.
In other African colonies the most inhuman methods of exploitation ex-
ist. The men are usually brought to the mines trussed up with ropes. Work
proceeds under the supervision of armed guards. The native worker is usu-
ally forced to sign a contract after he has been made drunk, and he often
does not even understand what the contract means.
Slavery is in many cases accompanied by quite open slave trading; as an
instance, Portuguese Africa (Angola and especially Mozambique) or the
“Independent Republic” of Liberia can be taken, the latter being entirely in
the hands of United States capital.
Together with open slavery there is slavery for debt. The essence of this,
as Marx explained, is that by means of loans which must be worked out, and
which are transmitted from generation to generation, not only the individual
worker, but his entire family become the inherited property of a proprietor
and his family.
REVIEW QUESTIONS
1. Of what does the primitive accumulation of capital consist?
2. What compels the worker to sell his labour power?
3. What determines the value of labour power?
4. What is the difference between labour power and labour?
5. What is capital?
6. Which is greater: constant or fixed capital?
7. What is the measure of the degree of exploitation of labour?
8. What are the methods of increasing relative surplus value?
86
CHAPTER V
Wages and the Impoverishment of the Working Class Under Capitalism
Value of labour power and its price
Under capitalism the worker sells his labour power to the capitalist. The
capitalist hires the worker and makes him work for him. The worker receives
wages. This constitutes the purchase and sale of labour power.
But labour power is a commodity of a special kind. The purchase and
sale of labour power characterizes a relation between capitalist and worker –
between the two basic classes of capitalist society. The value of labour
power, as we already know, is determined by the value of the means of sub-
sistence necessary for the maintenance of the worker. It must however be
kept in mind that the capitalists always try to reduce wages below this limit.
Under capitalism no one is concerned with how the worker lives. He often
remains unemployed and starves to death. But even when he obtains em-
ployment his wages are not always sufficient to satisfy his most elementary
needs.
The value of labour power is determined by the value of the means of
subsistence of the worker. But how are the necessary means of subsistence
determined? It is quite clear that the means of subsistence of the worker,
their amount, their nature, depend upon a number of circumstances. Marx
points out that
“...the value of labour is in every country determined by a tradi-
tional standard of life. It is not mere physical life, but it is the satis-
faction of certain wants springing from social conditions in which
people are placed and reared up.”*
Unlike other commodities the determination of the value of labour
power includes a historical or social element. The normal living standard of
the worker is not something that is fixed and established forever. On the
contrary, this standard changes with the course of historical development,
and is different in different countries depending upon the historical devel-
opment of the particular country. Capitalism, however, always tends to bring
the living standard of the working class down to an extremely low level. The
value of a commodity expressed in terms of money is its price. The price of
a commodity, as we have already seen, continually fluctuates above or be-
low its value. Wages are a special form of price for the commodity, “labour
power.” It is evident that the level of wages varies above and below the
value of labour power. But in contradistinction to other commodities the
variations here are mainly below the value.
* Marx, Value, Price and Profit, p. 74.

87
Wages a mask of capitalist exploitation
We have seen that the labour of the wage worker in a capitalist enter-
prise consists of two parts: paid, necessary labour, and unpaid, surplus la-
bour. But when the worker receives his wages, it is not at all apparent that
they cover only necessary labour, whereas his surplus labour is appropriated
without remuneration by the employer. On the contrary, things under capi-
talism are represented as if the entire labour of the worker has been paid for.
Let us take a miner, who is paid on the basis of piecework. For every ton
of coal he mines, he gets, say, one dollar. Working his hardest, he makes
barely enough each day to buy his bread. Let him try to point out to the mine
owner the injustice of such exploitation. If the latter will feel kindly disposed
and desire to talk to his worker at all, he will explain:
“You get a dollar a ton. No more is paid at either the neighbouring
mines or elsewhere. You get a fair price. Your labour is not worth any more.
Try to mine more coal and your wages will be higher.”
Thus one gets the false impression that the worker receives the full
value which he has earned in working.
Let us suppose that a friend of our miner works at a chemical plant near
by. He works under the most injurious conditions for nine hours a day and
gets, say, forty dollars a month. How does he find out that his boss is ex-
ploiting him? Let him try to speak to his boss about it, and without any hesi-
tation he will be answered:
“You get as much as anyone else would in your place. You get a fair
wage, more than this you do not earn. But if you wish, try working both
shifts and you will get double wages. But in nine hours you only work out
forty dollars a month. There would be no sense in paying you more.”
And really, how can the worker know how much value he produces a
day for his boss? The nine-hour day is not divided openly so that he can
know: this part of the day I worked out my wages, and these hours I work
for the boss without being paid. All hours of work are alike. And here he
even gets an opportunity to increase his wages – double them, true by dou-
bling his working day. Such a thing can really be confusing; it appears as if
the capitalist really pays him as much as he produces in value.
Thus capitalist exploitation is masked. And here all the forces of the
ideological enslavement of the masses come to the bosses’ aid. The church
asserts that the earthly system is established by god and that any thought of
changing it is sinful. The capitalist press, science, the theatre, the cinema, the
literature and art of the bourgeoisie – all mask the issue of exploitation, all
try to make things appear as if the enrichment of the capitalists were just as
natural and inevitable as the light of the sun on a clear summer day.
“The wage form thus extinguishes every trace of the division of
the working day into necessary labour and surplus labour, into paid
88
WAGES AND THE IMPOVERISHMENT OF THE WORKING CLASS
and unpaid labour. All labour appears as paid labour. In the corvée,
the labour of the worker for himself, and his compulsory labour for
his lord, differ in space and time in the clearest possible way. In
slave labour, even that part of the working day in which the slave is
only replacing the value of his own means of existence, in which,
therefore, in fact, he works for himself alone, appears as labour for
his master. All the slave’s labour appears as unpaid labour. In wage
labour, on the contrary, even surplus labour, or unpaid labour, ap-
pears as paid.”*
Wages and the struggle of the working class
Workers began quite early to organize into trade unions, which con-
ducted a struggle to improve working conditions and to curb unlimited ex-
ploitation.
Wages, as we have seen, are determined by the value of labour power.
But, in the first place, wages fluctuate considerably, particularly below the
value of labour power and, secondly, the value of labour power itself
changes considerably dependent on a number of circumstances.
A constant struggle rages between the bourgeoisie and the working class
concerning the level of wages; in this struggle much depends upon the de-
gree of organization and unity of each side.
So long as the workers had not organized trade unions, each capitalist
dealt with a scattered mass. The capitalist in such a case is in an advanta-
geous position in the struggle about wages: if any worker does not agree to
the bad conditions of employment he is discharged and the employer quickly
finds someone to take his place.
Matters change when there is a trade union movement. Under such cir-
cumstances the capitalist is not opposed by a scattered mass of unorganized
workers, but now has to deal with a union of all (or of the majority) of the
workers, which presents uniform demands and calls for-uniform conditions.
Formerly the capitalist came to an agreement with individuals, now he has to
come to a collective agreement with a trade union. Wages of the workers are
usually determined by special rate agreements.
The capitalists, of course, find many ways of struggling against the
workers even when there is a trade union. In their turn they unite in “em-
ployers’ associations.” To help the capitalists, those betrayers of the working
class, the Social-Democrats, come forward. The trade unions under their
leadership disrupt the struggle of the workers, act as strike-breakers during
revolutionary strikes.
It is perfectly clear that by means of only an economic struggle on the
part of trade unions the working class cannot free itself from the ever grow-

89
ing capitalist exploitation, from increasing poverty and destitution. For this
purpose the complete victory of the proletariat, which can be won only by
revolution, is necessary. Then, in destroying capitalism, the proletariat de-
stroys class exploitation, the source of its impoverishment.
Marx writes as follows with regard to this:
“...the general tendency of capitalistic production is not to raise,
but to sink the average standard of wages, or to push the value of
labour more or less to its minimum limit. Such being the tendency
of things in this system, is this saying that the working class ought
to renounce their resistance against the encroachments of capital,
and abandon their attempts at making the best of the occasional
chances for their temporary improvement? If they did, they would
be degraded to one level mass of broken wretches past salvation. I
think I have shown that their struggles for the standard of wages are
incidents inseparable from the whole wages system, that in ninety-
nine cases out of one hundred their efforts at raising wages are only
efforts at maintaining the given value of labour and that the
necessity of debating their price with the capitalist is inherent to
their condition of having to sell themselves as commodities. By
cowardly giving way in their everyday conflict with capital, they
would certainly disqualify themselves for the initiating of any larger
movement.
“At the same time, and quite apart from the general servitude
involved in the wages system, the working class ought not to exag-
gerate to themselves the ultimate working of these everyday strug-
gles. They ought not to forget that they are fighting with effects, but
not with the causes of those effects; that they are retarding the
downward movement, but not changing its direction; that they are
applying palliatives, not curing the malady. They ought, therefore,
not to be exclusively absorbed in these unavoidable guerrilla fights
incessantly springing up from the never-ceasing encroachments of
capital or changes of the market. They ought to understand that,
with all the miseries it imposes upon them, the present system si-
multaneously engenders the material conditions and the social
forms necessary for an economic reconstruction of society. Instead
of the conservative motto: ‘A fair day’s wages for a fair day’s
work!’ they, ought to inscribe on their banner the revolutionary
watchword: ‘Abolition of the wages system!’”*
* Marx, Value, Price and Profit, pp. 79-80.

90
Forms of wages
The capitalists pay the workers their wages by various methods. Of all
the various forms of wages two are fundamental.
In some cases the workers receive their pay according to the period of
working time, when the wages may be calculated by the hour, day, week or
month. This is called the time form of wages or time wages. In other cases
the worker’s pay depends upon the amount of goods he has produced; the
worker is paid according to the number of tons of coal he has mined or the
number of metres of calico he has woven, the number of locks he has made,
etc. This is called the piecework form of wages. The capitalist system has
invented many different forms, sometimes rather complicated ones, of pay-
ing the workers. But all these forms are based either on a time or piecework
basis, and sometimes on a combination of the peculiarities of both.
It may appear at first as if there were nothing in common between the
method of paying by time and the method of paying by piecework – that
these two forms are entirely different. In reality it is not so. In the case of
timework, in granting the worker a definite weekly wage, the capitalist cal-
culates what work his wage worker will do during that time. If he were not
to estimate this, he would soon go bankrupt. It is more important, however,
that, fundamentally, piecework is really the same as timework. When the
rate per piece is set, the amount produced by a worker in an hour, day, or
week is taken into consideration. That is why piecework also assures the
average worker only the bare necessities.
Both piecework and timework are only different forms of the purchase
of labour power by the capitalist. The form used depends on the circum-
stances prevailing in the particular industry. Each of these forms has its ad-
vantages for the capitalist, dependent upon the circumstances.
Timework
Timework is the form employed in cases where the employer has no
reason for interesting each individual worker particularly in the production
of as great a quantity of goods as possible. Such cases are manifold.
In many trades the skill and ability of the worker still play an important
part, the quality of the commodity produced depending on this. In cases
where we deal with a semi-artisan type of industry, the employer often pre-
fers to pay his highly skilled workers by the week (by time). Not striving for
quantity, the worker produces each commodity very carefully. The capitalist
gains in the quality of the commodity what he loses in quantity.
In other cases, on the contrary, the worker becomes a mere appendage to
the machine. The quantity of goods produced depends entirely upon the
speed of operation of the machine. In such cases also the capitalist prefers
timework.
91
Piecework
On the other hand, various methods of piecework are employed in all
cases where the capitalist wants to interest the worker in producing as great a
quantity of commodities as possible.
Piecework saves the employer the necessity of supervising the work of
his employees; making the wages depend on the quantity produced, piece-
work assures the most intensive labour on the part of the workers. As a rule,
piecework is possible in those industries where it is easy to calculate or
measure (by piece, weight, volume or length) the quantity of commodities
produced.
Piecework, under capitalism, is the favourite method of increasing the
exploitation of workers by increasing the intensity of their labour. Piecework
rates are usually set according to the earnings of the most capable and the
fastest workers. In order to make the necessary minimum wage the other
workers must strain their energies to the utmost. When the employer sees
that a majority of the workers have increased their pay, he reduces the rate.
The workers must then work even more intensively in order to earn their
former wages.
The piecework form of remuneration has an entirely different signifi-
cance in the conditions obtaining in the U.S.S.R. There the worker does not
sell his work to a class of exploiters, but uses it in enterprises which are the
property of the proletarian state. The wage which the worker receives in the
U.S.S.R. is a social allowance for labour, and is in proportion to the quantity
and quality of the labour expended. Piecework remuneration in the socialist
economy of the Soviet Union is the best means of establishing conformity
between the quantity and quality of the labour expended and the remunera-
tion of the individual workman, it is a powerful lever in raising the produc-
tivity of labour and in addition the well-being of the working class. There-
fore, it is entirely different from piecework under capitalism.
Bonuses and profit-sharing
Sometimes the capitalists pay out part of the wages in the form of a bo-
nus. They figure that the bonus will stimulate special exertion on the part of
the workers and make them work with the utmost intensity.
An even greater deception is so-called profit-sharing. The capitalist
lowers the basic wage with the excuse that the worker is supposedly also
interested in having the business profitable. Then under the guise of “a share
in the profits” only a part of the wages previously deducted is returned to the
worker. In the end the worker “sharing in the profits” often receives less
than the one working simply for wages.
By this method not only does the employer try to raise the intensity of
labour to a high degree – but sometimes it induces a certain stratum of the
more ignorant workers to keep away from the class movement of the prole-
92
tariat and thus to serve as a support of capital.
The sweating system
On the basis of piecework the so-called “sweating system” exists, par-
ticularly in the needle trades industry in England and America. Work is
given out to be done at home at exceedingly low rates. The tailor working
under such a “sweating system” must work literally day and night to avoid
starvation.
Scientific organization of labour. The Taylor and Ford systems
Having bought the labour power of the proletarian, the employer tries to
derive the utmost possible from it for himself. Of late the cleverer and more
able employers have begun to introduce the so-called “scientific organiza-
tion” of labour, which amounts to the following.
Every kind of work done at the plant is studied in detail by experts who,
after long observation and research, establish the most rational methods of
doing this work. Methods of work are thus established which save the
worker unnecessary motion and effort, all his tools are rationally arranged,
etc., so that the worker is not distracted from his main work. Under these
circumstances all the energy of the worker, all the effort spent by him goes
towards useful work without any loss, is spent entirely on the operations
which he has to perform. Thus the industry gets the greatest benefit from his
work and the productivity of labour is greatly increased.
The scientific organization of labour is a great achievement in the ra-
tional utilization of human effort. After the overthrow of capitalism, under
conditions of a proletarian government, great possibilities are opened up for
the scientific organization of labour. But under the capitalist regime, the sci-
entific organization of labour, like all scientific achievements, is used by the
capitalists in their own narrow class interests. Scientific organization of la-
bour is turned by the capitalists into one of the means of squeezing more
surplus value out of the workers.
One of the first to advocate the scientific organization of labour was an
American engineer, Taylor. His system, called the Taylor system, is used in
many capitalist plants, .increasing the surplus value. Greatly raising the pro-
ductivity of labour, turning the workers into machines executing strictly cal-
culated motions, the Taylor system leads to the squeezing of the last ounce
of strength out of the workers, making invalids of them after a few years.
The lowering of the piecework rates following the introduction of the Taylor
system makes the workers labour much harder for the same, and at times
lower, wages.
During post-war years, the subtle methods of exploitation used by the
American automobile king, Henry Ford, became especially famous. His
methods of exploitation began to spread rapidly not only in America, but
also in the capitalist countries of Europe. The basic feature of the Ford sys-
93
tem is production in a .steady stream – along a conveyor. By speeding up the
conveyor, the work is speeded up and the intensity of labour increased.
Whoever cannot keep up with the conveyor loses his job in the capitalist
plant. Thus the capitalist turns every technical improvement into an instru-
ment for the further impoverishment and enslavement of the proletariat, into
an instrument for squeezing the very life out of the workers.
Payment in kind or in money
Formerly, when a worker was hired in the village, he was seldom paid in
money for his work. This was done in the following way: the worker was
boarded by his employer and, in addition, at the end of the summer, he re-
ceived a little grain. Here the worker is paid in kind: he gets the necessary
means of subsistence directly, in exchange for his labour power. Such a sim-
ple transaction is similar to the barter of products – say, an axe for bread.
When trade assumes such a simple character it is perfectly evident that the
value of the necessary means of subsistence is at the basis of the value of
labour power.
Payment exclusively in kind is very rare in capitalist industry. But even
here part of the wages is occasionally paid out in kind. This method of pay-
ment is usually only a convenient method for the capitalist to increase his
profits at the expense of the workers. The company store belonging to the
employer furnishes the worker with all kinds of shoddy goods at triple
prices. The workers’ real wages are thus greatly reduced. Workers’ organi-
zations therefore always struggle against such a practice. Sometimes the
capitalists try to achieve the same end – a decrease in the wages of the work-
ers by making them buy goods at high prices – in a more subtle way. They
assume control of all the stores in the workers’ settlement or district and the
workers, getting their wages in money, are compelled to buy things at high
prices just the same. Workers try to struggle against such exploitation by
means of organizing consumers’ co-operatives.
Nominal and real wages
In developed capitalist industry, except in rare cases, wages are paid in
money. The worker sells his labour power and, as with the sale of any other
commodity, gets its price in the form of a definite sum of money.
However, the worker does not need the money for itself, but only as a
means of getting the things he requires. Receiving his definite wages, the
worker buys the things he needs; he pays the prices for them that prevail on
the market at the time.
But we know that the level of commodity prices does not remain un-
changed. The purchasing power of money changes under the influence of
various causes. If a gold standard exists in the country, the prices may rise
because gold becomes cheaper; with a decrease in the value of gold, the pur-
chasing power of money falls. When paper currency is issued in great quan-
94
tities the prices of commodities suffer great and rapid changes, following the
fall in the purchasing power of money which almost always accompanies the
circulation of paper currency.
Hence, if we wish to compare the wages of workers in several cases, it
is not enough to know only how much money they receive in each case. It is
also necessary to know how much goods can be bought with the money in
each case. We must not merely compare the nominal rates of wages (by the
nominal rate of wages we mean the amount of money received by the
worker), we must also take into consideration the purchasing power of the
money received. Only then can we establish exactly the real wages, which
can be measured by the quantity of use values that can be purchased for the
given sum of money in the given place.
Wages of skilled workers
Everyone knows that workers in different trades receive different rates
of wages. Highly skilled workers receive much higher wages than unskilled
workers who have no special technical training. Usually, the greater the
skill, the higher the wages.
Different branches of industry require workers of different skill. Hence
the wages of workers in different industries are not the same.
Besides the difference in the rates of pay for workers in different indus-
tries there is the difference in the rates of pay for workers of different skill in
the same industry. The skilled worker is paid more than the semi-skilled, the
semi-skilled worker more than the common labourer.
What is the reason for such differences in the rates of wages of workers
according to skill? It is not difficult to understand this. Anyone can perform
unskilled labour, but the skilled worker must go through a definite period of
learning the trade, must spend much time and effort to obtain this skill. If
there were no differences in the rates of pay no one would want to spend the
time and energy to learn a trade, no one would try to obtain a definite degree
of skill.
However, no amount of skill saves a worker from inhuman, incessant
exploitation under capitalism.
The introduction of new machinery generally makes great numbers of
highly skilled workers superfluous. What was previously done by a highly
skilled master, who had spent many years in acquiring his skill, is now done
by a machine. Considerable sections of skilled workers become superfluous
and are thrown out of employment. In order not to starve to death they are
compelled to do unskilled labour at much lower pay.
The level of wages in the various capitalist countries
The level of wages in the various capitalist countries is not the same.
There are very great differences in this among the various countries. These
differences are due to many causes.
95
It would be ridiculous to think that capitalists in one country are kinder
in their relations to the workers than those in others. As a matter of fact capi-
talists everywhere try to lower wages to the lowest possible limits. But con-
ditions in different capitalist countries vary considerably. Different countries
have different histories. In America, for instance, capitalism developed un-
der circumstances where a shortage of labour was experienced rather than a
superfluity of it: an abundance of free land for some time gave emigrants
from European countries the opportunity of settling on the land. In older
capitalist countries the working class organized earlier to offer resistance to
the capitalists. In the more advanced capitalist countries the intensity of la-
bour, as well as the degree of average skill of the workers, is very high.
All these circumstances gave rise to the different levels of wages in dif-
ferent capitalist countries.
Thus, for instance, if we take wages in England as 100, the wages (the
average hourly rate) in other advanced capitalist countries on the eve of the
imperialist war were as follows:
England 100 France 64
Germany 75 U.S.A. 240
According to other calculations the average yearly wages of workers in
various countries (in 1900-07, in dollars) were:
U.S.A. 463 Austria 167
England 258 Russia 97
Germany 237 Japan 55
In post-war years we also see considerably different rates of wages in
the various capitalist countries. Here are figures showing the differences in
real wages in various large cities of the most important countries. The fol-
lowing figures show the conditions existing in January 1929 and are based
on the level of real wages in London in 1924 which is taken as 100:
Philadelphia 206 Berlin 77
Dublin 106 Madrid 57
London 105 Brussels 52
Stockholm 93 Milan 50
Amsterdam 88 Rome 44
It is understood that wages are particularly low in those countries where
capitalism has only recently begun to develop. Primitive accumulation in
these countries ruins the peasantry and artisans, throwing them into the army
of those seeking employment. In the colonies the living standard of the pro-
letariat is extremely low. The workers in China especially are subject to the
most brutal exploitation. The Chinese coolie, feeding himself on a handful of
rice, often sleeping on the streets or in the parks and clothing himself in rags,
96
is, in the eyes of the capitalists, the most exemplary worker in the world. The
more brazen capitalists tell the European workers to take an example from
the Chinese coolie, to live as “economically” as he does. This kind of advice
has been heard particularly often during the present times.
Growth of capitalist exploitation
As capitalism develops, the exploitation of the working class grows. The
conditions under which the workers conduct their struggle about wages with
the capitalists continually become more disadvantageous to the workers. As
it develops, capitalism brings with it both a relative and an absolute impover-
ishment of the working class.
The share of the capitalists grows bigger, the share of the workers
smaller. The figures for several capitalist countries show this clearly. Let us
take England. If we take the total values created in the country (the so-called
national income) as 100, then the share that fell to the workers changed as
follows:
Year Amount of national Amount of Workers’ share of
income in million wages in national income
pounds sterling million pounds (in per cent)
sterling
1843 515 235 45.6
1860 832 392 47.1
1884 1,274 521 41.4
1903 1,710 655 38.3
1908 1,844 703 38.1
The share of the worker becomes steadily less.
At the same time, of course, the share of the national income of the en-
tire country, which goes to the capitalists, grows steadily greater. What the
working class loses, the capitalists gain.
In an article written before the World War, Lenin quotes the following
figures showing the impoverishment of the working class. In Germany, for
the period between 1880 and 1912, wages rose on an average of 25 per cent,
while the cost of living for the same period rose by at least 40 per cent.
Lenin notes particularly that this took place in such a rich and advanced
capitalist country as Germany, where the situation of the workers was in-
comparably better than that of the workers in pre-revolutionary Russia, be-
cause of the higher cultural level in Germany, the freedom to strike and form
trade unions and the comparative political freedom, where the membership
in labour unions amounted to millions and where there were millions of
readers of the labour press. Lenin drew the following conclusion from this:
“The worker is impoverished absolutely, i.e., grows actually
poorer than before, is compelled to live worse, eat more sparingly,
97
remain underfed, seek shelter in cellars and attics. The relative share
of the workers in capitalist society, which is rapidly growing richer,
becomes ever smaller, because the millionaires grow richer ever
more rapidly.... In capitalist society wealth grows with unbelievable
rapidity alongside the impoverishment of the working masses.”*
This is the situation in the richest capitalist countries of the world, where
the capitalists can make concessions to the workers, as they get tremendous
profits from the colonies. Of course in the more backward countries, in the
colonies to which capital goes for easy profits, the exploitation of the work-
ers proceeds even more rapidly.
We thus see that capitalist exploitation steadily increases, and that the
gulf between the working class and the bourgeoisie becomes ever deeper.
The opportunists in all countries continually talk of an abatement of the so-
cial contradictions, of the necessity for civil peace between the classes, of
the possibility for the working class to improve its conditions even under
capitalism. The working class, however, grows poorer not only relatively (in
comparison with the boundless growth of the profits of the bourgeoisie), but
absolutely. Even in the richest capitalist countries the food of the workers
becomes continually worse, they live in still more crowded quarters, experi-
ence ever greater want. At the same time the intensity of labour of the work-
ers increases steadily. The worker has to spend more energy for each hour of
work than he had to spend formerly. The excessive intensity of labour, the
continual whipping up, rapidly exhausts the organism of the worker. There
can therefore not only be no talk about an abatement of class contradictions,
but, on the contrary, there is a constant sharpening of these contradictions,
they grow inevitably.
Unemployment and the reserve army of labour
With the growth of capitalism, unemployment increases and the so-
called “reserve army of labour” grows, furnishing hands to the capitalists in
times when industry needs to be expanded, or when the older workers refuse
to work under the old conditions any longer. Let us see how this takes place.
In its inception capitalism finds a sufficient supply of potential wage la-
bourers on the market. This supply is composed of ruined farmers, artisans
and handicraftsmen, who have lost their means of production. They are
ready to work for the capitalist if he will only give them the means of con-
tinuing their existence. There must always be a definite reserve of free
hands. Only on this condition can capitalist industry, based on the exploita-
tion of wage labour, arise.
* Lenin, Collected Works, Vol. XVI, “Destitution in Capitalist Society,” p. 212,

Russian ed.
98
What does the further development of capitalism lead to?
We have already seen that developing capitalism crushes the small-scale
production of the artisan and the handicraftsman by its competition. The
peasants are also ruined and many of them are forced, willy-nilly, to leave
their homes and to go into capitalist slavery. Capitalist industry grows, new
plants and factories are opened up, absorbing new masses of workers. Ruin-
ing small-scale producers, capital attracts them to itself as wage labourers.
Supplanting of workers by machinery
But together with this another phenomenon appears. There is a continual
process of technical improvement in production under capitalism. And what
does this technical improvement mean, what is the significance of the new
inventions? Their significance is that they cheapen production, replacing
human labour by machine work. Thus with the development of technical
improvements fewer workers are needed to produce the same quantity of
commodities. Machines supplant workers. Machines compel workers to la-
bour more intensely. This also causes part of the workers to be thrown out of
industry. Hence at the dawn of capitalism, when the workers had not yet
found out who their real enemy was, they often gave vent to their rage
against existing conditions by attacking the machines. During strikes and
times of unrest the workers smashed machinery first of all, considering it to
be the main cause for their terrible conditions.
Introducing new machinery and throwing the workers who were sup-
planted by these machines onto the street, the capitalists continually create
unemployment.
Raising the intensity of labour they also increase the number of unem-
ployed. A definite number of workers becomes superfluous. These workers
are unable to find any need for their labour. They constitute the industrial
reserve army. The significance of this army is indeed great. The existence of
a constant army of unemployed gives the capitalists a powerful weapon in
their struggle against the working class. The unemployed are usually willing
to go to work on any conditions: threatened with starvation they have no
choice. The unemployed thus exert a downward pressure on the living stan-
dard of the proletarians who are employed. Another significance of the re-
serve army is that it furnishes free hands at any time when the conditions of
the market require an expansion of industry. Then many thousands of unem-
ployed find work for themselves, factories and plants increase the number of
workers they employ. Unemployment temporarily decreases. But the intro-
duction of new, improved methods throws thousands of workers onto the
streets again.
Thus capitalism with one hand gives work to the masses of new workers
coming from the ranks of the ruined small-scale producers, and with the
other takes the last piece of bread from the mouths of thousands and tens of
99
thousands of workers who have been supplanted by machines with the pro-
gress of capitalist technical improvements.
The general law of capitalist accumulation
This constant replacement of workers by machinery, which is a result of
capitalist development, creates what is known as a “relative surplus popula-
tion” in capitalist countries. Hundreds of thousands of people yearly are
compelled to emigrate from their countries as they become superfluous and
are left without the faintest hope of obtaining employment. During the post-
war years this situation has grown still worse. The countries to which these
emigrants flowed have closed their doors and refuse admission.
The existence and growth of an industrial reserve army have a tremen-
dous influence on the entire situation of the working class. Poverty in-
creases, the uncertainty of what the next day will bring is ever present, and
wages fall. The working class produces surplus value with its labour, but it
goes to the capitalist class. Part of the surplus value obtained from the work-
ing class the capitalists consume and thus destroy; the rest they add to their
original capital. If the capitalist originally had $100,000 and during the year
he has succeeded in squeezing out of the workers $20,000 in profits, he will
add about half this sum to his original capital for the next year. In this case
his capital for the next year will already be $110,000. He has increased his
capital, has accumulated $10,000. Accumulation of capital, therefore, is the
addition of surplus value to capital. The growth of capital as a result of ac-
cumulating surplus value is enormous. The mass of surplus value squeezed
out of the working class grows ever greater as capitalism develops. The mass
of surplus value accumulated by the capitalists and which goes to increase
their capital grows apace.
Thus accumulation of capital brings with it the growth of the wealth of a
handful of capitalists. The surplus value created by the labour of the working
class becomes a source of the increasing power of the exploiters. With the
accumulation of capital the degree of exploitation of the workers increases.
Thus, under capitalism, the working class with its own labour creates the
conditions for an ever greater degree of its own exploitation.
With the accumulation of capital the living conditions of the working
class become steadily worse, the degree of their exploitation increases.
All this is an inevitable result of capitalist accumulation. The more capi-
tal the capitalists accumulate, the more they expand production, introduce
new machines, the more poverty and unemployment spread among the
working class.
This is the general law of capitalist accumulation discovered by Marx,
and it is of immense significance for an understanding of capitalism, for an
understanding of the direction in which capitalism develops.
Marx defines the general law of capitalist accumulation as follows:
100
“The greater the social wealth, the functioning capital, the ex-
tent 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. The same causes which develop the ex-
pansive power of capital develop also the labour power at its dis-
posal. The relative mass of the industrial reserve army increases,
therefore, with the potential energy of wealth. But the greater this
reserve army in proportion 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
law of capitalist accumulation.”*
Marx further says about this law:
“...within the capitalist system all methods for raising the social
productiveness of labour are brought about at the cost of the
individual labourer; all means for the development of production
transform themselves into means of domination over, and
exploitation of, the producers; they mutilate the labourer into a
fragment of a man, degrade him to the level of an appendage of a
machine, destroy every remnant of charm in his work and turn it
into a hated toil; they estrange from him the intellectual
potentialities of the labour process in the same proportion as science
is incorporated in it as an independent power; they distort the
conditions under which he works, subject him during the labour
process to a despotism the more hateful for its meanness; they
transform his life time into working .time.... But all methods for the
production of surplus value are at the same time methods of
accumulation; and every extension of accumulation becomes again
a means for the development of those methods. It follows therefore
that in proportion as capital accumulates, the lot of the labourer, be
his payment high or low, must grow worse. The law, finally, that
always equilibrates the relative surplus population, or industrial
reserve army, to the extent and energy of accumulation, this law
rivets the labourer to capital.... It establishes an accumulation of
misery, corresponding with accumulation of capital. Accumulation
of wealth at one pole is, therefore, at the same time accumulation of
misery, agony of toil, slavery, ignorance, brutality, mental
degradation, at the opposite pole, i.e., on the side of the class that
* Marx, Capital, Vol. I, pp. 659-60.

101
produces its own product in the form of capital.”*
Impoverishment of the working class
Thus we see that to the extent that capital is accumulated the conditions
of the working class must become worse. This general worsening of the
conditions of the proletariat is brought about not only by means of lowering
wages. Unemployment spreads and becomes more frequent, more often af-
fecting each individual worker, each member of the worker’s family. The
labour of the worker becomes more intensive and as a result the worker ages
sooner and often becomes an invalid. The age limit at which a worker is
thrown out of capitalist enterprises becomes lower and lower.
Capital buys out small groups of workers which it turns into its faithful
servants. A privileged upper section of the proletariat is created – a workers’
aristocracy. The capitalists pay certain groups of skilled workers highly, out
of the tremendous profits derived from the colonies, at the expense of an
even more brutal exploitation of the vast majority of the working class. This
upper section of the proletariat, bought and debauched by capital, furnishes
the main forces for the traitorous Social-Democratic parties, which are the
most faithful bulwarks of capitalist supremacy.
A great part of the highly paid sections of the workers, however, experi-
ence a constant insecurity in their positions, an uncertainty about the mor-
row. Capitalism inevitably leads to a worsening of their conditions.
Impoverishment of the proletariat and unemployment
under conditions of crisis
The impoverishment of the working class reaches its utmost limit in
times of crisis. A crisis exposes and sharpens all the contradictions of
capitalism. The proletariat is reduced to the most extreme degree of
impoverishment. Every crisis calls for curtailment of production and throws
millions of workers onto the street. The wages of those who remain at work
are reduced.
The present crisis is the deepest and sharpest of all crises ever experi-
enced by capitalism. The capitalist system, dying, and decaying while still
alive, dooms tens of millions of people to unprecedented tortures. Unem-
ployment has reached monstrous proportions. To the unemployed we must
add the vast army of those who work part time and receive a correspond-
ingly infinitely low wage.
The present crisis brought a colossal reduction in wages in all capitalist
countries without exception. Attempting to shift the entire burden of the cri-
sis onto the shoulders of the working class, the capitalists of various coun-
tries vie with one another in reducing wages, bringing them to pauper limits,
* Ibid., pp. 660-61.

102
making it impossible for the worker to satisfy even his most pressing needs.
The living standard of the working class, even in the richest capitalist coun-
tries, has gone down during this crisis in the most unbelievable fashion.
A tremendous number of facts bear witness to this. A journalist who in-
vestigated conditions of the miners in England, writes:
“If you should visit the home of a miner in South Wales or
Durham, you would find that all the furniture that was bought in
better days has been sold. A boarder has been taken in to help meet
the rent payments; but most probably this boarder has lost his job
and cannot pay a farthing. If the father of the family works, the son
is sure to be unemployed; or the reverse, if the son works, the father
has lost his job. Everything that could possibly be pawned has gone.
There is hardly a miner who can allow himself the luxury of getting
any clothes for himself, his wife or his children. They can only
change their clothes if they happen to buy some old rags which the
mother can somehow patch up.”
Once libraries were built and theatres opened in miners settlements on
funds furnished by the miners themselves. Now the libraries can purchase no
books and the theatres are closed.
In certain other branches of industry in England the workers are in an
even worse state. An even more hopeless picture is presented by the textile
workers of Lancashire.
Even when working at full capacity (i.e., four looms to every weaver),
the average wages of a weaver in the last few years did not exceed 31 shil-
lings 6 pence a week. But in most cases a weaver works on only two looms
and, in Beverly for instance, the weekly wages of a weaver vary from 15 to
20 shillings. These wages can be made, however, only if good raw material
is available. Under the conditions of the crisis, the employers use all kinds of
inferior raw material. Hence, the wages of the weavers fall more because of
this. Data collected in the course of many official investigations speak elo-
quently about the poverty of the Lancashire weavers. Thus, for example, the
1931 investigation in Wigan showed that hundreds of workers live in houses
condemned by the city building commission as “unfit for human habitation.”
In Bolton such a commission established that most of the houses inhabited
by workers are “in the immediate vicinity of the city dumps, garbage heaps,
filth, or cattle yards, surrounded by mountains of manure.”
In the United States in the years of the crisis the average weekly wage in
industry was reduced as follows:
103
Years Wages
(In dollars)
1929 28.5
1930 25.8
1931 22.6
1932 17.1
1933 17.7
The year 1933 seems to show a certain increase in wages, but it is only
an apparent increase. In point of fact the increase in the cost of living in this
period was considerably higher than the increase in nominal wages. Accord-
ing to the greatly understated official figures, the cost of living rose by 7 per
cent in 1933 in comparison with 1932, but according to the figures of the
Labour Research Bureau food prices rose by 18 per cent in 1933. The noto-
rious “National Recovery Act” passed by the Roosevelt government brought
about a still further worsening in the conditions of life of the workers.
In fascist Germany the conditions of the workers are going from bad to
worse. Letters of German workers give an idea of the virtually penal condi-
tions which the fascists have introduced into the enterprises. This, for exam-
ple, is what one working girl writes from the factories of the famous interna-
tional firm of Siemens to a German paper abroad:
“In the press shop of the small factories of Siemensstadt the
working conditions are terrible. With five working days per week,
on piecework, wages reach fifteen marks at the very most. There are
instances where a girl is only on four days a week and in this time
draws 9 marks all told. Under such conditions there are in all only 2
marks left to live on, seeing that 5 marks go in rent and 2 marks for
fares. The speed of the work is frightful. The majority of the women
cannot keep up with the conditions of the piecework. The time
needed for bringing and sending back material, for figuring out the
work cards, for seeing to defects in the machine, for having break-
fast, etc., is not taken into account.”
The following figures show the degree of impoverishment of the work-
ing class in the United States during the crisis. The index numbers of those
employed for wages in industry and the total sum paid them in wages for the
years of the crisis (index number 1923-25=100) are given below.
104
Month and year Number of workers Amount paid out in

employed wages
May 1929 105.3 112.9
May 1930 94.8 95.4
May 1931 80.1 73.4
May 1932 63.4 46.8
From these figures it can be seen that in May 1929, i.e., before the crisis,
the number of workers employed was nearly the same as in 1923-25, but that
wages were somewhat higher. Then a catastrophic fall begins in which
wages fall at a much more rapid rate than the number of workers employed.
This means that the sum paid out in wages falls, for two reasons: 1) because
of unemployment, and 2) because of the reduction in the wages of those em-
ployed. For three years of the crisis the number employed was reduced 30
per cent while wages fell 60 per cent. Thus wages were cut in half during
this period.
In the United States the living conditions of the millions of unemployed,
who receive no help from the government, are particularly horrible. Thou-
sands of unemployed, dispossessed for non-payment of rent, tramp the
roads, erecting camps near the larger cities. These camps of the unemployed
in America are called “jungles.” One bourgeois magazine describes a camp
located in the swamps near Stockton, California, as follows:
“When we saw the camp,” the writer says, “smoke was rising
from the tents erected by various groups of unemployed. Every little
group was busily preparing its food. The whole picture was fantas-
tic: here, from where one could see the city with its stores, its grain
elevators filled with grain, at one end, and the sugar refinery, at the
other, with its warehouses filled with provisions all along the docks,
these people, willing to work, were raking in the refuse thrown out
from the warehouses, were cleaning half-rotten carrots, onions or
beans and cooking them in old tin cans which they had picked up.”
The authors end their description of this picture of destitution with the
following words:
“We have always been taught in the good old American way
that ours is a free country. It is really free: these people are free to
choose any one of three alternatives: to steal, to die of starvation or
to turn into animals feeding on refuse.”
The bourgeois journalists forgot one other alternative: the revolutionary
struggle of the proletariat against the domination of capital.
An unprecedented increase in the number of suicides, the phenomenal
105
spread of all kinds of diseases, innumerable cases of death from starvation –
these are the results of the inhuman living conditions into which capital
forces millions of people. Mortality and disease among the children proceed
especially rapidly.
But if such is the degree of impoverishment of the proletariat in the
richer capitalist countries, the conditions in the backward capitalist countries
are still worse. In this respect Poland offers a graphic example. Recently the
result of an investigation of 204 Warsaw families of unemployed was pub-
lished. This investigation was conducted by a bourgeois organization that is
far from sympathetic to communism. The families investigated were those of
skilled workers. The report of the investigation reads:
“It must be stated that in the vast majority of cases the food was
below starvation minimum. Here are examples: a moulder’s family
consisting of four people spends 12 zloti (about $1.50) a week on
food. They eat twice a day: potatoes, cabbage, bread. They do not
buy meat or milk at all. A tailor’s family consisting of six persons
had not eaten anything in three days at the time the commission vis-
ited it; there was also no fuel, no kerosene. In another case a family
of four persons had not had a cooked meal for a period of three
weeks. Their only food was bread and tea. A family of an unem-
ployed worker lives on the earnings of the wife who peddles pret-
zels on the street. Her earnings amount to 1-1.5 zloti (about 15
cents) a day, and this is the only source of income of a family con-
sisting of ten persons.”
Summing up, the report states:
“The principal food of the unemployed is potatoes and cabbage,
more rarely bread and tea, occasionally cereal, very rarely maca-
roni, etc., vegetables. Of the 204 families investigated, meat is eaten
only by 20 families once a week.”
Matters are even worse with respect to clothes. The report says:
“The greatest shortage is felt in shoes and outer clothing. For
instance, an unemployed baker’s family, consisting of six persons,
has no shoes whatever. When he leaves the house, the father ties a
pair of soles to his feet with string; the children do not leave the
house. In another case two children have one coat. The mother takes
the younger one to school, takes off his coat, runs home and dresses
the older boy. The same procedure is repeated when the children
have to come home from school.”
About the terrible housing conditions of the unemployed the report tells
the following:
106
“Most of the homes investigated do not satisfy the most ele-
mentary requirements of hygiene.”
Here are some characteristic examples:
“The home is in a cellar. Water drips down the walls. The floor
of the hallway leading to the home is always under three centime-
tres of water. Three adults and four children live in this room. In a
number of cases, more than ten persons occupy one room. Of 929
persons questioned, only 193 sleep in separate beds. This includes
eleven persons who sleep on the floor, fourteen children sleeping in
cribs, and nine children sleeping on trunks, benches or chairs. The
majority sleeps two, three and more persons in a bed. In nine cases
it was established that five persons sleep in one bed, and in three
cases even six in a bed.”
Despite certain increases in industrial production, the number of unem-
ployed in Poland in the present year is higher than in the previous year. In
January 1934, the number of unemployed on the register of the Labour Ex-
change was 410,000; in the spring of 1934 it was 350,000, but even accord-
ing to the evidence of the bourgeois newspapers, the actual number of un-
employed exceeded a million and a half. The total wages actually paid out to
the workers in big industry amounted (according to official data) to
1,645,937,000 zloti in 1929, and to only 737,830,000 zloti in 1932, a cur-
tailment of 55 per cent. (There are no official figures for the years 1933-34
as yet.) The eight-hour day has been abolished. A series of new fascist laws
have deprived the working class of its small gains in the field of unemploy-
ment and health insurance, accident and disablement benefits, etc.
Capitalist “rationalization,” that is, the ruthless sweating system, en-
couraged by the government and introduced by the employers in the facto-
ries and mines, has resulted in an unprecedented increase of accidents in
industry. It is sufficient to state that in the mining industry alone, in the years
1927 to 1932, according to official figures, 1,039 miners were killed, 7,471
seriously injured, and 97,331 sustained general injuries – out of a total num-
ber of slightly over 100,000 men working in the coal industry in these years.
In Japan in the coal industry the daily wage of a man in 1930 was 1.72
yen and in 1933, 1.11 yen; the wage of a woman in 1930 was 1.52 yen and
in 1933 0.73 yen. Children working as helpers receive from 5 to 10 yen per
month. In the textile industry of Japan, where girls often work as long as
fifteen hours a day, they receive from three to five shillings a week and a
place in the factory barracks.
The following eloquent item appeared in a Japanese newspaper in De-
cember 1933:
“A group of ten girls were detained by the police. In spite of the
107
cold they were wandering about in their summer apparel. At the ex-
amination it transpired that they had run away from a weaving mill,
as they could no longer endure the arduous regime of a working day
of fifteen hours without a break, and the bad conditions. When they
were advised to return to the mill, the girls replied they would rather
die.”
Similar news items in the Japanese papers are frequently seen.
REVIEW QUESTIONS
1. In what respect does the value of labour power differ from the value of
other commodities?
2. How does the form of wages help to mask capitalist exploitation?
3. What is the significance of the struggle of labour unions under capitalism?
4. Under what conditions is it more advantageous for the capitalist to pay on
the basis of timework and under what conditions on the basis of piece-
work?
5. How is the difference in the rates of wages in different countries to be
explained?
6. What gives rise to the existence of a reserve army of labour?
7. What is the effect of the general law of capitalist accumulation?
8. What causes the impoverishment of the working class under capitalism?
108
CHAPTER VI
Division of Surplus Value Among the Capitalists
Equalization of the rate of profit
We already know that surplus value is created only by the labour of
workers. But the various enterprises do not employ the same number of
workers. Moreover, the greatest number of men is not always employed by
the enterprise which has the greatest capital investments. Let us take two
capitalists, each having the same amount of capital – a million dollars. One
has built an electric power station equipped with all the latest improvements.
The other has opened up a stone quarry where much manual labour is re-
quired. Only fifty workers are employed at the electric power station
whereas five hundred are employed at the quarry. The question arises: will
the owner of the quarry get ten times more profit than the owner of the elec-
tric power station?
We know that for capitalism the aim of production is to make profit. If
operating quarries (with the same outlay of capital) were more profitable
than operating electric power stations, many fortune hunters would be found
who would go into the quarry business. On the other hand, few would care
to invest their capital in electric power stations. But we already know now
what this would lead to: the price of quarried stone would drop and the price
of electric power would rise. The question may, however, be asked, what are
the limits within which these prices may range?
Let us assume that prices have changed to the extent that both enter-
prises yield the same profits. Will prices still change? Obviously not. There-
fore no owner of an electric power station will find it more profitable to go
into the quarry business: both enterprises have the same advantages.
Capitalist industry consists not of one or two enterprises, however, but
of a tremendous number of plants, factories, etc. The amount of capital in-
vested in each one of them is, of course, different. But all these investments
differ among themselves in their organic composition, i.e., in the relation
between constant and variable capital. The greater the constant capital in
comparison with the variable capital, the higher the organic composition of
capital. On the contrary, one speaks of a low organic composition of capital
when the variable capital is greater in comparison with the constant capital.
We can therefore say that the electric power station is characterized by a
high organic composition of capital. In other enterprises we shall find, on the
contrary, a low organic composition of capital. In which cases will this be? It
is not difficult to answer this question. We find a low organic composition of
capital whenever many workers are employed while the cost of buildings,
machinery, etc., is not very great. Let us take, for example, a contractor mak-
ing embankments, etc., for a railroad construction job – his expenditure of
109
constant capital is not very great. He buys some wheel-barrows, picks and
shovels, and that is all. But he will employ many labourers: the greater part
of his capital will go for the hiring of labour power.
Since surplus value is created only by the labour of the workers, enter-
prises with a low organic composition of capital appear to be the most prof-
itable. But the struggle for profits among the capitalists leads to the equaliza-
tion of profits with the same amount of capital invested. The ratio of the
profits of the capitalist to the amount of capital invested is called the rate of
profit. For instance, if by investing a million in an enterprise the capitalist
gets profits to the amount of a hundred thousand, his rate of profit is one-
tenth, or 10 per cent. Competition among the capitalists leads to the law of
the general or average rate of profit. This law, like all the laws of the capi-
talist system, enforces itself amidst ceaseless fluctuations in the struggle of
all against all.
We shall show in an example how the rate of profit is equalized in capi-
talist society. For the sake of simplicity we shall assume that there are only
three capitals (or three groups of capital) in society, all of the same amount,
but differing in organic composition. Let us assume the amount of capital in
each to be 100 units. The first consists of 70 units of constant capital and 30
units of variable capital, the second of 80 constant and 20 variable, and the
third of 90 constant and 10 variable. Let the rate of surplus value in all three
enterprises or groups of enterprises be the same and equal 100 per cent. This
means that every worker works half a day to earn his wages and the other
half day for the capitalist. In this case the surplus value obtained by each
enterprise will equal the amount of variable capital, i.e., in the first – 30
units of surplus value, in the second – 20, in the third – 10. If commodities
produced in capitalist enterprises would sell at their value, then the first en-
terprise would get 30 units of profit, the second – 20, the third – 10. But the
amount of capital invested in each of the three is the same. Such a situation
would be very welcome to the first capitalist, but not at all so to the third. In
such a case it is more advantageous for the capitalist of the third group to
transfer to the first group. This leads to competition among the capitalists in
the first group which compels them to lower prices and at the same time
gives the capitalists in the third group the possibility of raising prices, so that
the profit in all three groups is the same.
This course of equalization in the rates of profit can be shown more
graphically in the following tabulation:
110
DIVISION OF SURPLUS VALUE AMONG THE CAPITALISTS
Capital Constant Variable Surplus Value of Sales Rate of

Capital Capital Value Commodities Price of Com- Profit (in per-
Produced modities centage)
I 70 30 30 130 120 20
II 80 20 20 120 120 20
III 90 10 10 110 120 20
Total 240 60 60 360 360 20
Besides the difference in the organic composition of capital the amount
of surplus value squeezed out of the workers also depends on the speed of
turnover of capital. If two capitalists have the same amount of capital and if
the organic composition of their capital is the same, the one whose capital
turns over more quickly will be able to squeeze out more surplus value. Let
one have a turnover once a year and the other three times a year. It is evident
that the second one will be able to hire three times as many workers and
squeeze out three times as much surplus value. On the whole, this difference
is also equalized by the same law of the average rate of profit, which takes
effect through competition among the capitalists.
But this means that commodities in capitalist society are sold, not at
their value, but at prices which vary in some way from their value. And ac-
tually under capitalism commodities are sold at prices fluctuating about their
cost of production. The cost of production of a commodity consists in the
amount spent on production plus average profit on the capital invested.
“Profit is the ratio between the surplus value and all the capital
invested in an undertaking. Capital with a ‘high organic composi-
tion’ (i.e., with a preponderance of constant capital over variable
capital to an extent above the social average) yields a less than the
average rate of profit; capital with a ‘lower organic composition’
yields a more than the average rate of profit. Competition among
the capitalists, who are free to transfer their capital from one branch
of production to another, reduces the rate of profit in both cases to
the average. The sum total of the values of all the commodities in a
given society coincides with the sum total of prices of all the com-
modities; but in separate undertakings, and in separate branches of
production, as a result of competition, commodities are sold, not in
accordance with their values, but in accordance with the prices of
production (or production prices), which are equal to the expended
capital plus the average profit.”*
* Lenin, Marx-Engels-Marxism, “Karl Marx,” pp. 21-2.

111
Under capitalism, commodities are sold not at their value, but at the
price of production. Does this mean, however, that the law of value has no
force in capitalist production? Not at all. We must remember that the price
of production is only a different form of value.
Some capitalists sell their commodities above their value, others below,
but all the capitalists taken together receive the full value of all the com-
modities, and the total profits of the entire capitalist class are equal to the
surplus value produced by all the unpaid social labour. Within the frame-
work of the whole of society the sum total of production prices is equal to
the sum total of the values of the commodities, and the sum total of profits is
equal to the sum total of unpaid labour of the workers. A reduction in the
value of commodities leads to a reduction in their price of production,
whereas an increase in their value leads to an increase in their price of pro-
duction. It is in this way that the law of value has its effect through the price
of production.
“In this way the well-known and indisputable fact of the diver-
gence between prices and values and of the equalization of profits is
fully explained by Marx in conformity with the law of value; for the
sum total of values of all the commodities coincides with the sum
total of all the prices.”*
Tendency towards lower rates of profit
The capitalist conducts his enterprise for the sake of the profit he derives
from it. Profit is the motive power of capitalist industry. The development of
capitalism, however, inevitably tends to reduce the average rate of profit.
Profit is the mass of surplus value taken with respect to the entire capital
invested in the enterprise. The rate of profit is the ratio of the gains of the
capitalist to his capital. But we know that the amount of surplus value is de-
termined by the amount of variable capital, that is, by that part of capital
which goes for the hiring of labour power.
The organic composition of capital, however, is continually changing
with the development of capitalism, continually becoming higher. With the
growth of technical improvements, the amount of raw material, machinery
and equipment of enterprises becomes constantly greater, and that part of the
capital which goes to pay for dead labour grows at a considerably more
rapid rate than the variable capital, which goes to pay for live labour.
But under capitalism the consequence of a higher organic composition
of capital is the inevitable tendency towards a lower rate of profit. Each in-
dividual capitalist, replacing workers by machinery, cheapens production,
broadens the market for his commodities and strives to obtain a greater
* Ibid., p. 22.
112
profit for himself. This is self-evident, otherwise he would not install ma-
chinery. But the development of technical improvements, expressing itself in
a higher organic composition of capital, calls forth consequences which are
beyond the power of the individual capitalist to remedy. This consequence is
the tendency towards a lower general (or average) rate of profit.
“An increase in the productivity of labour means a more rapid
growth of constant capital as compared with variable capital. Inas-
much as surplus value is a function of variable capital alone, it is
obvious that the rate of profit (the ratio of surplus value to the whole
capital, and not to its variable part alone) has a tendency to fall.
Marx makes a detailed analysis of this tendency and of the circum-
stances that incline to favour it or to counteract it.”*
Among the counteracting circumstances comes first of all the increase
in the rate of exploitation of the workers. It must further be kept in mind that
with the increase of the productivity of labour, the value of machinery and
equipment, etc., falls. If one worker used to operate two looms and now op-
erates sixteen, it is necessary to remember that now the value of the looms is
lower.
Sixteen looms do not cost eight times as much now as two did formerly,
but only five or perhaps four times as much. Hence, the fraction of constant
capital that falls to one worker is not eight times greater than it was, but only
five or four times greater. There are also other causes for the retardation of
the fall in the rate of profit.
It must also be understood that the reduction in the rate of profit does
not signify a decrease in the mass of profit, that is, in the full amount of sur-
plus value squeezed out of the working class. On the contrary, the mass of
capitalist profit grows steadily because capital continues to grow, the mass
of workers who are being exploited increases, the degree of exploitation be-
comes greater.
However, the tendency towards a lower rate of profit still exists and ex-
erts a powerful influence on the entire development of capitalism. This ten-
dency towards a decrease in the rate of profit greatly sharpens the contradic-
tions of capitalism. The capitalists try to counterbalance the falling off in the
rate of profit by increasing the exploitation of the workers, which leads to a
number of contradictions between the proletariat and the bourgeoisie. The
fall in the rate of profit sharpens the struggle within the camp of the capital-
ists. In order to save themselves from this tendency capitalists establish en-
terprises in backward countries, where hands are cheaper, the rate of exploi-
tation is higher and the organic composition of capital is lower than in the
* Ibid.
113
highly industrialized countries. In addition, the capitalists combine in all
kinds of unions (trusts, cartels, etc.) in order to keep prices at higher levels,
trying thus to increase their profits, to keep the rate of profit from falling.
During periods of crisis, when all the contradictions of capitalism grow
most acute, the contradictions caused by the tendency for the rate of profit to
fall become clearly apparent.
Commercial capital and its income
As we have already said, under capitalist economy things are produced
not for immediate use, but for sale. Hence the troubles of the entrepreneur
are not over when the commodities have been produced: they have yet to be
sold. The capitalist has to sell the commodities he has produced in order to
turn his capital into money again.
Under developed capitalist economy the producer does not wait for the
consumer to come to him for the commodities. As a rule, the manufacturer
sells his goods to an intermediary merchant (middleman) and the latter man-
ages the further movement of the commodities to the consumers, to whom
they will be sold.
Everyone knows that for trade, capital is necessary. Without means the
merchant cannot fulfil the function of bringing the commodities to the pur-
chaser, the consumer. If the industrialist had to sell his goods himself he
would have to expend a definite amount of capital on equipping a store, hir-
ing clerks, etc. Hence, the industrialist lets the merchant take care of this,
giving him a share of the profit.
The profit of commercial capital thus consists of part of the surplus
value which the industrialist concedes to the merchant. Expending a certain
amount of capital, the merchant must receive the usual rate of profit on his
capital. If his profit is less than the average it will be unprofitable to engage
in commerce and the merchant will transfer his capital to industry.
The merchant not only serves as an intermediary for commodities pro-
duced at capitalist plants and factories, he also buys commodities from peas-
ants, artisans and handicraftsmen.
In some village, say, the locksmith trade has flourished for ages. The
handicraftsmen themselves find it difficult to locate a market for their prod-
ucts; their immediate region already has a sufficient supply of looks. A
buyer comes, who purchases a big lot, takes it to another part of the country
where he sells it advantageously. In selling the locks the buyer receives their
value, while the price for which he purchased them from the handicraftsmen
was very low. Part of the difference between the sales prices and the pur-
chase price goes to pay various expenses: packing, transporting, etc. The
remainder constitutes his profit, the gain received from the trade. Thus
commercial capital exploits the small independent commodity producers,
gradually transforming them into its workmen, working at home. In this way
114
the merchant exacts his profit from simple commodity production.
Forms of commerce, speculation
Under modern capitalist economy trade is not carried on only with arti-
cles of consumption. On the contrary, a tremendous number of commercial
deals are transacted with commodities which are needed for further produc-
tion or for transport:
A textile mill buys cotton, coal, machinery, looms, dyes. A machine-
building plant buys coal, iron and machinery. Railroads buy vast quantities
of rails, ties, railroad-cars and locomotives.
It is necessary to distinguish between wholesale and retail trade. The
manufacturer customarily sells his goods to a wholesaler. The wholesaler
resells the goods to smaller tradesmen who, in their turn, sell them retail to
the consumer.
The structure of the trade apparatus in capitalist countries is very com-
plex. Big deals are transacted at produce exchanges. Some commodities pass
through a number of hands before coming to the ultimate consumer. The
participants in these deals and resales often do not even see the commodi-
ties: usually only warehouse receipts are sold which merely confirm the
presence of the commodities and confer the right to receive them. It is clear
that not all goods can be dealt with in this way; for this it is necessary that
the goods be of strict uniformity, that the quality be easily established and
noted in the corresponding warehouse documents.
Frequently, merchants buy goods at the produce exchange not for the
purpose of selling them to the consumer but only because they expect a rise
in the market price so that it will be possible for them to exact a profit on the
resale of these goods. Actually, prices fluctuate, dependent upon a number
of causes, which it is difficult or simply impossible to foresee. Let us say
that at the beginning of the summer a good harvest is expected and the price
of grain falls; if later the harvest suddenly seems to be worse than was ex-
pected, there is usually a sharp rise in grain prices.
This creates the opportunity for speculation. Speculation is inseparably
bound up with the whole nature of capitalist commerce. The gain which falls
to the share of the speculator is the loss of hundreds and thousands of people
who take part in the production of or in trade with the commodities which
are the subject of speculation.
Loan-capital and credit
In capitalist society it is not only the capitalist who owns an industrial or
commercial enterprise who receives an unearned income. Under capitalism a
continually increasing number of parasites crop up, who receive tremendous
incomes without doing any work whatsoever, merely because they are in
possession of an enormous capital, possess a great amount of money.
How does the money of these capitalists increase?
115
The owners of money capital usually keep their money in a bank. The
bank pays a definite rate of interest on deposits.
But where does the bank get the means with which to pay out this inter-
est? Money that lies in the vaults of the bank in the: form of gold or bills
does not increase of itself.
Capitalism knows only one source for the increase of capital; this source
lies in production: in the plant, in the factory, the mine, the agricultural en-
terprise, etc.
Therefore, a modern bank does not hide away and hold on to the money
which is deposited with it. It leaves only enough money in the vaults to meet
the usual demands of the depositors. Experience has shown that in ordinary
times only a small proportion of the depositors call for the return of their
money daily. The money which they withdraw is usually covered by new
incoming deposits. Of course, things take a different turn in case of any
unusual event, as in times of crisis, war, etc. Then the entire mass of
depositors suddenly, all together, demand the return of their money. If the
bank cannot make adequate preparations for this attack and gather into its
vaults a sufficient amount of money by means of borrowing from other
banks, from the government, etc., and if it does not succeed in abating the
“run” on the bank, it “fails.” This means that it declares itself unable to pay
back its depositors. A bank failure means the ruin of many capitalists, the
wiping out of the savings of the petty bourgeoisie, etc. A bank failure thus
only aggravates the crisis.
Under ordinary circumstances, however, the bank can keep compara-
tively little money in its vaults and yet be able to satisfy the demands of all
the depositors who wish to withdraw their money. The bank lends the re-
maining money to capitalists who are in need of funds.
We already know for what purposes the capitalist needs money. He
needs it to use as capital, to be used for production. It makes; no difference
that he does not get the money permanently, but only for a definite period of
time. In the production and sale of his commodities, he realizes various sums
of money at various times. From the money thus received the capitalist can
repay the bank loan. It must also be remembered that, under developed capi-
talism, banks not only grant loans to capitalists for more or less short terms,
but that they also invest vast sums of money in industry for very long terms.
The industrial capitalist uses the money received from the bank as capi-
tal. With the help of his capital he expands production on a much wider scale
than he could have done if he had not obtained the loan. The distinguishing
feature of loan capital thus consists in the fact that it is applied in production
not by the capitalist to whom it belongs, but by another. By using the loan
obtained from the bank in his enterprise the industrial capitalist who re-
ceived the loan can hire more workers: hence obtain more surplus value.
The industrial capitalist has to pay part of this surplus value to the bank,
116
for the capital it put at his disposal. If he borrowed $1,000 and must repay
$1,070 at the end of a year, it is said that the bank charges 7 per cent on
money loaned.
In this case the bank will pay its depositors a somewhat smaller interest
– say, 5 per cent – on money deposited. This means that of the $70 that the
bank received from the industrialist, the bank must pay $50 to the people
who deposited the $1,000. The bank’s profit will amount to $20 on this deal.
Anyone can see that this transaction is very similar to any other ordinary
commercial transaction. If a merchant bought a horse for $50 and sold it for
$70, he made $20. The bank also paid $50 and received $70, making $20
profit. The only difference is that the commodity which the bank dealt with
was not a horse nor an ordinary commodity generally, but a commodity of a
very special nature, What this commodity is we have already seen: $1,000
converted into capital and used as capital for the period of one year. The
banks trade in capital; a bank is a merchant dealing in capital.
Rate of interest
Capital is thus converted into a commodity with which transactions are
carried on in various ways. In these transactions the price of capital is estab-
lished. In our case $70 was the price paid by the industrialist for the use of
$1,000 worth of capital for a period of one year. This price was paid by the
entrepreneur to the merchant of capital – the bank. In its turn the bank paid
the owners of this capital $50 for the right to use it for one year.
The question now arises, what does this price depend on, what deter-
mines the rate of interest paid for capital?
This rate is subject to frequent change. Capitalists often say: money is
cheap now, or: money is dear now. In the first case this means that money
can be borrowed at low rates of interest, in the second case, on the contrary,
a high rate of interest must be paid. As in every commercial transaction, the
price in this case is ultimately determined by supply and demand. If in a
given month very many capitalists need additional money and determine to
get it at any cost, then the demand on money for loans is great. Let us see,
however, to what extent this cost can become greater.
In our example the industrial capitalist paid the bank $70 for the use of
capital amounting to $1,000 for one year. Why was such a transaction ad-
vantageous to him? Because he very probably made 15-16 per cent profit on
the capital invested in his enterprise. This means that on every $1,000 in-
vested, the entrepreneur realized $150-160 in profit. After paying the bank
$70 he still had $80-90 left. This is the difference between the rate of profit
obtained in industry and the rate of interest paid to the bank.'
Should the rate of interest rise because of the demand for loans, this rise
evidently has its limits. The bank may demand $80-90 instead of $70. It will
still be of advantage to the industrialist to take the loan. But if the bank will
117
demand $150-160 he will refuse. Under these terms he would get no profit
but only much trouble.
Thus, in rising, the rate of interest is limited by the average rate of profit
of the entrepreneur. It is usually considerably less than the average profit.
Only in rare cases (during crises) does it reach this level. On the other hand,
with an increase in the supply of money over the demand the rate of interest
paid for its use will fall.
Depending on circumstances, the rate of interest in this case may fall
exceedingly low, although, of course, no one will lend money gratis.
REVIEW QUESTIONS
1. How is the difference in the organic composition of capital in various
branches of industry to be explained?
2. How is the rate of profit equalized?
3. What determines the price of production?
4. Does the sale of commodities at the price of production contradict Marx’s
teaching on value?
5. What are the causes of the tendency for the fall in the rate of profit?
6. Where does the profit of commercial capitalists come from?
7. How does a bank trade in capital?
118
CHAPTER VII
Capitalism in Agriculture
Antithesis between city and village
Until capitalism became widespread there was no such thing as modern
industry. There were no gigantic metallurgical plants employing thousands
of workers, there were no oil derricks, no textile mills with their hundreds of
thousands of humming looms and shuttles. Before capitalism there were no
railroads or steamships. Large-scale industry was created by capitalism: pre-
vious to large-scale industry there were only artisans and handicraftsmen in
its place.
It is different with agriculture. Long before capitalism, people occupied
themselves with tilling the soil, cattle-breeding, raising all kinds of animals
and plants useful to man. When capitalism arose agriculture was in the state
of feudalism. The development of capitalism rapidly began to destroy the
mainstays of agriculture, but in many countries, nevertheless, remnants of
the feudal system proved very vital and survived even after the triumph of
capitalism. The most important survival is the retention of land in the hands
of landlords, in the hands of private owners generally.
Capitalism effects the separation of industry from agriculture. Under
the former pre-capitalist relations, clothes, shoes, and a number of other
articles for everyday use were produced within the peasant family or by
peasant artisans. Capitalism creates textile and shoe industries, which
because of the low cost and superior quality of their production supplant
peasant production.
But capitalism not only separates all new branches of industry from ag-
riculture. Capitalism creates a gulf between city and village, creates and con-
tinually deepens the antithesis between industry and agriculture. In industry
the development of capitalism brings with it a rapid growth of technical im-
provement; every decade, sometimes every year, brings new methods of
production, new improvements, new machinery. Agriculture, even in the
most advanced capitalist countries, lags behind this tempestuous growth of
industry. Dragging agriculture out of its previous narrow limits of natural
economy and freeing it from the trammels of serfdom, capitalism at the same
time brings with it the ever-growing oppression of exploitation for the broad
masses of the village, condemning them to ignorance, backwardness and
poverty. The many millions of the village population, the peasants, even in
the most advanced countries, are cut off from city civilization, live in a state
of ignorance and backwardness.
The rapid growth of industry and the extreme backwardness of agricul-
ture – this is one of the deepest contradictions of the capitalist system, giv-
ing rise to all kinds of upheavals and crises, foreshadowing and preparing
119
the inevitable downfall of capitalism.
“Agriculture lags behind industry in its development – this is a
phenomenon inherent in all capitalist countries and is one of the
most deep-seated reasons for upsetting the proportion among the
different branches of the national economy, for crises and high
prices.
“Capital has freed agriculture from feudalism, dragged it into
the commercial whirlpool and together with this into the economic
development of the world, it has torn it away from stagnation, the
barbarism of the Middle Ages and patriarchalism. Nevertheless,
capitalism has not only failed to remove the oppression, exploitation
and poverty of the masses, but, on the contrary, it creates these mis-
eries in a new form and re-establishes their old forms on a ‘modern’
basis. Not only is the contradiction between industry and agriculture
not removed by capitalism, but, on the contrary, it is widened and
sharpened to an ever greater extent. The pressure of capital, which
grows principally in the spheres of commerce and industry, falls
more and more heavily upon agriculture.”*
Ground rent
The prime prerequisite for production in agriculture is land. In all capi-
talist countries land is the private property of individual landowners. In al-
most all of these countries tremendous tracts of land are in the hands of the
landlords – large-scale owners who do not work the land themselves, but
rent it out. The landlords have retained their large estates from the days of
serfdom. They live as before on the fat of the land at the expense of the la-
bour of others. Merely the form in which they exploit the peasants, squeeze
out their income, has changed. Only in the Soviet Union has the land been
nationalized, i.e., taken away from the landlords and all other private own-
ers, and ownership has been vested in the proletarian state which turns part
over to the toiling peasantry, giving land to all toiling peasants without
charge, and employing part for the organization of large-scale state farms
which raise produce for supplying the workers and to satisfy the require-
ments of state industries serving these same workers.
Under capitalism the owner of the land receives rent. Anyone who
wants to engage in agriculture and has the necessary capital for it must first
of all rent a piece of land, at a definite rental and for a definite period of
time, from the one who owns this land. The owner of the land exercises his
rights of ownership to collect tribute from all those who need land. This
* Lenin, Collected Works, Vol. XVII, “New Data on the Laws of the
Development of Capitalism in Agriculture,” p. 639, Russian ed.
120
CAPITALISM IN AGRICULTURE
tribute received by the landowner is called ground rent.
It is necessary to discriminate between differential rent and absolute
rent. First, let us take differential rent. We know that in industry the value of
commodities and their cost of .production are determined by the average
conditions of production. This is not so in agriculture. Land area is limited
and cannot be increased as needed. Different pieces of land are not of the
same fertility. An important role is also played by the distance of the land
from large cities, rivers and oceans or the railroads. From better soil with the
same expenditure of capital a better harvest is obtained. Land which is ad-
vantageously located saves the husbandman expenses which are required to
transport products when the land is located in isolated districts. The cost of
production of agricultural products is determined by the conditions of pro-
duction on the worst soil, otherwise capitalist entrepreneurs would not work
the worst soil but would transfer their capital to industry. But if such is the
case those working the better soil realize an excess income. Who gets this
income? It is clear that it falls into the hands of the landowner.
But besides this differential rent the landowner also gets absolute rent.
The land is a monopoly of private owners. This monopoly of land ownership
prevents the free transition of capital from industry to agriculture. In order to
work the land, the permission of the landowner must be obtained. Techni-
cally, agriculture is on a lower level than industry. Therefore the organic
composition of capital in agriculture is lower than in industry. This means
that with the same capital invested, more surplus value is produced in agri-
culture than in industry. If there were a free flow of capital between agricul-
ture and industry the rate of profit would be equalized by means of competi-
tion. But such freedom does not exist because of the private ownership of
land. Hence agricultural products are sold at prices above the price of pro-
duction. The excess thus obtained goes into the pockets of the landowner
and is called absolute ground rent. Marx says that absolute ground rent is
tribute paid to the landowner.
Lenin gives the following concise characterization of the conditions
which give rise to differential and absolute rent.
“...in the first place, we have the monopoly of the use (capital-
ist) of the land. This monopoly originates in the limitedness of land,
and is therefore inevitable in any capitalist society. This monopoly
leads to the price of grain being determined by the conditions of
production on the worst land; the surplus profit, obtained by the in-
vestment of capital on the best land, or by a more productive in-
vestment of capital, forms differential rent. This rent arises quite in-
dependently of private property in land, which simply enables the
landowner to collect it from the farmer. In the second place, we
have the monopoly of private property in land. Neither logically nor
121
historically is this monopoly inseparably linked up with the previ-
ous monopoly.
“This kind of monopoly is not essential for capitalist society
and for capitalist organization of agriculture. On the one hand, we
can quite easily imagine capitalist agriculture without private prop-
erty in land, and many consistent bourgeois economists demanded
the nationalization of land. On the other hand, even in practice we
have capitalist organization of agriculture without private ownership
in land, for example, on state and communal lands. Consequently, it
is absolutely essential to draw a distinction between these two kinds
of monopolies, and consequently, it is also necessary to recognize
that absolute rent, which is created by private property in land, ex-
ists side by side with differential rent.”*
Source of ground rent
The Marxian theory of rent, explained above, issues from the following
premises. The landowner leases his land. The lessee is a capitalist who
works his land by means of wage labour. In such a case it is not difficult to
understand the source of the ground rent that goes to the pockets of the land-
owner. The wage workers produce surplus value with their unpaid labour.
This surplus value first gets to the capitalist-lessee who divides it into two
parts: one part he keeps – this is his entrepreneur’s profit, the profit on his
invested capital – and the other part, a definite excess over and above this
profit, he is forced to give to the landowner. This part of the surplus value is
the rent. It is perfectly evident that absolute and differential rent, like any
other income derived without labour under capitalism, can have only one
source – surplus value produced by the labour of the working class.
“All ground rent is surplus value, the product of surplus la-
bour,”† says Marx.
“The theory of rent presupposes that the entire agricultural
population has been split up completely into landowners, capitalists
and wage labourers. This is an ideal of capitalism but by no means
its reality,”‡ says Lenin.
In reality matters are much more complicated. Nevertheless the theory
of rent maintains its full force even under the more complicated circum-
* Lenin, Collected Works, Vol. IV, Book I, pp. 199-200, International

Publishers, New York, 1929.
† Capital, Vol. III, p. 743.
‡ Lenin, Collected Works, Vol. II, p. 415, “Once More on the Problem of
Realization,” Russian ed.
122
stances. It often happens in capitalist society that the landowner does not
rent out his land but hires labourers himself to work on it. Then he is at once
landowner and capitalist entrepreneur. As landowner he gets rent and as
capitalist he gets profit on his invested capital. In this case rent and profit get
to one and the same pocket.
Very frequently the landlord’s land is rented not by capitalist entrepre-
neurs but by peasants who work the land themselves without employing
wage labour. Peasants pressed by the dearth of land are compelled to rent
land from the landlords under the most enslaving conditions. In this case
also it is clear that the landlord obtains rent in the form of money payments,
in the form of labour rent (work done for him), in the form of payments in
kind, by which he enslaves the peasant. Where does the rent come from in
this case, since there is no wage labour creating surplus value?
It is quite evident that in this case the source of ground rent is the exploi-
tation of peasant labour. The peasant gives part of the products of his labour
to the landlord as rent. This part taken away by the landlord is often so great
that the peasant is doomed to a half-starved existence while do.ing the most
difficult and exhausting work. That is why Marx says about the peasantry
under capitalism, “their exploitation differs only in form from the exploita-
tion of the industrial proletariat.”*
Purchase and sale of land
However, in capitalist countries the peasant often works on his own strip
of land. How does the matter of rent work out here? Under capitalism the
land is privately owned. It is subject to purchase and sale.
The peasant under capitalist conditions must buy the strip of land he
wants to own. Let us see how the price of the land is determined.
The landowner has a piece of land which he leases. The lessee pays him
$5,000 a year in rent. He has grown rich and asks the landowner to sell him
the land. What price will the landowner ask? He will figure in this way: if I
do not sell the land, it will bring me $5,000 in rent every year. Under all cir-
cumstances I must not lose by the sale. I must get such a sum of money as
will bring me $5,000 in interest annually if I deposit it in the bank. Let us
assume that the bank pays 4 per cent for money deposited with it. Then our
landowner will easily figure out that he must get $125,000 for the land, since
if $125,000 are deposited in a hank which pays 4 per cent interest on depos-
its they will bring $5,000 annually. In this case the price of the land will be
$125,000.
Sometimes the value of land is spoken of. This is incorrect. If we do not
take into account improvements made by human labour (for instance, build-
* Marx. The Class Struggles in France, p. 122, Moscow, 1934.

123
ings, water pipes and irrigation), the land by itself does not and cannot have
any value: Land is not a product of human labour. But land, although it has
no value, can have (and under capitalism always has) a price. This price en-
sues from the fact that the land has been usurped by the landowners as pri-
vate property.
We thus see that the price of land is determined by the income which it
can bring annually. The sum of money is fixed at the amount which would
bring an equivalent income when deposited in a bank at a set rate of interest.
This way of figuring is called capitalization. That is why Marx says that “the
price of land is nothing but the capitalized... rent.”* Thus by purchasing a
strip of land the peasant pays the rent for a period of years in advance.
Ground rent and the backwardness of agriculture
Ground rent is a heavy weight which hampers the development of agri-
culture under capitalism. A considerable proportion of the surplus value pro-
duced in agriculture falls into the hands of large landowners who do not re-
invest it in improvements, but who spend it in the cities. Things are no better
when land is purchased. The agricultural producer then sinks most of his
capital into the purchase price and very little is left with which to buy ma-
chinery and equipment. Ground rent is a sort of pump which pumps great
riches from agriculture into the pockets of parasite landlords. In this way
ground rent aggravates the age old backwardness and barbarism of agricul-
ture. Thus ground rent, a result of the private ownership of land under capi-
talism, helps to increase the antithesis between city and village.
With the development of capitalism there is a very rapid growth of the
amount of ground rent. This is easily to be understood. Absolute rent grows
with the increase of the area brought under cultivation. Differential rent,
however, grows very rapidly, as with every new piece of land brought under
cultivation the difference in the fertility of the land and its location, as well
as the difference in the productivity of various investments of capital on one
and the same land, grow apace. Ground rent is also very much increased by
the circumstance that the quality of land long under cultivation is improved
by the investment of tremendous amounts of labour in the manifold im-
provements (irrigation, fertilization, road building, stump clearing, etc.).
Ultimately, the fruit of all this labour goes to the landowner.
The constant rise in ground rent leads to a continuous increase in the
price of land. Not to speak of large cities and their immediate environs
where every square foot of land goes up to exorbitant heights, the price of
land in the villages also rises. Thus, the value of all farm property in the
U.S.A. increased in ten years, from 1900 to 1910, by more than
$20,000,000,000. Of this amount only $5,000,000,000 are due to the rise in
* Marx, Capital, Vol. III, p. 939.

124
value of equipment and buildings, the other $15,000,000,000 being due to
increases in the price of land.
The growth in the amount of ground rent, a growth which keeps pace
with the development of capitalism, means an increase in the tribute which
society pays to the parasite landlords. The increase in ground rent makes the
development of agriculture even more difficult, still further perpetuates its
backwardness, still further widens the gulf between industry and agriculture.
The development of agriculture under capitalism is held back not only
by ground rent. Production for the sake of profit, the general planlessness
and anarchy of capitalist production lead to a piratical exhaustion of the soil.
Capitalist crises, shaking the entire economy, often have the most ruinous
consequences in the sphere of agriculture. The growth of capitalist contra-
dictions embraces agriculture as well as industry.
Large and small scale production in agriculture
Capitalism brings with itself the victory of large-scale over small-scale
production. Large-scale production possesses tremendous advantages.
Large-scale production opens up opportunities for the application of ma-
chinery on a broad, scale. Large-scale production can vastly increase the
productivity of labour over that of small-scale production. Capitalist industry
thus continually pushes out the artisan and the handicraftsman. Among capi-
talist enterprises themselves there is a constant struggle which leads to the
victory of a few of the larger enterprises in every field.
The victory of large-scale production over small-scale production in in-
dustry is indisputable. Even the most rabid defenders of capitalism rarely
deny this. The victory of big capital over the small producer, the triumphant
progress in the concentration and centralization of capital evoke an enor-
mous increase in the class contradictions. The middle section is gradually
being wiped out, the intermediate section between the bourgeoisie and the
proletariat, consisting of a mass of small producers, artisans, traders, etc.,
disappears. The petty bourgeoisie is ground down, a rare individual rising to
the capitalist class and many thousands sinking into the ranks of the working
class. Two opposite classes – a small handful of the bourgeoisie and the tre-
mendous mass of the proletariat – face each other grimly; this is the result of
the triumphant progress of large-scale capitalist production.
Unable to deny the expropriation and ruin of small industry, the defend-
ers of capitalism assert that small-scale production is firmly entrenched in
agriculture. There, according to them, large-scale production does not have
the advantages it has in industry.
The defenders of capitalism persist in this assertion. As a matter of fact,
however, large-scale production in agriculture is incalculably more advanta-
geous than small-scale production. In the Soviet Union the growth of large
state farms (sovkhozes) and collective farms (kolkhozes), which have an im-
125
measurably greater productivity than the scattered small farms, prove this
better than any words can. But even in the capitalist world the advantage of
large-scale production in agriculture is indisputable.
It is self-evident that the advantages of large-scale production under
capitalist conditions and under conditions prevailing in the U.S.S.R. are en-
tirely different in character. Under Soviet conditions the advantage of large-
scale production in the collective and state farms consists in the fact that the
farms are conducted on socialist principles, bringing untold benefits to the
broad masses of the toilers, being a high road to socialism for them. Under
capitalist conditions, however, large-scale production gives the capitalist an
advantage over the small producer, helps to enslave the toiling masses.
Only large-scale production can afford to employ expensive machinery,
tractors, combines, etc., which multiply the productivity of labour many-
fold. Only large-scale production can freely obtain credit from capitalist
banks and on immeasurably easier terms than the small farmer gets. A large
undertaking can organize the sale of its products as well as the purchase of
necessary material, etc., more advantageously. Only in large-scale agricul-
ture is the application of science possible. The tremendous advantages of
large-scale production in agriculture are thus evident.
Despite the backwardness of agriculture as compared with industry, the
application of machinery and artificial fertilizers is gaining headway in capi-
talist countries. The application of complex machinery to advantage is pos-
sible only on large farms. The number of tractors in the U.S.A. has increased
from 80,000 in 1918 to 1,000,000 in 1930, the number of combines – from
3,500 in 1920 to 50,000 in 1930. In Germany the use of nitrogenous fertiliz-
ers has risen two and half times between 1913 and 1928-29, the use of pot-
ash – one and a half times. In France the use of nitrogenous fertilizers has
doubled, potash is used five times as much, superphosphates twice as much.
A large part of the bigger farms in Germany use machinery; small farms
cannot afford machinery, of course. The small farms cannot afford to have
their own tractors, auto trucks, or electric motors. The majority of the larger
farms have these. Thus in Germany in 1925 electric motors were used on 70
per cent of the farms having over 200 hectares each, tractors on 14.5 per
cent, steam engines on 60 per cent, trucks on 8 per cent. Capitalist private
ownership, however, places insurmountable obstacles in the way of increas-
ing the size of farms to a point where modern technical improvements could
really be wisely utilized. Even the comparatively large farms of capitalist
countries are seldom big enough to fully exploit the modern powerful trac-
tors and combines. Even on large farms these machines are not utilized to
full capacity. Only the socialist revolution, tearing down all the barriers of
private property, creates the conditions for the full utilization of modern
technical improvements in agriculture.
Capitalism leads to the triumph of large-scale production in agriculture
126
as well as in industry, and to the displacement of small-scale by large-scale
production. Due to the backwardness of agriculture, however, this general
law of capitalist development manifests several peculiarities with respect to
agriculture. Because of the backwardness of agriculture, the introduction of
machinery is comparatively slow. That is why there are still many small
peasant farms even in the most advanced capitalist countries, farms in which
there is a brutal abuse of labour power and a spoliation of nature. The small
farmer under capitalism will bear every sort of privation just to keep his strip
of land, his seeming independence. The small farm maintains itself only by
means of the most exhausting labour of the farmer and his entire family. At
the same time, the small farm leads to the land being robbed of its fertility: it
is poorly fertilized, improperly tilled. The quality of cattle becomes lower.
The small farmer and his family lead a half-starved existence while perform-
ing almost inhuman labour. He lives in constant fear of the next day. Every
increase in taxes, every fall in the price of his products, every rise in the
prices of industrial goods raises the question of the possibility of his further
independence. Masses of small farmers are ruined every year in spite of their
almost superhuman efforts to save their independence.
Often a large landowner finds it to his advantage to preserve the petty
farms of the surrounding peasantry. Having a tiny strip of land the farmer
cannot make a living on it. He is compelled to sell his labour power to the
neighbouring large landowner. If the farmer did not have his tiny strip of
land to tie him down to the place, he would probably go to the city to find
work and the landlord would lose this cheap labour power. The farmer be-
comes a “wage-labourer with an allotment,” as Lenin called such peasants.
“We thus see that the principal and basic tendency of capitalism
is to crowd out small-scale production by large-scale production
both in industry and in agriculture. But this crowding out must not
be understood only as immediate expropriation; this crowding out
also includes the ruin and the worsening of conditions of the small
landowner, which may last for years and decades. This worsening
of conditions is evidenced by the excessive labour, the insufficient
nourishment received by the small farmer and by his encumbrance
with debts, by the inferior fodder and poorer general upkeep of his
cattle, by the deteriorated conditions of his land with respect to till-
ing, fertilization, etc., by the stagnancy with respect to technical im-
provements, etc.”*
The defenders of capitalism consciously obscure all these circumstances
* Lenin, Collected Works, Vol. XVII, “New Data on the Laws of the
Development of Capitalism in Agriculture,” p. 619, Russian ed.
127
when they assert the advantages of small-scale over large-scale farming.
They praise the patience and endurance of the small farm owners to the
skies. But they consciously avoid all reference to the privations which fall to
his lot.
Distribution of land and the conditions of
farmers in capitalist countries
We have already mentioned that in capitalist countries by far the great-
est part of the land is in the hands of a small group of large landlords and
capitalists. In capitalist countries, the vast majority of small farmers taken
together have less land than the handful of large landowners. Most is con-
centrated in the hands of the large landowners.
In Germany, according to the census of 1925, 60 per cent of the farms
having an area of up to 2 hectares each constitute only 6.5 per cent of all the
land, while 11.5 per cent of estates of over 10 hectares each constitute 67 per
cent of all the land. This means that a handful of large estates (about one-
tenth of all the farms) have two-thirds of the entire land while the over-
whelming majority of small farmers have only one-sixteenth part of all the
land. In France, in 1908, farms of less than 1 hectare constituted 38 per cent
of all the farms; their total landholdings amounted to only 2.5 per cent of all
the land. Thus two-fifths of the farmers had only one-fortieth of the land.
But estates of over 10 hectares constituting 16 per cent of all the farms had
74.5 per cent of the land, that is, approximately three-quarters of all the land.
In Poland, in 1921, farms of less than 2 hectares made up 34 per cent of all
the farms; these had only 3.5 per cent of the land. But estates of over 100
hectares each, making up only 0.5 per cent of all the farms, owned almost
half (44 per cent) of the land. In Hungary half the land is owned by 99 per
cent of all the farms (small and middle-sized farms) while the other half is
owned by only 1 per cent – large landowners. In other words 10,000 land-
lords have as much land as almost 1,000,000 small farmers.
Before the revolution in Russia the greater part of the land was also in
the hands of landlords, the royal family, the monasteries and the kulaks
(rich, exploiting peasants). Thirty thousand of the largest landowners of pre-
revolutionary Russia held 70,000,000 dessiatins* of land. Ten million of the
poorest peasant farms also held about 70,000,000 dessiatins of land, thus
making a proportion of about 324 poor peasant farms to each large estate
owned by a landlord. A large landlord’s estate consisted of 2,300 dessiatins
on the average, a peasant farm – of 7 dessiatins of land. Insufficient land or
no land at all – that was the lot of the village poor. Only the October
Revolution drove the parasites off the land and turned it over to the working
peasantry.
* One dessiatin equals 2.7 English acres.

128
Such a distribution of landownership leads to the enslavement and im-
poverishment of the farmers. The toiling farmer is forced to rent land from
the landlord under the most enslaving conditions. In addition to the disad-
vantages of small-scale farming with its technical backwardness, a number
of other circumstances press upon the small farmer. He must give up the
lion’s share of his products to the landlord in the form of ground rent. The
government taxes him. In America, for instance, taxes eat up two-thirds of
the farmer’s income. If, in case of a crop failure or some family disaster, the
farmer is compelled to take a loan from the bank, he can never extricate
himself from the interest payments. The middleman also victimizes the small
farmer and entangles him in all kinds of enslaving conditions.
The 1930 census data for the U.S.A. graphically picture the impover-
ishment of the American farmer. For the ten years of 1920-30 the total value
of farm lands has fallen from $155,000,000,000 to $35,000,000,000. The
average value of the land and buildings of each farm has fallen from $10,000
to $7,500. The number of farms has decreased from 6,400,000 in 1920 to
6,300,000 in 1930. The number of farmers who have rented land has in-
creased from 2,455,000 to 2,664,000 during this period. The area under cul-
tivation on owned farms decreased from 637,000,000 to 618,000,000 acres;
at the same time the area under cultivation on rented farms increased from
225,000,000 to 306,000,000 acres. These figures bear eloquent witness to
the impoverishment of the bulk of the American farmers, to the decrease in
the land owned by the farmers, to the increase in rented, land, to the decline
in individual small-scale farm economy.
In Japan, according to official data of the Ministry of Agriculture for
1932, of 5,576,000 peasant families 1,478,000 have no land whatever and
rent land from the big landowners; 2,500,000 have less than one-half hectare
each of their own land; 1,240,000 – from one-half to one hectare. Of both
these categories of “owners,” 2,360,000 are compelled to rent additional
land in order to be able to exist. The landlords, as a general rule, parcel out
their land for renting in small strips, because even the most intense exploita-
tion of cheap labour power brings in less than rent does. For these small
strips of land rented out to peasant families (about 70 per cent of peasant
farms till less than 1 hectare per farm) the landlord collects in rent as much
as 50 per cent and over of the gross rice harvest.
Differentiation of the peasantry under capitalism
Under capitalism the peasant is doomed to a bitter struggle for exis-
tence. He works himself to exhaustion in an attempt to preserve his “inde-
pendent” farm. The soil is depleted, the condition of the cattle becomes
worse; the living conditions of the farmer and his family sink steadily lower.
Taxes engulf him, he has to pay rent for the land. He easily falls into bond-
age to the usurer, who sucks the last ounce of strength out of him. He usually
129
sells his grain and cattle to a middleman since he cannot bring his produce to
distant markets. The usurer and the middleman hold the peasant tightly in
their clutches. The pressure of capital on the village grows continually
stronger.
The development of capitalism leads to the enrichment of a very small
number of peasants. They buy up land, lend money at usurious rates; others
become rich by engaging in trade. At the same time the great mass grows
ever more impoverished. Many are forced to sell first their cow, then even
their horse. Without a horse the peasant immediately becomes a victim of
the rich. In order to earn a living he has to become either a hired hand or go
away to the city.
Thus one section of the peasantry becomes bourgeoisie (kulaks) and the
other – wage labourers. This constitutes the differentiation of the village un-
der capitalism.
Between these two extreme strata there remains a broad section – the
middle peasantry.
“Their distinguishing feature is that commodity farming is least
developed among them. Only in good years and under particularly
favourable conditions is the independent husbandry of this type of
peasant sufficient to maintain him, and for that reason his position is
a very unstable one. In the majority of cases the middle peasant
cannot make ends meet without resorting to loans to be repaid by
labour, etc., without seeking ‘subsidiary’ earnings on the side,
which partly also consist of selling labour power, etc. Each time
there is a failure of the harvest, masses of the middle peasants are
thrown into the ranks of the proletariat.”*
In many countries great masses of middle peasants still exist. For the
majority of the middle peasants capitalism holds out only one course: falling
to the ranks of the village poor and then becoming agricultural wage labour-
ers. A small minority climbs up, becomes exploiters. The 1930 census data
of the U.S.A. are evidence of the gradual wiping out of the middle farmer.
The census data show a growth in the number of small farms (less than 20
acres) and large farms (over 500 acres). The number of middle farms (20-
500 acres) has fallen off considerably.
Impoverishment of the peasantry in capitalist countries
Capitalism brings great misery to the broad masses of toilers in the vil-
lage. Capitalism digs a chasm between industry and agriculture. The village is
doomed to age-long backwardness, the small peasant farm – to a miserable
* Lenin, Selected Works, Vol. I, “The Development of Capitalism in Russia,” p.

237, Moscow, 1934.
130
existence. The peasant groans under the weight of taxes, insufficient land and
ruinous prices for agricultural products. The concentration of the land in the
hands of small groups of large landowners condemns the peasant masses to
.continuous slavery and dependence so long as capitalism exists. Competition
of the more profitable large-scale production forces the poor peasant to super-
human labour in order to preserve his puny farm. The differentiation of the
peasantry throws great masses of poor peasants into the ranks of agricultural
labourers, who are subjected to the most severe exploitation.
Crises sharpen all the contradictions of capitalism to the utmost. The
present crisis, the most acute and severest crisis that ever shook the capitalist
world, increased the want and poverty of the broad masses of the peasantry
to the extreme. This crisis led to a further deepening of the contradictions
between city and village. The crisis also aggravated the backwardness of the
village. Unbelievably low prices on agricultural products ruined masses of
middle peasants. At the same time, the worker-consumer pays just as high
prices for the means of subsistence as ever.
The peasantry an ally of the proletariat in the revolution
It is clear, therefore, that the proletariat finds friends and allies in the vil-
lage in its revolutionary struggle against capitalist domination. The village
wage labourer is also a proletarian; the only difference is that the latter oper-
ates a machine for the manufacturer, the former follows a plough for the
landlord or rich peasant. The ruined village poor is a reliable support and a
firm ally of the working class. It has nothing to lose by the destruction of
capitalism because it has nothing to gain by its continued existence. Finally,
the middle peasant, who often plays an important role, can help the proletar-
iat if its policy is correct. At a time of struggle for power it is exceedingly
important to neutralize the middle peasant, that is, to prevent his going over
to the enemies of the proletariat. After victory is won, the proletariat effects
a permanent union with the middle peasantry. With a firm hand the working
class leads the middle peasant with it in the building up of the new life.
A determined and unrelenting struggle against the kulaks – the village
bourgeoisie – is the only basis upon which a permanent union can be ef-
fected between the proletariat and the basic mass of the middle peasantry.
Only the proletarian revolution opens up before the poor and middle peas-
ants a way out of the hopeless condition in which they find themselves under
capitalism. Under capitalism only rare individual middle peasants climb up
and become rich peasant exploiters. The great mass of them, however, have
to make superhuman efforts merely to keep afloat. The threat of ruin, desti-
tution, the loss of their ephemeral independence and the eventuality of their
being forced down to the ranks of the poor, the proletariat – this is what con-
stantly faces the middle peasantry under capitalism. Only the proletarian
revolution opens up another vista for the middle peasant, gives him a road of
131
escape from this hopeless condition.
The proletarian revolution cuts the roots from under capitalist exploita-
tion both in the city and in the village. Doing away with the parasitic pro-
prietorship of bankers, landlords and manufacturers, the proletarian revolu-
tion at once frees the poor and middle peasant from the age-old fetters that
have them bound hand and foot: the bondage of the tenant system, debts to
banks, usurers, etc., are abolished. The proletarian revolution further opens
up before the poor and middle peasantry the door to large-scale socialized
agriculture, thus avoiding ruin and impoverishment which are inevitable
under capitalism.
REVIEW QUESTIONS
1. Of what does the contradiction between city and village consist under
capitalism?
2. What is the source of absolute and of differential rent?
3. How is the price of land determined?
4. What are the advantages of large-scale over small-scale production in ag-
riculture?
5. How is land property distributed in capitalist countries?
6. How does the differentiation of the peasantry take place under capitalism?
132
CHAPTER VIII
Reproduction and Crises under Capitalism
Means of production and means of consumption
If we take any country we can see that from year to year definite quanti-
ties of the most diverse products are produced: bread, calico, locomotives,
ploughs, dwelling houses; Coal, machinery, sugar, rubbers, etc.
The ultimate destination of these products of human labour is also dif-
ferent. Bread, sugar and meat are consumed by people, cloth serves to clothe
people, houses are used to live in. A host of other products of human labour
have an entirely different fate: the plough goes to the agriculturist for tilling
the soil, machines and factory buildings serve for the further production of
commodities; locomotives and railroad cars serve to transport goods and
people.
Those products of human labour which serve for the immediate satisfac-
tion of human wants, the personal needs of food, clothing, amusement, shel-
ter, etc., are called means of consumption; those products of human labour
which serve for the further production of goods are called means of produc-
tion. It is important to remember that ultimately all products of human la-
bour are called upon to satisfy one or another want of an individual or of a
social group. The only difference is that some things serve this purpose di-
rectly – these are objects of personal use – whereas other things serve only
for the production of the things that go for direct use – to this category be-
long the means of production.
There are also a number of things that can serve both as objects of direct
consumption and as means of production. The simplest example of this is
coal, which is used in the steam boilers at plants and electric power stations
as a means of production, and in fireplaces in homes as an object of con-
sumption. Everyone can easily think of a number of other things that serve
both purposes.
Under capitalism the management of production is in the hands of indi-
vidual entrepreneurs or groups of them. The manufacturer conducts his enter-
prise, as we have already seen, with only one end in view – profit, personal
gain. It is therefore a matter of complete indifference to him whether he pro-
duces locomotives or cigar-lighters, plain calico or fine perfumes. He is after
only one thing: more profit. It is perfectly evident that capitalists do not make
any distinction between the production of objects of consumption and means
of production. Whether the manufacturer will produce rubbers or rubber belt-
ing depends only on one thing – which will be more profitable to him?
What is reproduction?
The mass of goods produced in any country is in continual motion. Ob-
jects of consumption move from the manufacturer to the consumer. There
133
they disappear: some serve for a comparatively long time in satisfying hu-
man needs (as clothing or books, for example), others disappear fairly rap-
idly (as food). Means of production produced at plants and factories or ob-
tained from the bowels of the earth are also put to use. Some of these prod-
ucts are also short-lived (coal or oil, for instance), others, on the contrary,
are used up very slowly and need to be replaced only after a long period of
time (machinery, for example).
One thing is clear. In order for society to exist, for the economic system
to be preserved, it is necessary that definite quantities of goods be produced
not only once, but continuously, over and over again. This everyone knows
to be a fact.
Shirts are worn out, but new shirts are produced at factories. Bread is
consumed, but at the same time fresh grain is ripening in the fields. Coal is
burned, but all the time new coal is being mined. Locomotives wear out,
machines become antiquated, but human labour is constantly busy making
new ones.
In all these cases, despite the big differences between these products one
can observe one thing which they all have in common. Various kinds of
commodities are produced, used and produced again. There is a constant
reproduction of things.
“Whatever the form of the process of production in a society, it
must be a continuous process, must continue to go periodically
through the same phases. A society can no more cease to produce
than it can cease to consume. When viewed, therefore, as a
connected whole, and as flowing on with incessant renewal, every
social process of production is, at the same time, a process of
reproduction.”*
Simple and extended reproduction
We must distinguish between simple and extended reproduction. If the
same quantity of a product is produced in a society year in and year out – we
have simple reproduction. In this case, everything that is produced in a year
is consumed. But the development of capitalism implies a rapid growth of
production. A greater quantity of all kinds of products is being produced
from year to year. We have extended production; reproduction takes place
on an extended basis. Capitalism brings about a change from the old stag-
nant conditions of society to its tempestuous development. Hence extended
reproduction is a characteristic of capitalism.
Reproduction under capitalism
Reproduction takes place in any society, regardless of the social system.

134
REPRODUCTION AND CRISES UNDER CAPITALISM
But under different systems of society the manner in which reproduction
takes place is different. Under socialism, for instance, reproduction takes
place m a totally different manner from under capitalism. “If production be
capitalistic in form, so too, will be reproduction,”* says Marx.
During the process of reproduction not only are various products of hu-
man labour reproduced, but so also are social production relations, produc-
tion relations among people. And in fact, under capitalism, reproduction not
only consists in new quantities of grain, coal and machinery being thrown on
the market to replace what was used up, it also consists of the continual rees-
tablishment and maintenance of the capitalist form of human relationships.
From year to year workers continue to labour in capitalist plants and facto-
ries, from year to year the owners of these enterprises pocket the surplus
value produced by the labour of the working class. We thus see that not only
are commodities reproduced – bread, meat, metal, coal, etc. – but definite
relations among people in the process of production are reproduced. The
relation between the working class and the bourgeoisie is reproduced. Other
production relations are also reproduced, as the relations between various
groups of capitalists, etc.
But the reproduction of capitalist relations also means the reproduction
of those exceedingly deep contradictions which are inherent in the capitalist
system. Under capitalism extended reproduction does not only mean a
growth in the quantity of different kinds of goods produced from year to
year. Under capitalism extended production implies also a growth in the
number and scale of capitalist plants and factories, the increased exploitation
of the workers at these enterprises. Under capitalism extended reproduction
means the extension of capitalist relations based on the exploitation of wage
workers, the extension of capitalism from land to land, the capture of one
branch of production after another by capitalism. Thus extended reproduc-
tion under capitalism means the ceaseless growth of the sharp contradictions
of the capitalist system which lead this system to its doom, to its replace-
ment by a new, socialist system. Thus the growth of capitalism brings with it
its own destruction.
Capitalist accumulation
In order to produce more coal or iron, new mines and pits must be
opened. In order to produce more cloth, new looms must be put to work. In
general, for the expansion of production it is necessary either to enlarge the
existing enterprises or to create new ones. How does this take place under
the capitalist system?
In capitalist countries the means of production are owned by a small
group of people: plants and factories, coal and metal mines – all are the
* Ibid., p. 578.
135
private property of the capitalist class. In a previous chapter, when we
studied primitive accumulation, we learned that capitalist private property
originates in robbery, violence and lawlessness. But once it has arisen
capitalist ownership of the means of production is maintained and extended
from year to year.
Capital brings surplus value to its owner. We have already studied the
source of surplus value. We have also seen in what forms and how this sur-
plus value is distributed among the different sections of the ruling classes.
It may seem at first as if the entrepreneur were free to do as he pleased
with his profit. And in fact capitalism knows no proscriptions in this respect.
If a textile manufacturer has made $100,000 in profit in a year he can do
whatever he wishes with this money. If he is a glutton – he can spend it on
food; if he is a drunkard – spend it on drink. And there are many people
among the capitalist class who actually spend their profits on such things.
However, this is not the essence of the matter.
Notwithstanding the absence of any written laws the capitalist, with very
rare exceptions, uses part of his profits to expand his enterprise. We call this
addition of part of the surplus value to the original capital capitalist
accumulation.
Of his $100,000 profit for the year our manufacturer will put $60-80,000
back into his business to expand his factory, buy new and improved machin-
ery. Two forces compel him to do this: the desire for gain and the fear of
competition. Capitalism is distinguished by just this feature – that the desire
for gain knows no limits. No matter how big the capital of the entrepreneur,
and no matter how enormous his profits, he will steadily try to increase his
wealth and his profits. And there is only one way to achieve this: to accumu-
late capital by adding to it from his profits. Watching his competitors our
manufacturer cannot calmly employ his entire profits for his personal use,
for all kinds of unproductive expenditures. He sees his competitors exerting
every effort in an attempt to improve their business, expand, improve the
technical processes, in order to produce commodities more cheaply and of
better qualify and thus crush competition. If our manufacturer does not wish
to be crushed, he must reinvest a large part of his profits in his business.
Thus, even though there are no laws compelling accumulation under
capitalism, elemental forces effect this compulsion and make the majority of
capitalists accumulate a part of their profits. The accumulation of surplus
value produced by the proletariat is a necessary condition for extended re-
production.
Concentration and centralization of capital
Accumulating a part of his profits annually the manufacturer becomes
the owner of ever more capital. If his enterprise was previously valued at
$1,000,000, with the gradual accumulation of profits to the amount of say
136
$50-70,000 a year, at the end of some ten years our manufacturer will have
$1,500,000 to $1,700,000, i.e., will increase his capital one and a half or
more times. The expansion of capital through the accumulation of surplus
value is called the concentration of capital.
There is yet another method by means of which the capital of individual
capitalists grows. We have already seen how the stronger enterprise crushes
the weaker, the big capitalist swallows up his smaller and weaker competi-
tors. Buying up the properties of his ruined competitors considerably below
their value, or joining them to his own enterprise by some other means (in
payment of debts, for instance) the big manufacturer increases his capital.
Such cases of merging several capitals is the result of a struggle which
brings the ruin of some and the victory of others. Often, however, the merg-
ing of capital proceeds peacefully: by the organization of stock companies,
corporations, etc. Of this phase we shall speak more in detail later. Centrali-
zation of capital is the term given to all cases of the merging of capital by
the joining of several enterprises into one.
Concentration and centralization of capital bring about the accumulation
of capital in the hands of a continually smaller number of rich men. A hand-
ful of billionaires, owners of tremendous fortunes, control untold wealth.
The fate of tens and hundreds of thousands of people is in their hands. Con-
centration and: centralization of capital thus lead to a sharpening of class
contradictions, to a more marked division of capitalist society into two op-
posed classes: a handful of the biggest capitalists and the mass of exploited
proletarians.
Concentration and centralization of capital, concentrating tremendous
wealth in the hands of a few persons, open the way for the creation of tre-
mendous enterprises. As we have already seen, large-scale industry is much
more advantageous than small. It is no wonder then that capitalism puts to
the fore ever larger and larger enterprises in which tremendous numbers of
workers are employed. Here, for instance, are the comparative figures show-
ing the changes in the size of enterprises in the U.S.A. over a period of thirty
years (average per enterprise):
1889 1899 1909 1919
Workers 8.1 13.8 24.1 38.0
Capital (in thousands of dollars) 6.7 19.0 68.7 154.1
Production (in thousands of 13.4 28.1 77.2 216.9
dollars)
Even more characteristic of the rapid growth of large-scale enterprises is
the case of pre-revolutionary Russia, where the distribution of workers per
enterprise according to size was as follows:
137
Enterprise* 1895 1915
(Percentage) (Percentage)
Large (employing more than 500 workers) 45.2 61.2
Medium (employing from 50-500 workers) 38.9 30.6
Small (employing from 10-50 workers) 15.9 8.2
In 1895 the average number of workers employed in an enterprise was
98.5, in 1915 this figure had grown to 173.4.
Here is a more detailed table showing the process of concentration of
industry in Russia for the ten years from 1901 to 1910 (inclusive):
Group of enterprises Number of enterprises Number of workers
(in thousands)
1901 1910 1901 1910
Employing up to 50 work- 12,740 9,909 244 220
ers
Employing from 51 to 100 2,428 2,201 171 159
workers
Employing from 101 to 500 2,288 2,213 492 508
workers
Employing from 501 to 403 433 269 303
1,000 workers
Employing over 1,000 243 324 526 713
workers
Total 18,102 15,080 1,702 1,903
Using this table in one of his articles in the pre-revolutionary newspa-

per, Pravda, Lenin wrote:
“This is the usual picture for all capitalist countries. The num-
ber of small undertakings decreases: the petty bourgeoisie, the
small manufacturers, are ruined and wiped out, become clerks,
sometimes proletarians. The number of large enterprises grows rap-
idly and their proportion to industry as a whole grows even more
rapidly. From 1901 to 1910 the number of large enterprises employ-
ing more than 1,000 workers each has grown almost one and a half
times: from 243 to 324. These employed about half a million work-
ers in 1901 (526,000), i.e., less than one-third of the total number,
and in 1910 they employed more than 700,000, more than one-third
of the total. The larger factories crush the smaller ones and concen-
* Smaller enterprises, employing less than ten workers, are not taken into
account.
138
trate production to an ever greater extent. Ever greater numbers of
workers are gathered in a smaller number of enterprises, and the en-
tire profit from the labour of united millions of workers is pocketed
by a handful of millionaires.”
Historical tendency of capitalist accumulation
Capitalism in its development leads to an ever greater socialization of
labour. All kinds of connections between separate enterprises, regions and
entire countries are established to an unprecedented degree. Individual
spheres of industry, previously more or less independent, are broken up,
subdivided into a host of connected and mutually interdependent branches.
Capitalism unites the work of different people, tying them together with
invisible bonds. But socialization of production under capitalism does not
proceed in the interests of society as a whole, nor in the interests of the
working masses – it proceeds only in the interests of a small group of
capitalists, who are trying to increase their gains. Simultaneously with the
growth of the socialization of labour, the subdivision of labour among
enterprises, and the struggle and competition between capitalists also
increase. Only the abolition of the private ownership of the means of
production (and the transfer of this ownership to society as a whole, only the
expropriation of the bourgeoisie and the organization of socialist production
will do away with this contradiction.
The enlargement of enterprises proceeding apace with the concentration
and centralization of capital prepares all the conditions for the socialization
of the means of production, for the reconstruction of economic life on social-
ist principles. A large enterprise, where thousands of workers are employed,
is something quite different from an artisan’s workshop. Whereas society
would find it difficult to take over countless numbers of small workshops, it
is fully possible to socialize production when it is concentrated in a few huge
plants and factories.
Marx defines the historical tendency of capitalist accumulation as
follows:
“Self-earned private property, that is based, so to say, on the
fusing together of the isolated, independent labouring individual
with the conditions of his labour, is supplanted by capitalistic pri-
vate property, which rests on exploitation of the nominally free la-
bour of others, i.e., on wage labour.
“As soon as this process of transformation has sufficiently de-
composed the old society from top to bottom, as soon as the labour-
ers are turned into proletarians, their means of labour into capital, as
soon as the capitalist mode of production stands on its own feet,
then the further socialization of labour and further transformation of
the land and other means of production into socially exploited and,
139
therefore, common means of production, as well as the further ex-
propriation of private proprietors, takes a new form. That which is
now to be expropriated is no longer the labourer working for him-
self, but the capitalist exploiting many labourers. This expropriation
is accomplished by the action of the immanent laws of capitalistic
production itself, by the centralization of capital. One capitalist al-
ways kills many. Hand in hand with this centralization, or this ex-
propriation of many capitalists by few, develop, on an ever extend-
ing scale, the co-operative form of the labour process, the conscious
technical application of science, the methodical cultivation of the
soil, the transformation of the instruments of labour into instruments
of labour only usable in common, the economizing of all means of
production by their use as the means of production of combined, so-
cialized labour, the entanglement of all peoples in the net of the
world market, and with this, the international character of the capi-
talistic regime. Along with the constantly diminishing number of
the magnates of capital, who usurp and monopolize all advantages
of this process of transformation, grows the mass of misery, oppres-
sion, slavery, degradation, exploitation; but with this too grows the
revolt of the working class, a class always increasing in numbers,
and disciplined, united, organized by the very mechanism of the
process of capitalist production itself. The monopoly of capital be-
comes a fetter upon the mode of production, which has sprung up
and flourished along with, and under it. Centralization of the means
of production and socialization of labour at last reach a point where
they become incompatible with their capitalist integument. This in-
tegument is burst asunder. The knell of capitalist private property
sounds. The expropriators are expropriated.”*
Reproduction and sale of commodities
We have seen that every capitalist, on starting production, buys the means
of production (raw material, fuel) on the market and hires workers (i.e., buys
labour power). But now the capitalist has completed his annual production.
The raw material and fuel have been spent, the workers have expended their
year’s labour, a great amount of finished commodities, shoes, let us say, lies in
the manufacturer’s warehouse. What is needed for the renewal of production?
What is needed in order to continue the production of shoes?
It is perfectly evident that it is necessary for the manufacturer to pur-
chase a new lot of raw material and fuel, to hire his workers again for the
next year. But for this purpose he needs money. Where will the manufac-
turer obtain money? He may borrow it, but this only means that he will fi-

140
nally have to repay it. The manufacturer must obtain his money from the
sale of (or, as is sometimes said, he must realize) his finished commodities.
Upon selling his products the manufacturer again buys labour power and
means of production and begins his next cycle of production. Thus the reali-
zation of the finished products is a necessary condition for the renewal of
production, a necessary condition for reproduction. We see therefore that the
process of reproduction for the individual capitalist has three stages: 1) the
purchase of means of production and labour power; 2) the process of pro-
duction itself; 3) the sale of the finished products. It is easy to note that the
second stage is the direct process of production, during which the workers
produce surplus value for the capitalist. The first and last stages refer to the
process of circulation: in the first stage the capitalist converts his money
into commodities, in the last, on the contrary, he sells his commodities and
realizes money for them. He needs this money, however, principally in order
to buy the things that are necessary to continue production, for continuous
production, for reproduction. Thus capital goes through its cycles.
It is well known that in capitalist society there is not one capitalist, but
many capitalists who are struggling among themselves. Every capitalist
deals with his capital as he finds best for himself. The acts of individual
capitalists, and consequently the movements of individual capitals, conflict
and intermingle with one another. The entire mass of individual capitals,
taken together, constitute social capital as a whole. It is in this intermingling
of the movements of separate independent capitals, which at the same time
constitute parts of social capital as a whole, that reproduction under capital-
ism takes place. For reproduction to be effected, it is necessary for not only
the individual capitalist but for the entire mass of capitalists to be able to
realize the products of their enterprises.
“The scientific value of Marx’s theory consists in its having
explained the process of reproduction and circulation of social
capital.”*
Explaining the process of reproduction and circulation of social capital
as a whole, the Marxist-Leninist theory also unfolds the deepest contradic-
tions which appear in the process of capitalist reproduction. The theory of
reproduction makes clear the complex conditions which are required for the
realization of the entire mass of commodities produced under capitalism.
The theory of reproduction shows how the very process of capitalist devel-
opment constantly infringes upon these conditions and calls forth a breach in
the entire process of reproduction, leading to shocks and crises.
* Lenin, Collected Works, Vol. II, “Once More on the Problem of Realization,”
p. 415, Russian ed.
141
Conditions of realization under simple and extended reproduction
Let us examine more closely the conditions in which realization of
commodities takes place under capitalist reproduction. The value of the en-
tire output of a capitalist country, like that of a single commodity, is made
up of the following three parts: 1) constant capital; 2) variable capital; 3)
surplus value. We know further that the entire mass of the various enter-
prises can be divided into two large groups: 1) enterprises producing means
of production (machinery, raw material, fuel, etc.), and 2) enterprises pro-
ducing articles of consumption.
“The problem of realization consists in finding on the market
for every part of the capitalist product another part of the product
that will be an equivalent of it, in terms of value (constant capital,
variable capital and surplus value) and in terms of its material form
(means of production, articles of consumption, particularly articles
of necessity and objects of luxury).”*
For the sake of simplicity we may assume that the entire economy of the
country is conducted on capitalist principles. In reality this is not true for any
part of the world; even in the most developed capitalist countries a certain
degree of artisan and peasant production, which is not of a capitalist nature,
persists. However, if we take such an unmixed or, as it is called, pure capi-
talist: economy, we shall have the following situation under simple repro-
duction. The entire mass of products made at the first group of enterprises
must be equal to that used up by both groups during the year. For example, if
during the year 20,000,000 tons of coal were consumed, then the annual out-
put of the mines must also equal 20,000,000 tons. If during the year 100,000
looms were used up, then the production of new looms must equal this num-
ber. As for the second group of enterprises, the entire mass of commodities
produced by them, articles of consumption, must be equal in value to the
combined income of all the workers and capitalists of both groups of enter-
prises. And in fact, since according to our assumption there are no other
classes in this society, all the articles of consumption produced must be used
up by the workers and capitalists. But the workers and capitalists can buy
only as much as their combined income will allow: the workers to the extent
of their wages, the capitalists to the extent of the surplus value.
How are the component parts of the annual product realized? The con-
stant capital of the first group will be realized within the group since it exists
in the form of means of production. The variable capital and surplus value of
the second group can also be realized within the same group since they exist
* Ibid., Vol. Ill, “Theoretical Mistakes of the Narodnik Economists,” p. 22,

Russian ed.
142
in the form of articles of consumption. What parts will be exchanged be-
tween the two groups? This is also not very difficult to answer. The variable
capital and surplus value of the first group must be exchanged for articles of
consumption, and the constant capital of the second group must be ex-
changed for means of production. All these parts must evidently be equal to
each other for the exchange to be made without difficulty. Thus a condition
of simple reproduction is the following equation: the variable capital and
surplus value of the first group must be equal to the constant capital of the
second group.
Marx denotes constant capital by the letter c, variable capital by the let-
ter v, and surplus value by the letter s. The groups are denoted by Roman
numerals. Then the formula for simple reproduction assumes the form – I (v
+ s) = II c.
Now let us see what the conditions for realization are under extended
reproduction. We already know that simple reproduction is only an imagi-
nary case and that actually the development of the capitalist system proceeds
along the lines of extended reproduction. How do the conditions for realiz-
ing products change under extended reproduction? Extended reproduction
implies accumulation. In order to expand an enterprise, it must be enlarged
or a new one must be built. In any case some new means of production must
be added. But these means of production must first be produced, as they do
not come of themselves. This means that the first group of enterprises, which
produces means of production, must have a certain excess of means of pro-
duction necessary for the purpose of expansion. And this means that the sum
of variable capital and surplus value of the first group must be greater than
the constant capital of the second group. Only in this case will there be an
excess of means of production necessary for extended reproduction. This
means that I (v + s) must he greater than II c.
We know that under capitalism constant capital grows at a more rapid
rate than variable capital. A growth of the organic composition of capital
takes place, the amount of machinery per worker employed increases. We
also see that under extended reproduction the variable capital (plus surplus
value) of the first group must grow faster than the constant capital of the
second group. It is therefore clear that the increase in the constant capital of
the first group must greatly exceed the growth of the constant capital of the
second group. And this means that with extended reproduction the section of
social production engaged in producing means of production must proceed
more rapidly than the section of that engaged in producing articles of con-
sumption.
Let us see what the more complex conditions for realization are under
extended reproduction. With simple reproduction all the surplus value is
consumed by the capitalist. With extended reproduction the surplus value in
each group falls into two parts: 1) the part consumed and 2) the part accumu-
143
lated. The accumulated part is added to the capital. Since the capital of each
group is made up of constant and variable parts, the accumulated surplus
value must be divided into two parts: constant and variable. We have de-
noted the entire surplus value by the letter s. Let us denote the part con-
sumed by the capitalists by the letter a; and the part accumulated, by the
letter b. The part of the accumulated surplus value which is added to con-
stant capital we shall denote by the letters bc, and the part which is added to
variable capital by bv. Then the process of realization under extended repro-
duction will take the following form. As with simple reproduction the sec-
ond group must exchange its constant capital – c – with the first group; at the
end of the year, this exists in the form of articles of consumption, while for
purposes of production it must be had in the form of means of production,
i.e., as machinery, raw material, etc. In their turn the first group must ex-
change with the second their variable capital which is intended for consump-
tion by the workers but exists in the form of means of production. The con-
sumed part of the surplus value of the second group exists as articles of con-
sumption; hence it does not have to be exchanged with the first group. The
consumed portion of the surplus value of the first group, denoted by a, exists
in the form of means of production; hence it must first be exchanged for ar-
ticles of consumption produced by the second group. The accumulated por-
tion of surplus value of the first group falls into bc – means of production –
and bv – articles of consumption for the workers. Evidently bv must be ex-
changed with the second group, which has all the articles of consumption.
But the second group, in its turn, must exchange the part bc, which is to be
added to its constant capital, with the first group, while the part bv of the
second group does not have to be exchanged; this has to be articles of con-
sumption for the workers and exists as such in the second group. Now we
can see what exchange has to take place between the first and second groups
for extended reproduction. The first group must exchange a, v and bv, the
second group must exchange c and be. It is perfectly evident that the ex-
change can take place only if these quantities are equal to each other, that is,
when we have I (v + a + bv) = II (c + bc). This is the condition for realiza-
tion under extended reproduction.
Contradictions of capitalist reproduction
The Marxian theory makes clear what conditions are requisite for the re-
alization of commodities under simple and extended capitalist reproduction.
But it does not at all assert that these conditions exist. On the contrary, the
entire movement of the capitalist system proceeds by means of continuous
variations and deviations, by means of a constant infringement of those mu-
tual relations which should exist between the various branches of industry.
Capitalist reproduction shows up all the contradictions inherent in the
capitalist system. In the process of reproduction the basic contradiction of
144
capitalism stands out – the contradiction between the social character of
production and the private-capitalist character of appropriation. Capitalist
enterprises unite many thousands of workers. The work of each enterprise is
vitally necessary to society as a whole. These enterprises employ all the
forces of social development, all the forces of technical science, the forces of
the united social labour of many hundreds and thousands of people. And
they belong to a small handful of capitalists who conduct them for their own
gain, chasing after the greatest profits.
The development of capitalism leads to a growth in the contradictions
between the bourgeoisie and the proletariat. Reproduction and accumulation
of capital lead, as we have seen, on the one hand, to the growth of the untold
wealth which belongs to a small group of capitalists and, on the other hand,
to an increase in the exploitation, oppression, misery and, at the same time,
the indignation and the will to struggle of the broad masses of the proletariat.
The basic contradiction of capitalism – the contradiction between the
social character of production and the private character of appropriation –
clearly betrays itself in the anarchy of production (i.e., in its planlessness).
This anarchy of social production peculiar to capitalism is thus characterized
by Engels:
“…every society based on commodity production has the pecu-
liarity that in it the producers have lost control of their own social
relationships. Each produces for himself, with the means of produc-
tion which happen to be at his disposal and in order to satisfy his
individual needs through the medium of exchange. No one knows
how much of the article he produces is coming onto the market, or
how much demand there is for it; no one knows whether his indi-
vidual product will meet a real need, whether he will cover his costs
or even be able to sell it at all. Anarchy reigns in social production.
But commodity production, like all other forms of production, has
its own laws, which are inherent in and inseparable from it; and
these laws assert themselves in spite of anarchy, in and through an-
archy. These laws are manifested in the sole form of social relation-
ship which continues to exist, in exchange, and enforce themselves
on the individual producers as compulsory laws of competition. At
first, therefore, they are unknown even to these producers, and have
to be discovered by them gradually, only through long experience.
They assert themselves therefore apart from the producers and
against the producers, as the natural laws of their form of produc-
tion, working blindly. The product dominates the producers.”*
* Engels, Herr Eugen Dühring’s Revolution in Science, p. 305.

145
We have seen how complex the conditions for capitalist realization are.
But who sees to it that these conditions are strictly observed? It is perfectly
evident, that with a planless, anarchic system such as capitalist production
presents, these conditions of realization are put into effect only by the blind
forces of the market. With countless variations and deviations, with cease-
less infringements, the mutual relations between the various branches of in-
dustry which are necessary for the realization of commodities under capital-
ism forge a way for themselves.
The tendency towards an unlimited expansion of industry is inherent in
capitalism. In the race for profits every capitalist tends to throw the greatest
possible amount of commodities on the market. He tries to expand his enter-
prise, to increase the volume of his production. The commodities which are
produced must, however, be sold to someone. On the other hand, it is in the
nature of capitalism to tend to reduce consumption by the broad masses of the
people to the most miserable minimum. Expansion of the capitalist market is to
some extent due to the growth of the demand for means of production which
go for the expansion of enterprises. However, in the end the enterprises using
these means of production produce ever-increasing quantities of consumers’
commodities. And the market for these is limited because of the impoverish-
ment of the proletarian masses. Thus the contradiction between production
and consumption inherent in capitalism reveals itself in the process of repro-
duction, a contradiction which is only one of the forms in which the funda-
mental contradiction of capitalism is expressed – the contradiction between the
social nature of production and private nature of appropriation.
However, in analysing these contradictions of capitalism, it would be al-
together incorrect to draw the conclusion that capitalism cannot exist in gen-
eral. At the present time capitalism is living in the period of its downfall, its
destruction. Nevertheless, during a definite period, the capitalist system
brought with itself the development of the productive forces of society nec-
essary to prepare the ground for a higher, socialist system. The development
of capitalism cannot proceed otherwise than through a whole series of con-
tradictions, and to note these contradictions simply clears up for us the his-
torically transient nature of capitalism, clears up the conditions and causes
for the tendency towards the transition to a higher form.
The Marxist-Leninist theory of reproduction shatters all the subtle argu-
ments of the defenders of capitalism. It exposes the complete untenability of
the invention of the hirelings of capitalism to the effect that capitalist repro-
duction can, presumably, run along smoothly and evenly without any hitch,
without shocks or crises. The theory also decisively shows the untenability of
the opinion that capitalist reproduction cannot, presumably, take place alto-
gether because of its inherent contradictions. The adherents of this opinion at
the time when capitalism was still taking its first steps declared capitalism
“impossible.” Under modern conditions, the followers of this erroneous theory
146
come to the traitorous conclusion that capitalism, because of the rending con-
tradictions inherent in it, must inevitably perish of itself, automatically, with-
out any revolutionary struggle on the part of the proletariat.
Marx disclosed the law of capitalist production. Marx showed how re-
production takes place under capitalism. Some critics of Marx, Rosa Lux-
emburg among them, tried to show that under capitalism reproduction is
possible only to the point when capitalism has destroyed all the remnants of
the previous system – small-scale commodity production. The adherents of
this erroneous theory of Rosa Luxemburg frequently draw the most harmful
inferences from it. They argue something like this: since capitalism is
doomed to perish because of its inability to proceed with reproduction after
the remnants of simple commodity production have been destroyed, we need
not proceed with the struggle for the overthrow of the power of capitalism –
and they calmly lie back to wait for the moment when capitalism will col-
lapse of itself. It is quite evident that such a position is deeply alien to revo-
lutionary Marxism-Leninism. Capitalism will not perish of itself, automati-
cally. Only the revolutionary struggle of the proletariat, requiring tremen-
dous self-sacrifice, will bring about the destruction of capitalism, slavery
and oppression.
Capitalist crises of overproduction
The following passage is taken from a book describing the life of miners
in America:
“A miner’s son asked his mother: ‘Why don’t you light the fire?
It’s so cold.’
“ ‘Because we have no coal. Your father is out of work, and we
have no money to buy coal.’
“ ‘But why is he out of work, mother?’
“ ‘Because there’s too much coal.’ ” *
This conversation excellently portrays the glaring contradiction which
becomes evident during every capitalist crisis. The family of the coal miner
freezes because “too much” coal has been mined from the bowels of the
earth. Millions of people go hungry because “too much” bread has been pro-
duced and wheat is therefore used for locomotive fuel. The unemployed and
their families are without shelter because “too many” houses have been built
which are therefore standing vacant.
But are “too much” bread, clothes, coal, houses, etc., actually produced?
It is perfectly clear that during the crisis tremendous masses of people ex-
perience desperate need for the bare necessities of life. But they have no
* A. Rochester, Labour and Coal, p. 11, International Publishers, New York,

1931.
147
money with which to buy these commodities. And under capitalism a need
for a commodity has meaning only when it is a need for which payment can
be made. The demand for bread, coal, etc., during the crisis is tremendous,
but the demand for which payment can be made is small because of the im-
poverishment of the masses of the people, because of the desperate poverty
of the unemployed. This is the glaring contradiction which attains gigantic
proportions in times of crisis.
Capitalist crises are crises of overproduction. So many commodities are
produced that under conditions of the exploiting capitalist system, which
limits the purchasing power of the broad masses, they can find no market.
What is the root cause of crises under capitalism?
Why are crises inevitable under capitalism?
Under commodity production the individual producers are connected.
But the connection is a spontaneous one. The blind forces of the market hold
sway over each individual producer. Under such a system a total discrepancy
between what is produced and what is needed is always possible. The pro-
duction of commodities in itself already opens up the possibility for the ad-
vent of crises, for the complete disorganization and disruption of the process
of reproduction.
Under simple commodity production, however, crises although possible
are not unavoidable. The inevitability of crises arises only with capitalism.
Only the contradictions inherent in capitalism make repeated (periodic) cri-
ses of overproduction inevitable.
As we have seen, capitalism leads to a broadening of the social character
of labour, merging the diverse labour of individual workers into a single
stream. At the same time, the products of this united labour of many thou-
sands and millions of workers find themselves at the complete disposal of a
small group of capitalists, who dictate the entire fate of industry,
“All production thus merges into one social production process,
whereas each enterprise is managed by a separate capitalist, depend-
ing on his arbitrary decisions, making the social products his private
property. Is it not clear then that this form of production comes into
irreconcilable contradiction with the form of appropriation?”*
It is this fundamental contradiction of capitalism – contradiction be-
tween the social character of production and the private character of appro-
priation – that makes crises inevitable under capitalism. And it is this con-
tradiction that stands out most sharply and clearly during crises.
This contradiction inevitably leads to a point where the masses of com-
* Lenin, Collected Works, Vol. I, “What the ‘Friends of the People’ Are and
How They Fight Against the Social-Democrats,” p. 92, Russian ed.
148
modities produced find no market. It is not because no one is in need of food
or clothing that they find no market; on the contrary, under capitalism the
number of those in desperate need of the bare necessities of life is tremendous.
The trouble is that the masses of the workers who stand in need of these ne-
cessities have no means of obtaining them. The market is curtailed, plants and
factories cannot get rid of their products, overproduction overtakes one branch
of industry after another. The warehouses are full of finished products, the
factories cut down production, many enterprises close altogether, the workers
are thrown out onto the streets. The growth of unemployment cuts down the
consumption of goods by the working class even more, cuts down the demand
for commodities. Tremendous masses of workers starving while the ware-
houses are full – this is the picture of capitalist crises.
Describing the devastating crisis of 1901, Lenin wrote about capitalist
crises as follows:
“Capitalist production cannot develop otherwise than in leaps –
two steps forward and one step (and sometimes two) back. As we
have already observed, capitalist production is production for sale,
the production of commodities for the market. Production is carried
on by individual capitalists, each producing on his own, and none of
them can say exactly what kind of commodities, and in what quanti-
ties, are required on the market. Production is carried on haphaz-
ardly; each producer is concerned only in excelling the others. Quite
naturally, therefore, the quantity of commodities produced may not
correspond to the demand on the market. The probability of this be-
ing the case becomes particularly great when an enormous market is
suddenly opened up in new unexplored and extensive territories.”*
Seeking their own gain, the bourgeoisie develops the production of the
most diverse commodities in a frenzied haste. To the capitalist one kind of
commodity is as good as another, so long as it gives him more profit. Every
entrepreneur tries to expand production: a greater scope promises greater
profits. It is perfectly clear that in this race for profits, in this struggle of all
against all, those complex conditions which are required for maintaining a
balance between diverse branches are not adhered to.
“Gigantic crashes have become possible and inevitable, only
because powerful social productive forces have become
subordinated to a gang of rich men, whose only concern is to make
profits.”†
* Lenin, Collected Works, Vol. IV, Book I, pp. 171-72, International Publishers,
New York, 1929.
† Ibid., p, 172.
149
Under capitalism, production grows spontaneously. Industry proceeds
planlessly, anarchically. The race for profits evokes a tendency towards an
unlimited expansion of production. However, this tendency meets the im-
passable barriers of capitalist relations. These barriers have their roots in the
fact that the consumption capacity of the broad proletarian masses is limited
because of their exploitation by capital.
“In order that an enterprise may make a profit the goods pro-
duced in it must be sold, a purchaser must be found for them. Now
the purchasers of these goods must be the vast mass of the population,
because these enormous enterprises produce enormous quantities of
goods. But nine-tenths of the population of all capitalist countries are
poor; they consist of workers who receive miserable wages and of
peasants who, in the main, live under even worse conditions than the
workers. Now, when, in the period of a boom, the large industrial en-
terprises set out to produce as large a quantity of goods as possible,
they throw on the market such a huge quantity of these goods that the
majority of the people, being poor, are unable to purchase them all.
The number of machines, tools, warehouses, railroads, etc., continues
to grow. From time to time, however, this process of growth is inter-
rupted because the masses of the people for whom, in the last analy-
sis, these improved instruments of production are intended, remain in
poverty, which verges on beggary.”*
Thus, inherent in capitalism, there is the deepest contradiction between
the colossal growth of production possibilities and the relatively reduced
purchasing power of the working masses. The productive forces tend to
grow without limit. In order to obtain more profits, the capitalists expand
production, improve technical processes, exploit the workers more inten-
sively. The development of credit makes it possible for individual capitalists
to expand production far beyond the limits of their own capital. The constant
trend towards a reduction in the rate of profit, peculiar to capitalism, spurs
each entrepreneur on to greater expansion. But this tendency towards an
unlimited expansion of industry inevitably comes into conflict with the lim-
ited powers of consumption of the broad masses of workers. The growth of
exploitation means not only the growth of production. It also means a reduc-
tion in the purchasing power of the masses, a curtailment of the possibility
of selling commodities. The purchasing power of the masses of workers and
peasants remains at a low level. Hence the inevitability of overproduction
crises under capitalism.
* Ibid., p, 173.
150
Periodicity of crises
Crises accompany capitalism from its earliest beginnings. From the very
outset of capitalist industry, crises shake capitalism at certain definite inter-
vals. Crises were born together with the capitalist system. Over a period of
one hundred years the capitalist world has been shaken by crises every eight
to twelve years. The first general crisis occurred in 1825. Then there were
recurrent crises in 1836, 1847, 1857, 1873, 1890, 1900, 1907. Beginning
with 1847, crises began to embrace not one country alone but all countries
where capitalism was developed.
As can be seen by this series of crises, they occur at definite intervals
throughout the entire development of capitalism. Capitalist crises are distin-
guished by their periodicity (i.e., they occur at regular intervals of time).
Between one crisis and another, capitalist industry passes through a certain
circle or, as it is called, cycle. In the period before the imperialist war, crises
usually gave place to depression, then this depression passed over into a
moderate revival; the revival in turn gave place to a period of prosperity
when expansion and the race for profits reached their highest point. Then a
crisis came and the cycle was begun anew.
Engels thus describes the process of development of capitalist economy
from crisis to crisis:
“...since 1825, when the first general crisis broke out, the whole
industrial and commercial world, the production and exchange of all
civilized peoples and of their more or less barbarian dependent peo-
ples have been dislocated practically once in every ten years. Trade
comes to a standstill, the markets are glutted, the products lie in
great masses, unsaleable, ready money disappears, credit vanishes,
the factories are idle, the working masses go short of food because
they have produced too much food, bankruptcy follows upon bank-
ruptcy, forced sale upon forced sale. The stagnation lasts for years,
both productive forces and products are squandered and destroyed
on a large scale, until the accumulated masses of commodities are at
last disposed of at a more or less considerable depreciation, until
production and exchange gradually begin to move again. By de-
grees the pace quickens; it becomes a trot; the industrial trot passes
into a gallop, and the gallop in turn passes into the mad onrush of a
complete industrial, commercial, credit and speculative steeple-
chase, only to land again in the end, after the most breakneck jumps
– in the ditch of a crash. And so on again and again....
“In these crises, the contradiction between social production
and capitalist appropriation comes to a violent explosion. The
circulation of commodities is for the moment reduced to nothing;
the means of circulation, money, becomes an obstacle to circulation;
151
all the laws of commodity production and commodity circulation
are turned upside down. The economic collision has reached its
culminating point: the mode of production rebels against the mode
of exchange....” *
The causes of the regular appearance of crises are rooted, as we have al-
ready seen, in the fundamental contradiction of capitalism – the contradic-
tion between the social character of labour and the private character of ap-
propriation. Once the crisis has appeared and devastated the economic life of
the country, a certain stimulus is necessary for the transition from depression
to revival. Such a stimulus for the revival of the basic industries producing
means of production is the re-equipment of enterprises. After the crisis
plants and factories need new, improved equipment. They order machinery
and this creates a wave of demand whose vibrations reach the most remote
industries. It can be considered that the equipment of an enterprise serves for
approximately ten years. Thus it is necessary to renew the fixed capital of an
enterprise approximately every ten years. Therefore about every ten years
industry receives the stimulus created by the necessity for renewing the
equipment of enterprises.
This picture changes in the post-war period. Capitalism now lives
through a decline, it decays while it is still alive. Now a crisis shakes its
foundations incomparably more violently than previously. The former cycli-
cal development of industry is shattered.
In many countries there has been no rise in industry at all, in others there
was a slight rise for a short time. On the other hand, the decline during the
present crisis was exceedingly great.
The significance of crises
Crises are of great significance in the entire process of capitalist devel-
opment. In times of crisis the inability of capitalism to cope with the forces
which are called to life by capitalism itself is clearly manifest. The anarchy
and the confusion of capitalist production and reproduction are revealed
with particular clarity. The crisis further reveals the predatory nature of
capitalism, which allows the greatest wealth to perish while even the most
essential needs of the broad masses of the people are left unsatisfied.
“The crisis shows that modern society can produce immeasura-
bly more goods than it does, which could be used to improve the
conditions of life of the whole of the toiling people, if the land, fac-
tories, machines, etc., did not belong to a handful of private owners,
who extract millions of profits out of the poverty of the people.”†
* Engels, Herr Eugen Dühring’s Revolution in Science, pp. 309-10.

† Lenin, Collected Works, Vol. IV, Book I, p. 166.
152
The crisis sharpens class contradictions, aggravating the conditions of
the workers and increasing unemployment to a tremendous degree. The cri-
sis compels very many workers, who formerly tended to be at peace with or
indifferent to capitalism, to become active in the struggle against it. The cri-
sis lays bare all the contradictions of capitalism and shows the inevitability
of its destruction.
Under the circumstances of the present crisis the Social-Democrats en-
ergetically develop the traitorous theory that the crisis hampers the revolu-
tionary struggle of the proletariat and predestines it to failure. Trotsky joins
his voice to this chorus of the Social-Democrats. The “Left” Social-
Democrats have invented a special theory that the circumstances of the crisis
create not a revolutionary but a counter-revolutionary situation. Therefore,
they say, the working class can only conduct a defensive but not an offen-
sive struggle!
It is easy to grasp the full, traitorous import of such counter revolution-
ary inventions. The crisis sharpens all the contradictions of capitalism to the
utmost. It is in just such circumstances that the Social-Democrats come out
as “healers” at the bedside of sick capitalism. They proclaim their task to be,
not to help in burying capitalism, but to help in “curing” it. Paralysing the
revolutionary energy of the workers they thus open wide the door for the
victory of fascism, as was clearly demonstrated in Germany.
Crises glaringly show the deep contradiction inherent in capitalism be-
tween the productive forces and the production relations, a contradiction
which is dragging capitalism to its inevitable destruction.
This role of crises is characterized by Engels as follows:
“The fact that the social organization of production within the
factory has developed to the point at which it has become incom-
patible with the anarchy of production in society which exists
alongside it and above it – this fact is made palpable to the capital-
ists themselves by the violent concentration of capitals which takes
place during crises through the ruin of many big and even more
small capitalists. The whole mechanism of the capitalist mode of
production breaks down under the pressure of the productive forces
which it itself created. It is no longer able to transform the whole of
this mass of means of production into capital; they lie idle and for
this very reason the industrial reserve army must also lie idle.
Means of production, means of subsistence, available labourers, all
the elements of production and of general wealth are there in abun-
dance. But ‘abundance becomes the source of distress and want’
(Fourier), because it is precisely abundance that prevents the con-
version of the means of production and subsistence into capital. For
in capitalist society the means of production cannot function unless
153
they first have been converted into capital, into means for the ex-
ploitation of human labour power. The necessity for the means of
production and subsistence to take on the form of capital stands like
a ghost between them and the workers. It alone prevents the coming
together of the material and personal levers of production; it alone
forbids the means of production to function, the workers to work
and to live. Thus, on the one hand, the capitalist mode of production
stands convicted of its own incapacity any longer to control these
productive forces. And, on the other hand, these productive forces
themselves press forward with increasing force to put an end to the
contradiction, to rid themselves of their character as capital, to the
actual recognition of their character as social productive forces.”*
In the Communist Manifesto there is the following clear characterization
of the role of crises in capitalist production:
“Modern bourgeois society with its relations of production, of
exchange and of property, a society that has conjured up such gi-
gantic means of production and exchange, is like the sorcerer who is
no longer able to control the powers of the nether world whom he
has called up by his spells. For many a decade past the history of
industry and commerce is but the history of the revolt of modern
productive forces against modern conditions of production, against
the property relations that are the conditions for the existence of the
bourgeoisie and of its rule. It is enough to mention the commercial
crises that by their periodical return put the existence of the entire
bourgeois society on its trial, each time more threateningly. In these
crises a great part not only of the existing products but also of the
previously created productive forces are periodically destroyed. In
these crises there breaks out an epidemic that, in all earlier epochs,
would have seemed an absurdity – the epidemic of over-production.
Society suddenly finds itself put back into a state of momentary
barbarism; it appears as if a famine, a universal war of devastation
had cut off the supply of every means of subsistence; industry and
commerce seem to be destroyed. And why? Because there is too
much civilization, too much means of subsistence, too much indus-
try, too much commerce. The productive forces at the disposal of
society no longer tend to further the development of the conditions
of bourgeois property; on the contrary, they have become too pow-
erful for these conditions, by which they are fettered, and so soon as
they overcome these fetters, they bring disorder into the whole of
* Engels, Herr Eugen Dühring’s Revolution in Science, pp. 310-11.

154
bourgeois society, endanger the existence of bourgeois property.
The conditions of bourgeois society are too narrow to comprise the
wealth created by them. And how does the bourgeoisie get over
these crises? On the one hand, by enforced destruction of a mass of
productive forces; on the other, by the conquest of new markets and
by the more thorough exploitation of the old ones. That is to say, by
paving the way for more extensive and more destructive crises and
by diminishing the means whereby crises are prevented.” *
REVIEW QUESTIONS
1. What is reproduction?
2. What are the conditions for simple reproduction?
3. What are the conditions for extended reproduction?
4. How are concentration and centralization of capital explained?
5. What is the difference between concentration and centralization of capi-
tal?
6. What are the causes of capitalist crises?
7. Of what significance are crises for the working class?
8. How can one explain the periodic repetition of crises?
* The Communist Manifesto, p. 21, Moscow, 1933.

155
CHAPTER IX
Imperialism – the Eve of the Socialist Revolution of the Proletariat
From industrial capitalism to imperialism
During the nineteenth century, capitalism developed and spread from
country to country until it embraced the whole world. Together with the
growth of capitalism its harrowing contradictions steadily became more pro-
nounced and greater. During this period industrial capital was at the head of
capitalist development. That is why we call this period the epoch of indus-
trial capital or industrial capitalism.
The growth and development of the fundamental contradictions of in-
dustrial capitalism brought about a new stage in the development of capital-
ism – imperialism. Imperialism as a new and higher stage in the develop-
ment of capitalism appeared at the beginning of the twentieth century. Under
imperialism all the fundamental contradictions of capitalism are sharpened
to the utmost. Imperialism is the last stage of capitalist development. Imperi-
alism is moribund capitalism. Under imperialism the capitalist system be-
comes a hindrance to the further development of society.
The teaching of Lenin on imperialism
Lenin’s teaching on imperialism is a sharp weapon in the hands of the
proletariat in its revolutionary struggle for socialism. Lenin showed that im-
perialism is moribund capitalism, that imperialism is the eve of the S0Cialist
revolution of the proletariat.
In his work on the foundations of Leninism, Stalin points out that Marx
and Engels lived and fought at a time when imperialism had not yet devel-
oped, in a period of the preparation of the proletariat for revolution, whereas
Lenin’s revolutionary activity was effected within the period of developed
imperialism, the period of the unfolding proletarian revolution. Leninism is
the further development of Marxism under new conditions, under the condi-
tions of the epoch of imperialism and proletarian revolutions. It follows,
therefore, that at this time one cannot be a Marxist without being a Leninist.
It also follows that to deny the Leninist theory of imperialism is to break
away entirely from Marxism. It is clear from this that any distortion or mis-
take in the theory of imperialism inevitably means a break with revolution-
ary Marxism-Leninism.
Lenin analysed imperialism as a special stage in the development of
capitalism, as a new stage in capitalist development, as a distinct historical
epoch conditioned by radical changes in the field of economics. Lenin con-
sidered as most important those changes which have taken place in the field
of capitalist production and which distinguish the epoch of imperialism from
the previous epoch of industrial capitalism. In this Lenin based himself on
those laws of the development of capitalism which were discovered by
156
IMPERIALISM – THE EVE OF THE SOCIALIST REVOLUTION
Marx, and indicated how those laws act in the new epoch.
Lenin pointed out all the peculiarities that distinguish this new epoch,
which is the epoch of decaying and dying capitalism and the eve of the so-
cialist revolution. Imperialism inevitably brings devastating wars and the
general crisis of the entire capitalist system.
“Imperialism emerged as the development and direct continua-
tion of the fundamental attributes of capitalism in general.”*
Imperialism is a new stage in the development of capitalism, but this
new stage is the direct continuation of the previous stage – the epoch of in-
dustrial capitalism. The fundamental and decisive contradictions inherent in
industrial capitalism – the contradiction between the bourgeoisie and the
proletariat, the struggle within the capitalist camp, anarchy of production,
crises – not only do not disappear with imperialism, but on the contrary, they
attain their utmost acuteness.
The idea that imperialism has absolutely nothing in common with the
previous era of industrial capitalism is a crass error. Such a view (the so-
called “theory of pure imperialism”) was propounded by Bukharin and sev-
eral of his adherents during the years of the imperialist war. In spite of the
seeming “Leftism” of this theory (the peculiar nature of imperialism is very
much stressed), it leads in practice to completely opportunist conclusions
both with respect to modern capitalism and with respect to the transition to
socialism.
Lenin evolved his theory of imperialism in a process of unceasing, unre-
lenting struggle against all kinds of bourgeois and petty-bourgeois views on
this question, in a ruthless struggle against all kinds of opportunist distor-
tions and misinterpretations of Marxism on the question of imperialism. The
Leninist theory of imperialism is inseparably bound up with the Leninist
teaching on the proletarian revolution. Anti-Leninist views on questions of
imperialism, on the other hand, are most intimately connected with counter-
revolutionary political positions. All distortions and errors in the interpreta-
tion of the Leninist theory of imperialism inevitably lead to opportunist
views.
Lenin begins his analysis of imperialism with an investigation of the
process of concentration of production, which brings with it the rule of mo-
nopolies. Carefully tracing the steps of the capitalist development of the last
epoch, Lenin reaches the conclusion that this period can be characterized,
primarily, by the fact that the previously predominant, free competition is
replaced by the rule of capitalist monopoly which sharpens the contradic-
tions of capitalism to the utmost.
* Lenin, Imperialism, the Highest Stage of Capitalism, p. 84.

157
Five features of imperialism
Monopoly rule, penetrating the entire economic and political life in
capitalist countries, is the fundamental attribute of imperialism. It is this pre-
dominance of monopoly which lays its ineradicable stamp on all phases of
economic development m the era of imperialism. Lenin gives the following
definition of imperialism, embracing its five fundamental features:
“1) The concentration of production and capital developed to
such a stage that it creates monopolies which play a decisive role in
economic life;
“2) The merging of bank capital with industrial capital, and the
creation, on the basis of ‘finance capital,’ of a financial oligarchy;
“3) The export of capital, which has become extremely impor-
tant, as distinguished from the export of commodities;
“4) The formation of international capitalist monopolies which
share the world among themselves;
“5) The territorial division of the whole world among the great-
est capitalist powers is completed.
“Imperialism is capitalism in that stage of development in
which the domination of monopolies and finance capital has estab-
lished itself; in which the export of capital has acquired pronounced
importance; in which the division of the world among the interna-
tional trusts has begun; in which the partition of all the territories of
the globe among the great capitalist powers has been completed.”*
In another work, Imperialism and the Split in Socialism, Lenin gives the
same list of the most important features of imperialism. In this book, point-
ing out the necessity of defining imperialism as precisely and as fully as pos-
sible, Lenin wrote as follows:
“Imperialism is a particular historic stage of capitalism. Its spe-
cial character is threefold: imperialism is 1) monopoly capitalism;
2) parasitic, or decaying capitalism; 3) moribund capitalism. The
substitution of monopoly for free competition is the fundamental
economic feature, the quintessence of imperialism. Monopoly mani-
fests itself in five main forms: 1) cartels, syndicates and trusts; the
concentration of production having reached the stage which gives
rise to these monopolistic combinations of capitalists; 2) the mo-
nopolistic position of big banks: three to five gigantic banks ma-
nipulate the whole economic life of America, France, Germany; 3)
usurpation of the sources of raw material by the trusts and the fi-
nancial oligarchy (finance capital is monopolistic industrial capital
* Ibid., p. 85.
158
merged with bank capital); 4) the (economic) partition of the world
among the international cartels has begun. The international cartels
which dominate the whole world market, dividing it ‘amicably’
among themselves – until war brings about a redistribution – al-
ready number over one hundred! The export of capital, a specifi-
cally characteristic phenomenon distinct from export of commodi-
ties under non-monopoly capitalism, is closely bound up with the
economic and territorial political partition of the world; 5) the terri-
torial partition of the world (colonies) is completed.”*
The domination of monopoly
We already know that one of the most important laws of capitalism is
the law of the concentration and centralization of capital. The development
of capitalism leads to the ruin of small-scale production and to the triumph
of the large enterprises. In the process of competition the strong crushes the
weak. In the competitive struggle all the advantages are on the side of the
large enterprises. They take advantage of all the achievements of technical
science, which are beyond the means of their weaker competitors.
The triumph of large-scale production, the concentration and centraliza-
tion of capital inevitably lead, at a definite stage of development, to monop-
oly. Monopoly is an agreement between, or union of, capitalists in whose
hands the overwhelming part of the production of certain commodities is
concentrated. It is easy to see the tremendous advantages of such a combina-
tion for the capitalists. As the entire production (or the overwhelming part)
of a given commodity is in their hands exclusively, they can increase their
profits tremendously by raising the price of this commodity. It is understood
that such a combination is possible only when the greater part of production
is concentrated in the hands of a small number of the biggest capitalists.
Already at the beginning of the twentieth century the concentration of
production in a comparatively small number of large enterprises had gone
very far in most capitalist countries. Of course, in every country there are to
this very day medium and small enterprises which employ a small number of
workers and produce small quantities of products. But the decisive role is
played by the biggest plants and factories which exploit thousands of work-
ers, possess the greater part of the mechanical power and use tremendous
amounts of electrical energy. These gigantic enterprises, putting out an
enormous amount of commodities, occupy dominating positions. Thus in the
U.S.A., for example, at the beginning of the present century almost half of
the entire industrial production was already concentrated in about three
thousand of the largest enterprises. These three thousand giant enterprises
* Lenin, Collected Works, Vol. XIX, “Imperialism and the Split in Socialism,”
p. 301, Russian ed.
159
represented numerically only one-hundredth part of the entire number of
industrial enterprises. It is clear that the other ninety-nine hundredths are
represented by petty, scattered enterprises which are entirely unable to con-
tend with the small number of huge enterprises.
The joint stock company form of enterprise greatly helped the trium-
phant progress of big capital. Previously, plants and factories were estab-
lished by individual entrepreneurs. Individual capitalists owned their enter-
prises, managed them and pocketed the profits. However, some enterprises
which needed particularly large expenditures of capital – railroad building,
for instance – proved more than an individual capitalist could manage; for
such purposes joint stock companies were formed. In a stock company the
capital of many owners is joined. Every capitalist gets a definite block of
stock corresponding to the amount of capital he has invested. Formally, the
general meeting of stockholders decides on all fundamental questions, but in
practice a small group of the biggest stockholders is in full control. Since the
number of votes cast at the general meeting depends on the amount of stock
owned, the small shareholders cannot influence the management of the busi-
ness. It is sufficient to own from 30 to 40 per cent of the total stock to be in
control of a stock company. Thus the stock company is a form of organiza-
tion in which big capital subjects to itself and uses for its own ends the ac-
cumulated means of small and medium capitalists and to some extent even
the savings of the upper strata of office employees and workers.
In modern capitalist countries the vast majority of large enterprises are
stock companies. Stock companies stimulate the rapid centralization of capi-
tal and the expansion of enterprises. Stock companies build gigantic enter-
prises such as are beyond the possibility of individual capitalists. Modern
railroads, mines, metallurgical plants, the large automobile plants, steamship
lines – all these would be impossible without stock companies.
Helping to enlarge enterprises, stock companies prepare the ground for
monopoly corporations. Monopoly organizations first arise in the decisive
and basic industries – in heavy industry. In this field the progress of large-
scale production is particularly rapid, and here concentration proceeds apace.
Oil wells, coal mines, iron mines, iron and steel foundries are concentrated
in the hands of a small number of enterprises in every country. Competition
among these giants assumes a particularly fierce character. The free exit of
capital from these fields is exceedingly difficult. Every such undertaking
requires tremendous expenditures of capital on buildings, equipment, huge
machines. The utilization of this capital for the production of other com-
modities at disadvantageous prices is impossible. Crises are felt most keenly
by heavy industry. During crises the demand for machinery, iron and coal
falls faster than the demand for consumers’ goods. Every curtailment of pro-
duction hits heavy industry hard: million dollar plants stand idle for lack of
orders, the cost of production rises tremendously. Heavy industry is the first
160
to fall under the power of monopoly. At the same time, having swallowed
heavy industry, monopoly reaches out for the light industries also, subjugat-
ing them one after another.
Cartels, syndicates, trusts
Capitalist associations vary in form. At first there are short term agree-
ments of a fortuitous nature on prices. These only pave the road for longer
term agreements of all kinds.
There are cases when separate undertakings come to an agreement to
maintain prices at a certain level. In this case each enterprise remains abso-
lutely independent. It only undertakes not to lower its prices beyond certain
limits in order not to affect adversely the other enterprises in the same field
through competition. Such associations are called cartels.
Closer contact among enterprises is established when they unite in syn-
dicates. Here the enterprises lose their commercial independence: the sale of
finished products and sometimes even the purchase of raw material pass
through the hands of the general office of the syndicate. Every enterprise
carries on its production independently, only now it already has a set quota,
limiting the quantity of commodities it can produce. This quota is set by the
syndicate.
Even closer is the connection in the trust. Here the separate organiza-
tions merge completely. The owners of the individual enterprises become
shareholders in the trust. All the enterprises embraced by the trust have one
general management.
Vertical combinations
The merging of individual enterprises connected in any way in the proc-
ess of production assumes a continually greater role. Thus, for instance, a
metallurgical plant merges with a coal-mining enterprise which furnishes it
with coal and coke. Further, this metallurgical and coal-mining enterprise
often merges with a machine-building enterprise where locomotives or other
machines are built. Such a merger is called a vertical combination.
The development of monopolies spurs many capitalists on to form com-
bined enterprises. Let us assume that the coal-mining companies have
formed a syndicate and raised the price of coal and coke. Metallurgy needs a
great amount of both products. Many owners of metallurgical plants will, in
such a case, try to obtain their own mines and coke ovens. Thus they avoid
high payments to the syndicated coal industry and obtain the opportunity of
making tremendous super-profits.
Corporations
The spread of the stockholding form of enterprise often brings about a
close connection between separate enterprises. A complicated interlocking
of interests of different enterprises is created, by which one enterprise is
161
linked up in some way with another, which in its turn is connected with a
third, and so on. The active participation and interference of banks in indus-
try greatly strengthens the spread of such financial connections among
whole groups of enterprises.
It is particularly worth noting those cases in which some powerful group
of capitalists buys up a large share of the stock of some enterprise. We have
already pointed out that it is sufficient to own a third of the stock of a com-
pany to be in complete control of it. Owning such a number of shares (or, as
it is called, the controlling interest), the group of capitalists subjects to its
own influence one stock company after another. This absorption of individ-
ual enterprises into the sphere of influence and action of the kings of big
capital takes place everywhere, and the forms this process takes are most
diversified.
Usually, such forms of closely linking together separate enterprises on
the basis of their financial interdependence is called incorporation, and the
groups thus formed are called corporations.
Monopoly and competition
The substitution of capitalist monopolies for free competition is a fun-
damental attribute of the imperialist epoch. Even in his time Marx pointed
out that free competition inevitably leads to the rise and domination of mo-
nopolies. But monopoly tries to destroy free competition. Monopolists try to
gain control of the entire production of a commodity. The monopolist situa-
tion opens up unwonted opportunities for enrichment to the capitalists, at the
expense of an increased exploitation of the broad masses of workers.
The creation and growth of monopolies does not abolish competition
among capitalists but, on the contrary, makes it even sharper and fiercer. If,
formerly, with free competition many separate capitalists fought with one
another, now, powerful unions of capitalists enter the fight – group against
group. The monopolists wage desperate battle against those enterprises (the
so-called “wild” ones) that do not want to enter into alliance with them. In
the struggle, all manner of underhand methods are used, even to the point of
blowing up rival enterprises. Further, when the monopolists raise the price of
their commodity it arouses fierce resistance in those branches of industry
which are the consumers and purchasers of this commodity. When the coal
syndicate raises the price of coal, this evokes the resistance of all those own-
ers of plants and factories who use coal in their business. Many try to substi-
tute other fuel for coal, for instance peat or oil, or go over to the use of elec-
tric power. The metallurgical industry which uses a, particularly great
amount of coal and coke will attempt to obtain its own coal mines. A strug-
gle to the death develops among whole branches of industry. The more con-
centrated an industry, the greater the role of monopoly in it – the more furi-
ous this struggle.
162
A bitter struggle develops within the monopolist association. The com-
petitors and rivals of yesterday, united in a cartel, syndicate or trust, continue
to struggle among themselves by other means. Everyone tries to grab a big-
ger share of the common monopolist gains for himself. The struggle within
the monopoly is most frequently conducted in great secrecy and only in par-
ticularly severe cases does it break out openly.
We thus see that not only does competition give birth to monopoly but
that monopoly, in its turn, gives birth to competition, strengthening and
sharpening it to extreme limits.
“Free competition is the fundamental attribute of capitalism,
and of commodity production generally. Monopoly is exactly the
opposite of free competition; but we have seen the latter being
transformed into monopoly before our very eyes, creating large-
scale industry and eliminating small-scale industry, replacing large-
scale industry by still larger-scale industry, finally leading to such a
concentration of production and capital that monopoly has been and
is the result: cartels, syndicates and trusts, and merging with them a
dozen or so banks manipulating thousands of millions. At the same
time, monopoly, which has grown out of free competition, does not
abolish the latter, but exists alongside it and hovers over it, as it
were, and, as a result, gives rise to a number of very acute antago-
nisms, frictions and conflicts.”*
Imperialism as monopoly capitalism
Lenin time and again emphasized that the replacement of free competi-
tion by the dominance of monopoly, which does not mean the abolition of
competition, but which, on the contrary, is a condition for its extreme sharp-
ening, is the most important attribute of the epoch of imperialism. Lenin
constantly pointed out that imperialism is monopoly capitalism. Monopoly
is, in the words of Lenin, the last word of the latest phase in capitalist devel-
opment. The substitution of monopoly for free competition is a fundamental
economic trait, the essence of imperialism, Lenin says. In his work on impe-
rialism, Lenin, in characterizing imperialism as a special stage of capitalism,
writes:
“If it were necessary to give the briefest possible definition of
imperialism, then we should have to say that imperialism is the mo-
nopoly stage of capitalism. Such a definition would include what is
most important, for, on the one hand, finance capital is bank capital
of the few big monopolist banks, merged with the capital of the mo-
nopolist combines of manufacturers; and, on the other hand, the di-

163
vision of the world is a transition from a colonial policy, which has
extended without hindrance to territories unoccupied by any capital-
ist power, to a colonial policy of monopolistic possession of the ter-
ritories of the world which have been completely divided up.”*
Elsewhere Lenin points out:
“Imperialism (or the ‘epoch’ of finance capital – we will not ar-
gue about words) is, economically speaking, the highest stage in the
development of capitalism, namely, the stage when production is
carried on on so large a scale that free competition is superseded by
monopoly. This is the economic essence of imperialism. Monopoly
manifests itself in trusts, syndicates, etc., in the omnipotence of gi-
gantic banks, in the cornering of the sources of raw material, etc., in
the concentration of bank capital, etc. The whole point lies in eco-
nomic monopoly.”†
Here the radical difference in the approach to the study of imperialism
by Lenin, on the other hand, and the Social-Democratic theoretician of impe-
rialism, Hilferding, on the other, is disclosed. Hilferding puts foremost not
those changes which have taken place in the field of the industrial structure
of the latest capitalism, but those changes which are taking place in the field
of circulation – first of all, in the field of credit, in banking spheres. In this
the exchange conception characteristic of Hilferding’s falsification of Marx
is apparent. Instead of the primacy, i.e., predominance, decisive importance,
of production he puts the primacy of circulation. The exchange concept is
very characteristic of Social-Democratic theoreticians. The exchange con-
cept, together with a number of mistakes in the theory of value, money and
crises connected with it, led Hilferding, even before the war, to the oppor-
tunist conclusions noted by Lenin. In pre-war times Hilferding depicted
things in such a light as if gaining control of six of the largest Berlin banks
was sufficient to make one master of the entire country. Such a way of pre-
senting the question veils the necessity of a prolonged revolutionary struggle
of the proletariat for power, for establishing and entrenching its dictatorship,
for mastering production, for organizing production in both industry and
agriculture. Such a way of putting the question masks the necessity of over-
coming the fierce resistance which the bourgeoisie puts up against the victo-
rious proletariat at every step. After the war, Hilferding, as one of the most
shameless leaders of counter-revolutionary Social-Democracy, developed
the traitorous theory of organized capitalism. This theory of organized capi-
* Ibid., pp. 84-5.

† Lenin, Collected Works, Vol. XVIII, “The United States of Europe Slogan,” p.
232, Russian ed.
164
talism is the official doctrine of modern Social-Democracy. It represents a
further development of the same ideas that lay in the exchange concept. We
shall return to this theory of organized capitalism in greater detail further on.
Monopoly associations in the most important countries
Monopoly associations spread most rapidly in America; that is why it is
called the “land of trusts.” At the beginning of the present century, American
trusts had already concentrated in their hands the greater part of production.
Thus the oil trust had in its hands 95 per cent of the entire oil production;
utilizing its monopolist position the oil trust increased its profits from 5 per
cent in 1882 to 42 per cent at the beginning of this century. The chemical
trust unites 81 per cent of the production of its industry; the lead trust 85 per
cent, and so on. The United States Steel Corporation is one of the most pow-
erful organizations of capital in the world. It has increased its capital from
$1,500,000,000 dollars in 1902 to $2,500,000,000 in 1929 and has 147
plants. Up to the crisis it produced 16,000,000 tons of pig iron and
20,000,000 tons of steel, which represented 40 per cent of the entire produc-
tion of these products in the U.S.A. There were 276,000 people working in
the enterprises of this corporation. Approximately the same number of peo-
ple was employed by another trust, the American Telegraph and Telephone
Company, which has control of 80-85 per cent of all the telegraph and tele-
phone communication in the country. Three-quarters of the steel production
in the U.S.A. is concentrated in the hands of three gigantic trusts. In the elec-
trical industry one trust (the General Electric Company) occupies a dominant
position. In the sugar and tobacco industries 80 per cent of the production is
concentrated in the hands of the corresponding trusts.
The American oil trust commands a capital of over $1,000,000,000.
There are altogether a score of companies in the automobile industry, and of
these the five largest have control of three-fourths of the production in their
industry.
Of these in their turn there are two firms conducting a fierce struggle
with each other. These are the well-known Ford Company and its rival, the
General Motors Corporation. Ford commands a capital of over
$1,000,000,000; General Motors Corporation – $1,500,000,000. Its gross
income from the sale of automobiles in 1926 amounted to $1,000,000,000,
that of Ford to $750,000,000. Its net profits were $180,000,000, that of Ford
$100,000,000.
The tremendous network of railroads in America is owned by a small
group of billionaires. In 1927 the Morgan banking group had control of
35,000 kilometres of railroad tracks, valued at $3,500,000,000.
American banks are most closely connected with industry. The banks
have a tremendous number of enterprises under their influence and control.
Thus it is estimated that the Morgan group of banks controls enterprises rep-
165
resenting a total capital of $74,000,000,000.
Under the blows of the crisis even the most gigantic monopolist con-
cerns crack. It is enough to point out that the Ford plants, which before the
crisis employed 120,000 men, in the autumn of 1932 employed no more than
15,000. Other giants of monopoly capital were in a similar position. A num-
ber of the largest trusts failed altogether, like the Kreuger Match Trust. The
British oil king, Deterding, who is continually trying to instigate intervention
against the U.S.S.R., was faced with great difficulties.
In Germany, before the war the Steel Union had nine-tenths of the entire
steel production under its control; in the coal industry, the Rhenish West-
phalian Coal Syndicate at the time of its organization had control of 87 per
cent (and later 95 per cent) of the coal production in this coal region, which
is the richest in Germany.
In post-war years the Stinnes Corporation in Germany was much talked
about. Stinnes accumulated a tremendous fortune on war supplies during the
war. After the war, taking advantage of the inflation of the mark, he bought
up all kinds of enterprises for almost nothing: coal mines, electrical supplies
factories, telegraph agencies and banks, paper mills and steamship lines,
metallurgical plants and newspapers. As soon as the mark was stabilized this
gigantic concern, employing hundreds of thousands of workers, fell to
pieces.
A new wave of concentration and the creation of tremendous monopoly
associations rose in Germany in post-war years. By the end of 1928 two-
thirds of all the stock companies (according to capital invested) were united
in corporations. At about that time also, the two largest trusts in contempo-
rary Germany, the chemical and steel trusts, were formed by mergers. The
chemical trust commanded a capital of 1,200,000,000 marks. In its hands
were concentrated 80 per cent of the dye works and 75 per cent of the nitro-
gen production. The German steel trust commanded a capital of 800,000,000
marks and employed (up to the time of the crisis) over 150,000 workers,
producing about one-half of all the pig iron and steel in Germany.
The same thing is to be observed in other capitalist countries. In Eng-
land and Japan, France and Italy, even in small countries like Belgium or
Sweden – everywhere, command is in the hands of an exceedingly small
number of tremendous monopolist enterprises, managed by a handful of trust
directors.
In tsarist Russia there were also a number of great monopolist combines
of capitalists. The Produgol Syndicate controlled more than half the coal
produced in the Donets Basin. Another syndicate, Prodamet, controlled up to
95 per cent of all the iron sales on the market. One of the oldest syndicates
was the sugar syndicate.
166
Finance capital
The strength and significance of monopolies is vastly increased by the
new role which banks play under imperialism. Banks were at first intermedi-
aries in making payments. As capitalism develops the credit activity of
banks increases. The bank deals in capital. It takes capital from those capi-
talists who cannot for the moment make use of their capital themselves, and
gives capital to those capitalists who need it at the moment. The bank col-
lects all kinds of income and places it at the disposal of the capitalists.
With the development of capitalism, banking establishments, just as in-
dustrial enterprises, unite, their size and turnover continually increase and
they accumulate tremendous amounts of capital. The greater part of this
capital belongs to others, but the bank’s own capital grows apace. The num-
ber of banks becomes less, smaller banks close or are swallowed up by lar-
ger competitors. But the size of banks, the magnitude of their capital, in-
creases. It is sufficient to give the following example. From 1890 to 1912 the
number of banks in England decreased from 104 to 44, but their capital in-
creased from £430,000,000 to £850,000,000. Now a bank can no longer
limit its activity to granting short term loans to industrialists when they need
them. In order to utilize the tremendous accumulations of capital the banks
come into closer contact with industry. The bank now invests a certain part
of its deposits directly in industry by granting long term loans for the expan-
sion of production, etc.
The stockholding company gives the bank the most convenient form for
investing its capital in industry. All the bank must do is to obtain a certain
amount of stock in the enterprise. Having gained control even of only one-
third of the total stock the bank acquires complete control of and unlimited
power over the whole enterprise.
Stockholding companies thus serve as links between the banks and in-
dustry. The banks, in their turn, help the growth of stockholding companies,
taking upon themselves the reorganization (reconstruction on new princi-
ples) of privately owned enterprises into stockholding companies and the
establishment of new stockholding companies. The purchase and sale of
stock takes place more and more through the medium of banks.
The law of concentration and centralization is manifested with particular
force in banking. In the biggest capitalist countries from three to five of the
largest banks control the entire network of banks. The other banks are either
practically subsidiaries of those giants, their independence a mere outward
show, or they play an entirely insignificant role. Those giant banks are
closely welded to the monopolist industrial associations. A merging or fu-
sion of bank and industrial capital is taking place. Bank capital fused to-
gether with industrial capital is called finance capital. The amalgamation of
bank capital with industrial monopolies is one of the distinctive attributes of
imperialism. That is why imperialism is called the epoch of finance capital.
167
The growth of monopoly and the growth of finance capital put the entire
fate of the capitalist world in the hands of a small group of the biggest capi-
talists. The merging of bank capital with industrial capital brings about a
situation where the biggest bankers begin to manage industry and the biggest
industrialists are admitted into the bank directorates. The fate of the entire
economic life of every capitalist country lies in the hands of a numerically
insignificant group of bankers and industrial monopolists. And the arbiter of
economic life is the arbiter of the whole country. Whatever the form of gov-
ernment in bourgeois countries in the epoch of imperialism, practically, a
few uncrowned kings of finance capital have full power. The official state is
only the servant of these capitalist magnates. The solution of the vital prob-
lems in all capitalist countries depends on a small group of the biggest capi-
talists. In their own greedy interests these magnates of capital bring about
great conflicts between entire countries, incite wars, suppress the labour
movements and crush uprisings in the colonies.
With the prevalence of monopoly a handful of people control the lives
of the entire people. One of the leaders of capitalist Germany – the director
of the A.E.G. (General Electric Company), Rathenau, once declared openly:
“Three hundred people who know one another are masters of
the economic destinies of the world and they appoint their own suc-
cessors from among their own numbers.”
It has been estimated, for instance, that in France 50-60 big financiers
are the masters of 108 banks, 105 of the biggest enterprises in heavy indus-
try (i.e., coal, iron, etc.), 101 railroad companies and 107 other most impor-
tant enterprises – 421 in all, of which each one involves hundreds of millions
of francs. The concentration of the preponderating part of the entire wealth
in the hands of an insignificantly small group of men is proceeding at a rapid
rate. Thus in England 38 per cent of the entire wealth of the country is in the
hands of 0.12 per cent of private owners, and less than 2 per cent own 64 per
cent of the wealth of the country. In the U.S.A. approximately 1 per cent
owns 59 per cent of all the country’s wealth.
Export of capital
In the epoch of free competition, world trade develops. Tremendous
quantities of commodities are shipped from one country to another. In the
period of monopoly capitalism the export of capital acquires tremendous
significance.
The fact that export of capital is characteristic of imperialism is closely
connected with the reign of monopoly. Monopolies create an enormous
“surplus” of capital in the older capitalist countries which have had a long
period of capitalist development. Monopolies also cause a curtailment of the
opportunities for investing capital in the home countries. The accumulated
168
monopolist profits tend to flow out of the country in search of opportunities
for profitable investment. Such opportunities for profitable investment are
found in the more backward countries. Wages there are exceedingly low, the
working day exorbitantly long. The sources of raw material have not yet
been completely plundered by the capitalists. The market possibilities are
big – capitalist products push out the products of the small artisan establish-
ments, condemning millions of petty producers to hunger and starvation. But
the monopolies seize the internal market of the country, and foreign capital-
ists find it continually more difficult to sell their commodities there. The
import of commodities is hampered by high tariffs. At the same time the
organization of monopolies leads to a state where the internal market of the
developed capitalist countries becomes continually less able to meet the re-
quirements of the gigantic enterprises for the sale of their commodities. Mo-
nopolies inflate prices, which leads to a restriction of the internal market.
They must continually throw more goods onto the external market. But how
can they sell them there, when these markets are surrounded by high tariff
walls?
Here the export of capital helps. The biggest capitalist enterprises export
part of their capital. They organize their own branches abroad. They build
plants and factories there, thus throwing their commodities onto that coun-
try’s internal market.
However, capital is exported not only for the organization of enterprises.
Capital is also exported in the form of various loans by means of which the
richer countries enslave and subject to themselves the more backward
countries.
Before the war, the foreign investments of the three most important
European countries (England, France and Germany) reached colossal pro-
portions: about 100,000,000,000 francs. The income from this capital
reached about 8-10,000,000,000 francs a year.
The significance which the export of capital bears to the imperialist
states is shown by the following data. In 1925 the export of British com-
modities – products of British industries – amounted to £700,000,000, the
profits from this export amounted to about £100,000,000. In the same year,
1925, Great Britain received £420,000,000 in interest on its foreign invest-
ments. This is more than four times the profits received from the export of
goods.
Capital tends to go primarily to backward countries, where labour power
is cheap, industry weak and the market for goods, therefore, still great. At
the beginning of the World War, for instance, foreign capital invested in
Russian industry amounted to more than 2,000,000,000 rubles. So much
French and Belgian capital was invested in the Russian coal industry that the
main office of Produgol, which disposed of the greatest part of Russian coal
(65 per cent), was permanently located in Paris. The German A.E.G. and
169
Siemens Schukert had almost complete control of the Russian electrical and
electrical equipment industries. Tremendous British, American, and Dutch
capital was invested in the oil industry in Russia.
With the export of capital close contact is established between the ex-
porting and importing countries. The country exporting capital is interested
in preserving the existing conditions in the country to which the capital goes.
The French capitalists, for instance, were interested in preserving the tsarist
regime in Russia, which is why they granted the tsar a loan in 1906, thereby
helping materially to crush the first Russian revolution.
With the development of monopoly capitalism the export of capital ac-
quires continually greater proportions and assumes greater significance.
“Under the old type of capitalism when free competition pre-
vailed, the export of goods was the most typical feature. Under
modern capitalism in which monopolies prevail, the export of capi-
tal has become the typical feature.”*
Under imperialism the export of capital comes to the fore. This does not
mean, of course, that the export of goods becomes less or loses its signifi-
cance. The fact of the matter is that the export of capital is closely linked up
with the shipment of tremendous masses of goods. If, for example, Great
Britain exports capital to Argentina, it means that enterprises whose stock is
purchased by British capitalists are organized there. One can be positive that
the greater part of the equipment and machinery for these enterprises will be
imported from England. Or the export of capital may take the following
form. Say Great Britain grants some country a loan, for the money thus ob-
tained the latter country purchases goods in England: material for railroads,
military equipment, etc. Thus we see that the export of capital not only does
not narrow down the export of commodities, but, on the contrary, becomes a
powerful new weapon in the struggle for external markets, in the struggle for
expanding the sale of goods.
Division of the world among unions of capitalists
Syndicates and trusts keep prices up artificially, securing colossal super-
profits for themselves. In order to maintain high prices the monopoly or-
ganizations try to fence their countries off from foreign competition. For this
purpose imperialist governments introduce high tariffs on imported goods.
The tariff frequently amounts to many times more than the value of the
commodity.
Already in 1927 the tariffs amounted, on an average (in percentages of
the value), to 37 per cent in the U.S.A., 20 per cent in Germany, 21 per cent
in France, 15 per cent in Belgium, 29 per cent in Argentina, 41 per cent in

170
Spain, 16 per cent in Austria, 27 per cent in Czechoslovakia, 23 per cent in
Yugoslavia, 27 per cent in Hungary, 32 per cent in Poland, 22 per cent in
Italy, 16 per cent in Sweden. This is the average percentage. Since on a
number of things (as raw material which does not exist in the given country)
the tariff cannot be very high, it must be very much higher on others (pri-
marily industrial products, partly foodstuffs). It was during the last few years
that most countries introduced new increased tariff rates. In the summer of
1930 a new tariff was enacted in the U.S.A. which practically prohibited the
import of a host of commodities. That same year Germany raised the duties
on agricultural products to an unprecedented degree. In this way the East
Prussian landowners got an opportunity to raise prices on their products. It is
the working class that has to pay for all this in the end, as it constitutes the
basic mass of consumers.
Thus the internal market is made entirely dependent on monopoly. But
the internal market is limited. Under imperialism the class contradictions
become more acute and the impoverishment of the masses increases. The
internal market is not capable of assimilating the tremendous quantities of
commodities produced by the huge enterprises. The struggle for foreign
markets comes to the foreground. This struggle proceeds between the armed
states of monopoly capital. Monopoly organizations of giant strength take
part in this struggle. It is clear that it must become continually sharper and
fiercer. It is clear that under imperialism the struggle for markets, together
with the struggle for sources of raw material, for markets for export capital,
for the division of the world, becomes the cause of inevitable armed conflicts
and devastating wars.
The growth of monopolies leads to attempts on the part of monopoly or-
ganizations of various countries to come to an agreement on the question of
the division of markets. When two or three of the largest trusts in different
countries begin to play a decisive role in the world in the production of any
definite commodity, the struggle among them becomes particularly devastat-
ing. Then an attempt at an agreement is inevitable. The agreement usually
provides for a division of markets: every participant in the agreement is as-
signed a number of countries where he can sell his commodities without
encountering the competition of the other participants in the agreement.
Such international cartels existed in several branches of industry even be-
fore the World War. At that time the production of electrical equipment was
concentrated in the hands of two tremendous trusts – American and German
– closely connected with the banks. In 1907 they came to an agreement on
the division of the world: each one had a number of countries put “at its dis-
posal.” An agreement existed before the war between the American and
German steamship companies. There were railroad and zinc syndicates. An
agreement was being negotiated among the oil trusts.
After the World War a number of cartels, were formed embracing several
171
countries in Europe. These were: the steel cartel, cartels embracing the pro-
duction of stone, chemical products, copper, aluminium, radios, wire, artificial
silk, zinc, textiles, enamelware. In most of these cartels France, Germany,
Belgium, Czechoslovakia and Austria participated. Some also included Po-
land, Switzerland, Hungary, Spain and the Scandinavian countries. The world
crisis that began in 1929 had a tremendous disruptive influence on most of
these cartels. The internal contradictions grew and many of these cartels have
either fallen to pieces already or are on the verge of collapse.
It would be a mistake to think that these international monopoly agree-
ments represent a peaceful method of solving the contradictions. Quite the
reverse.
“International cartels show to what point capitalist monopolies
have developed and they reveal the object of the struggle between
the various capitalist groups.”*
International agreements are distinguished by their instability and bear
within themselves the sources of the fiercest conflicts. In the division of
markets each side gets a share in proportion to its strength and power. But
the power of individual trusts changes. Each one carries on a continuous
silent struggle for a bigger share. Changes in the relative strength inevitably
call for a redivision of markets and every redivision leads to the fiercest
struggles. Thus the international monopolies not only do not weaken the
contradictions between imperialist countries, but, on the contrary, are con-
ducive to their extreme sharpening.
Seizure of the colonies and the division of the world
In the epoch of monopoly and finance capital the seizure of the colonies
by capitalist countries is greatly enhanced.
Since ancient times Europeans have brought their commodities to the
colonies and backward countries, charged them triple prices for all kinds of
trash and have themselves taken most of the valuable things out of the colo-
nies. Powerful countries by degrees seized vast territories having large popu-
lations. British imperialists love to brag that “the sun never sets on the Brit-
ish Empire.” And in fact, the possessions of British imperialism are spread
all over the earth so that at any one moment the sun shines on some part of
them. Of the 1,750,000,000 inhabitants of the globe, about 600,000,000 live
in oppressed colonies, and 400,000,000 in semi-colonies (China, Persia,
etc.). Thus more than half of the human race, about a billion people, are in
the power of the great robber nations.
During the decades preceding the World War the division of the world
progressed with particular rapidity. From 1876 to 1914 the so-called “Great
* Lenin, Imperialism, the Highest Stage of Capitalism, pp. 71-2.

172
Powers” seized about 25,000,000 square kilometres of land; they thus
grabbed foreign lands having an area twice that of all Europe. Most of the
land fell to the old robbers – Great Britain and France. The younger robbers
like Germany, Italy, etc., got only the leftovers. All the countries which were
in any way suitable for exploitation had already been seized by others; the
late-comers had to make a feast of the crumbs that fell from the table, or try
to snatch a fat chunk from the teeth of the others.
The fierce struggle for sales markets, for raw material markets, for mar-
kets for capital investments led to the division of the entire world among a
few robbers.
There are no more “free lands.” Imperialist countries can obtain new ter-
ritory in only one way: by snatching some of the plunder from their competi-
tors. The division of the world is completed. Fights between the imperialists
for a redivision of the globe are now inevitable. And such a struggle inevita-
bly leads to armed conflicts, to war.
Dumping
In order to capture foreign markets monopoly organizations usually
widely employ dumping. Dumping is the sale of commodities on foreign mar-
kets at prices considerably below those on the internal market, in many cases
below cost. The sale of commodities in foreign countries at dumping prices is
necessary to the trusts for a number of reasons. Primarily, dumping leads to
the capture of foreign markets. Then the sale of commodities abroad makes it
possible to narrow down the supply within the country, which is necessary in
order to raise and maintain high, monopoly prices. Dumping abroad makes it
possible to curtail sales within the country without correspondingly curtailing
production, which would increase the cost of production.
Dumping is a common occurrence under imperialism. In Germany the
steel trust publishes its prices in the newspapers every month; for every
commodity two prices are given – one for the internal market and the other,
about one-third lower, for export.
The dumping carried on at the present time by Japanese imperialism is
particularly unrestrained. Utilizing the ruthless exploitation of their workers,
the Japanese capitalists are flooding the world market with commodities,
which they sell at throw-away prices. They are not only squeezing European
and American commodities out of China, but they are deluging industrial
countries with their commodities. Thus they export automobiles to America,
sell bicycles at an absurdly low price in Germany, export silk shirts to the
centre of the French silk industry – Lyons.
In old tsarist Russia the sugar syndicate practised the most genuine
dumping. At that time not a single capitalist country raised its voice against
this dumping, but since then the capitalists and their newspapers have fre-
quently raised the cry of “Soviet dumping.” This screaming was only part of
173
the badgering of the Soviet Union and had for its purpose the paving of the
ground for new attacks on the part of the imperialists against the first coun-
try in the world to build socialism. The howling to the effect that “Soviet
dumping” was increasing the crisis in capitalist countries is particularly ri-
diculous. As a matter of fact, very little Soviet goods is exported to capitalist
countries. Soviet export has not even reached its pre-war dimensions. The
Soviet Union does not sell its goods abroad at dumping prices. It exports
commodities not in order to capture foreign markets, but in order to pay for
the goods it needs. The advantages of socialist economy make it possible for
the U.S.S.R. to produce a number of commodities more cheaply than the
capitalists. The October Revolution put an end to the parasites – the land-
lords and capitalists – at the same time eliminating the cost of keeping them
– ground rent and capitalist profits. It is thus perfectly obvious that all talk
about Soviet dumping is the invention of the enemies of the U.S.S.R. and is
particularly absurd because Soviet economy, having left the capitalist path,
has as a consequence also freed itself from the methods of struggle bound up
with it.
The law of uneven development under imperialism
In the capitalist system individual enterprises, individual branches of in-
dustry and individual countries develop unevenly and spasmodically. It is
evident that with the anarchy of production prevailing under capitalism and
the frenzied struggle among the capitalists for profits, it cannot be otherwise.
This unevenness of development is manifested with particular acute-
ness in the epoch of imperialism, and becomes a decisive force, a decisive
law.
“Finance capital and the trusts are aggravating instead of dimin-
ishing the differences in the rate of development of the various parts
of world economy.”*
Imperialism is monopoly capitalism. The rule of monopolies increases
the uneven and spasmodic development of individual countries. Monopoly
associations, on the one hand, open up opportunities for the younger coun-
tries to catch up with and outstrip the older capitalist countries, and on the
other, monopolies have, inherent in them, tendencies towards parasitism,
decay and a retardation of technical progress: under certain conditions mo-
nopolies delay the development of some countries and thus create opportuni-
ties for other countries to forge ahead.
“...Under capitalism the development of different undertakings,
trusts, branches of industry or countries cannot be even. Half a cen-

174
tury ago, Germany was a miserable insignificant country as far as
its capitalist strength was concerned compared with the strength of
England at that time. Japan was similarly insignificant compared
with Russia. Is it ‘conceivable’ that in ten or twenty years’ time the
relative strengths of the imperialist powers will have remained un-
changed? Absolutely inconceivable.”*
The export of capital greatly accelerates the development of some coun-
tries, retarding the further growth of others. Modern technique, the modern
stage of development of productive forces open wide the door of opportunity
for the younger countries: they have the chance of outstripping their older
rivals, of leaping over in a short period of time a series of stages of technical
development that took scores of years in the older countries.
The division of the world is completed under imperialism. A struggle
for a redivision ensues. This impels every imperialist power to strengthen
itself at a feverish rate. Each country tries to surpass its rivals.
The uneven and spasmodic development of individual countries, becom-
ing still more pronounced under imperialism, sharpens the antagonisms be-
tween countries. The law of uneven development makes stable and lasting
international alliances of imperialist powers impossible. The relative
strength of different countries is continually undergoing change, and
changes in the relative strength inevitably lead to all kinds of conflicts.
The Leninist law of uneven development under imperialism is brilliantly
developed in a number of works by Stalin. In the struggle with Trotskyism
which denies the Leninist law of uneven development, Stalin further devel-
oped the teaching of Lenin. Stalin thus sums up this question:
“The law of uneven development in the period of imperialism
means the spasmodic development of one country with respect to
another, the rapid crowding out of some countries by others on the
world market, the periodic redivision of the already divided world
through military conflicts and military catastrophes, the deepening
and sharpening of the conflicts in the camp of imperialism, a weak-
ening in the front of world capitalism, the possibility of this front
being broken by the proletariat of individual countries, the possibil-
ity of the triumph of socialism in individual countries.
“What are the basic elements of the law of uneven development
under imperialism?
“First, the fact that the world has already been divided up
among the imperialist groups, that there are no more ‘free,’ unoccu-
pied territories in the world and that in order to capture new markets
* Ibid., p. 114.
175
and sources of raw material, in order to expand, at is necessary to
take such territory from others by force.
“Secondly, the fact that the unprecedented development of
technique and the increasing uniformity of the level of development
in capitalist countries have enabled and assisted some countries
spasmodically to overtake others, have enabled the less powerful
but rapidly developing countries to crowd out the more powerful
ones.
“Thirdly, the fact that the old division of spheres of influence
between individual imperialist groups is continually coming into
conflict with the new relation of forces on the world market, that for
the establishment of ‘equilibrium’ between the old distribution of
spheres of influence and the new relation of forces, periodic redivi-
sions of the world are necessary by means of imperialist wars.”*
Wars of conquest, inevitable under imperialism, bring about tremendous
changes in the relation of forces between the various nations. The imperialist
war of 1914-18 brought about the smashing of Germany, the parcelling out
of Austria-Hungary and the establishment of a number of new states on its
ruins. The unevenness of development of the various countries is manifested
with particular clarity and explicitness in the post-war years. America gained
most by the war. It profited most from the struggle of the others. Formerly, it
was indebted to other countries, especially, England. Now almost the entire
world, including England, is in debt to America. A number of branches of
industry in America almost doubled production after the war.
Less than 7 per cent of the world’s population is concentrated in the
U.S.A. which occupies about 6 per cent of the earth’s surface. At the same
time, up to the present crisis, 40 per cent of the world’s coal mines, 35 per
cent of hydro-electrical energy, 70 per cent of the oil, 60 per cent of the
world’s wheat and cotton, 55 per cent of the timber for construction pur-
poses, approximately 50 per cent of the iron and copper and about 40 per
cent of the lead and phosphates of the world were produced there. Up to the
time of the crisis, the U.S.A. consumed 42 per cent of-the world’s output of
iron, 47 per cent of the copper, 69 per cent of the oil, 56 per cent of the rub-
ber, 53 per cent of the tin, 48 per cent of the coffee, 21 per cent of the sugar,
72 per cent, of the silk and 80 per cent of the automobiles.
On the other hand, England, which had occupied first place in world
economy before the war, declined rapidly. After the war England became a
usurer-land, and a number of the most important branches of industry, par-
ticularly the coal industry, remained at the same level, while rival countries
forged ahead. The present crisis brought about tremendous changes in the
* Stalin, “Once More on the Social-Democratic Deviations.”

176
relation of forces among the various capitalist robber nations. It hit different
countries with different force. Thus it increased the unevenness of develop-
ment still more. It affected the U.S.A. the most severely. That is why the
United States does not occupy the same place now that it occupied a few
years ago. Then, America was the sole “ideological ruler” of the European
bourgeoisie and its Social-Democratic menials. Now, the crisis has exposed
all the deep contradictions of American capitalism. Not a trace of the much
lauded American “prosperity” has remained. Of course, the U.S.A. is still
the biggest and strongest capitalist country. Its weakening, however,
strengthens the contradictions which are rending the capitalist world.
The law of uneven development and the proletarian revolution
The law of uneven development, sharpened by the imperialist epoch,
shatters all the utopian theories of the possibility of a lasting peaceful
agreement among the monopolists of various countries. The growth of con-
tradictions among the imperialist robbers and the proletarian revolution and
the inevitability of military conflicts bring about a mutual weakening of the
imperialists, bring about a situation where the world front of imperialism is
most vulnerable to the onslaught of proletarian revolution. On this basis, a
breach in this front results at the point where the chain of the imperialist
front is weakest, where conditions are most favourable for the victory of the
proletariat. Inseparably bound up with this law of the uneven development
of capitalism, which reaches its point of greatest acuteness in the epoch of
imperialism, is the Leninist teaching of the triumph of the proletarian revolu-
tion and the building of socialism in a single country – a teaching that was
subjected to the severest attacks on the part of Trotskyism. Lenin has written
about this as follows:
“Uneven economic and political development is an absolute law
of capitalism. Hence, the victory of socialism is possible first in a
few or even in one single capitalist country taken separately. The
victorious proletariat of that country, having expropriated the capi-
talists and organized its own socialist production, would rise against
the rest of the capitalist world, attract to itself the oppressed classes
of other countries, raise revolts among them against the capitalists,
and in the event of necessity, come out even with armed force
against the exploiting classes and their states.”*
Thus the Leninist law of uneven development is of tremendous signifi-
cance for revolutionary practice. Stalin points out that even during the war,
Lenin, basing himself on the law of the uneven development of imperialist
* Lenin, Collected Works, Vol. XVIII, “The United States of Europe Slogan,” p.
232, Russian ed.
177
countries, counterposed to the theory of the opportunists his theory of the
proletarian revolution, the teaching of the triumph of socialism in a single
country “even though this country is capitalistically less developed.”
At the same time, the opportunists of all countries try to cover up their be-
trayal of the revolution by asserting that the proletarian revolution must begin
all over the world simultaneously. The traitors of the revolution thus create for
themselves a sort of mutual responsibility. The doctrine of the law of uneven
development is subjected to furious attacks, on the part of those sworn ene-
mies of the proletarian revolution – the Social-Democrats and, primarily,
counter-revolutionary Trotskyism, which is one of the most brazen detach-
ments of social-democracy, the vanguard of the counter-revolutionary bour-
geoisie. Trotsky and his adherents claim that under imperialism the uneven-
ness of development of individual countries does not increase but decreases.
Trotskyism does not see those decisive contradictions which predetermine the
growth of unevenness in the epoch of imperialism. Fighting against the Lenin-
ist law of uneven development, Trotskyism reaches the social-democratic con-
clusion that it is impossible to build socialism in a single country. The Trot-
skyist denial of the possibility of the victory of socialism in the U.S.S.R. is
closely bound up with the Trotskyist “theory of permanent revolution,” with a
lack of faith in the possibility of a firm alliance between the proletariat and the
masses of middle peasants, a lack of faith in the power and creative abilities of
the proletariat in building socialism.
Trotskyism is carrying on a desperate struggle against the Leninist pol-
icy of the Communist Party of the Soviet Union; which is bent on building
socialism in the Soviet Union. A particularly prominent role in exposing the
counter-revolutionary character of Trotskyism was played by Stalin. During
the many years that the C.P.S.U. carried on a struggle against Trotskyism,
Stalin brilliantly exposed the counter-revolutionary, Menshevik essence of
the Trotskyist positions, no matter how “Left” the phrases under which they
were masked.
The complete collapse of the Trotskyist positions is unequivocally
shown up by the universally historic victories of the First Five-Year Plan.
Summing up the results of the First Five-Year Plan, Stalin said:
“The results of the Five-Year Plan have smashed the social-
democratic thesis that it is impossible to build socialism in a single
country taken by itself. The results of the Five-Year Plan have
shown that it is quite possible to build socialist society in a single
country, because the economic foundations of such a society have
already been laid in the U.S.S.R.”*
* Stalin, “The Results of the First Five-Year Plan,” in the symposium: From the
178
The theory of ultra-imperialism
In opposition to the Leninist theory of imperialism the Social-Democrats
have formulated the traitorous and false theory of ultra-imperialism, the au-
thor of which is Kautsky, who has enormous experience in the distortion and
falsification of Marxism and who now comes out as one of the most brazen
slanderers of .and agitators for intervention against the Soviet Union.
The substance of Kautsky’s views, against which Lenin fought deter-
minedly, is the following: Kautsky denies that imperialism is a distinct stage,
phase, or new step in the development of capitalism, distinguished primarily
by deep economic peculiarities. According to Kautsky, imperialism is not an
economic system but merely a certain policy of the capitalists of certain
countries. Kautsky’s principal definition, against which Lenin fought deter-
minedly, says:
“ ‘Imperialism is a product of highly developed industrial capi-
talism. It consists in the striving of every industrial capitalist nation
to bring under its control and to annex increasingly big agrarian re-
gions irrespective of what nations inhabit those regions.’ ”*
“This definition is utterly false theoretically,” says Lenin. What
is false about this definition? Lenin exposes Kautsky thus:
“The distinguishing feature of imperialism is not the domina-
tion of industrial capital but that of finance capital, the striving to
annex, not agrarian countries particularly, but all kinds of' countries.
Kautsky separates imperialist politics from imperialist economics,
he separates monopoly in politics from monopoly in economics in
order to pave the way for his vulgar, bourgeois reformism such as
‘disarmament,’ ‘ultra-imperialism’ and similar nonsense. The mean-
ing and the aim of this theoretical falsehood is to gloss over the pro-
found contradictions of imperialism and thus to justify the theory of
‘unity’ with the apologists of imperialism, the frank social-
chauvinists and opportunists.”†
Lenin stresses the fact that Kautsky’s definition is incorrect and non-
Marxian. This definition is the basis of a whole system of views which com-
pletely break away from Marxism both in theory and in practice. Tearing
politics away from economics, depicting imperialism as merely a policy pre-
ferred by some capitalist countries, Kautsky altogether assumes the position
of the bourgeois reformists who think that it is possible to achieve more
First to the Second Five-Year Plan, p. 59.

* Quoted by Lenin, in Imperialism, the Highest Stage of Capitalism, p. 87.
† Lenin, Collected Works, Vol. XIX, “Imperialism and the Split in the Socialist
Movement,” p. 303, Russian ed.
179
“peaceful” policies without infringing on the inviolability of the economic
system of imperialism. That is why with Kautsky, as Lenin keenly points
out,
“The result is a slurring over and a concealment of the most
profound contradictions of the latest stage of capitalism instead of
an exposure of their depth. The result is bourgeois reformism in-
stead of Marxism.”*
Kautsky’s counter-revolutionary, thoroughly bourgeois position be-
comes particularly evident in his arguments about so-called “ultra-
imperialism” (i.e., super-imperialism), which are based directly on his fun-
damentally anti-Marxian definition of imperialism.
The theory of ultra-imperialism asserts that, as a result of the growth of
monopoly associations in separate countries, the contradictions and struggles
between the various countries disappear, the capitalists of these various
countries forming alliances among themselves; imperialist wars are rele-
gated to the past, a united world economy results. This theory of “peaceful”
ultra-imperialism is thoroughly hostile to revolutionary Marxism. It com-
pletely distorts the picture of imperialist reality. Refuting this invention of
Kautsky’s, Lenin writes:
“Compare this reality, the vast diversity of economic and politi-
cal conditions, the extreme disparity in the rates of development of
the various countries, and the violent struggles of the imperialist
states, with Kautsky’s stupid little fable about ‘peaceful’ ultra-
imperialism. Is this not the reactionary attempt of a frightened phil-
istine to hide from stern reality? Do not the international cartels
which Kautsky imagines are the embryos of ultra-imperialism... rep-
resent an example of the division and the redivision of the world,
the transition from peaceful division to violent division and vice
versa? Is not American and other finance capital, which divided the
whole world peacefully, with the participation of Germany, for ex-
ample, in the international rail syndicate, or in the international
mercantile shipping trust, now engaged in redividing the world on
the basis of a new relation of forces, which has been changed, by
methods by no means peaceful?”†
The uneven development of various countries, which becomes more
pronounced under imperialism, completely refutes the theory of ultra-
imperialism. Lenin wrote as follows in reference to this:

† Ibid., p. 92.
180
“Kautsky’s meaningless talk about ultra-imperialism encour-
ages, among other things, that profoundly mistaken idea which only
brings grist to the mill of the apologists of imperialism, viz., that the
domination of finance capital lessens the unevennesses and contra-
dictions inherent in world economy, whereas in reality it increases
them.”*
Being a bourgeois reformist and apologist of imperialism, Kautsky tries
to gloss over its sharpest contradictions. He denies the proposition that im-
perialism is a separate phase in the development of capitalism. This denial is
necessary to him in order to slur over all the fundamental peculiarities of this
newest phase by reason of which imperialism is the eve of the socialist revo-
lution. The theory of ultra-imperialism, as a number of its later variations, is
directed against the Leninist law of uneven development, which reaches its
highest point under imperialism. The theory of ultra-imperialism denies the
increasing unevenness in the development of capitalism in the epoch of im-
perialism and closes its eyes to the most obvious facts which are clear evi-
dence of this unevenness. Kautsky denies the significance of monopoly
domination as a fundamental distinguishing attribute of the new period in the
development of capitalism. He denies the tendency towards decay connected
with monopolies. He carefully glosses over the parasitic character of imperi-
alism. He denies the proposition that imperialism is moribund capitalism. On
the contrary, his theory of ultra-imperialism issues from the premise that
imperialism is not at all the last stage of capitalism, that capitalism does not
exhaust its resources in the epoch of imperialism. Here, Kautsky shares the
position of all the learned lackeys of the bourgeoisie, who exert themselves
to prove that capitalism is going to exist for a long time yet and that it is only
now stepping into maturity.
Kautsky’s position on questions of imperialism is characteristic of the
ideology of international Social-Democracy. Rosa Luxemburg, whose mis-
takes the Trotskyist contrabandists adopted when they attempted to foist
their ideas on the world under the guise of idealizing Luxemburgism, made
mistakes of a clearly Kautskyist type on the question of imperialism. She
considered imperialism not as a separate stage in the development of capital-
ism, but as a definite policy of the new period. In her principal theoretical
work, The Accumulation of Capital, Luxemburg proves the inevitability of a
collapse not because the inner contradictions of capitalism become ex-
tremely acute in the epoch of imperialism, but because of the conflict of
capitalism with its external surroundings, because of the impossibility of
realizing surplus value under so-called “pure” capitalism (i.e., a capitalist
society consisting only of capitalists and workers without any “non-capitalist
* Ibid., p. 90.
181
mass” in the form of small producers). Basing herself thus on semi-
Menshevik positions, Luxemburg could not rise to the Leninist conception
of imperialism, to a correct understanding of its fundamental peculiarities
and distinguishing attributes. Luxemburg's mistakes in the conception of
imperialism are closely allied to her erroneous positions on a number of im-
portant political questions: the question of the split in Social-Democracy, the
agrarian and national questions, the role of the Party and spontaneous ele-
ments in the movements, etc. The theory of the automatic collapse of capi-
talism ensuing from Luxemburg’s erroneous theory of reproduction, which
the “Left” Social-Democrats gladly utilize now to hold the working class
back from revolutionary activity by means of supposedly revolutionary
phraseology, in practice disarms the working class, spreads a mood of pas-
sivity and fatalism in its midst, stultifying its will to struggle. It is perfectly
evident that the Kautskyist errors of Luxemburg on the question of imperial-
ism kept her from severing relations with Kautsky and Kautskyism, serving
as a sort of bridge connecting her to the Kautskyist centre even during the
progress of the imperialist war when the absolute treachery of Kautsky and
his complete desertion to the counter-revolutionary camp of imperialism
became perfectly evident.
The Trotskyist position on the theory of imperialism is only one of the
varieties of Kautskyism. During the war Lenin repeatedly established the fact
that Trotsky is a Kautskyist, that he shares Kautsky’s views, defending and
glossing over Kautsky’s distortions of Marxism. In defending the Kautskyist
position, Trotskyism comes out with particular venom against the Leninist
law of uneven development. And this is really not surprising. We have al-
ready seen that the law of uneven development does not leave a single stone
of the whole traitorous and counter-revolutionary Kautskyist structure of
“ultra-imperialism” unturned. Trotskyism builds its counter-revolutionary
theory of the impossibility of building socialism in a single country on the
denial of the Leninist law of uneven development.
The theory of organized capitalism
The traitors to the working class from the Social-Democratic camp de-
pict matters as if the growth of monopoly leads to the replacement of capital-
ist anarchy by a new system – that of organized capitalism.
The Social-Democrats began to spread the legend about organized capi-
talism particularly during the post-war years of partial stabilization. The
most prominent disseminator of this theory is one of the most brazen leaders
of Social-Democracy – Hilferding. The Social-Democrats try to maintain
that with the growth of monopoly there is an end to the blind forces of the
market. Capitalism supposedly organizes itself, competition disappears, an-
archy of production is eliminated, crises become things of the past, planned,
conscious organization predominates. From this the Social-Democrats reach
182
the traitorous conclusion that trusts and cartels peacefully grow into planned,
socialist economy; supposedly, one must only help the bankers and trusts
straighten things out for themselves and then capitalism will of itself, unno-
ticed, without any struggle or revolution “grow” into socialism!
It is quite clear that the theory of organized capitalism is a further devel-
opment of Kautsky’s theory of ultra-imperialism. The Social-Democratic
theory of organized capitalism also glosses over and befogs the glaring con-
tradictions of imperialism, just as Kautsky’s theory of ultra-imperialism
does. The traitors to the working class from the Social-Democratic camp try
by every means to gloss over the fact that under imperialism capitalism be-
comes a decaying, parasitic system. Lenin pointed out that Hilferding, even
before the war, in denying the parasitism and decay characteristic of imperi-
alism, stood even lower than some of the bourgeois scientists who, on inves-
tigating imperialism, could not help noting these phenomena which stand out
glaringly.
Denying the decaying, parasitic nature of imperialism, the Social-
Democrats adopt the position of defending the capitalist system by all and
every means. And they really stop at nothing in their attempt to crush the
revolutionary struggle of the working class against imperialism. The theory
of organized, capitalism, promising a peaceful and painless transition to so-
cialism, serves in their hands only as a means of deceiving the more back-
ward elements of the working class, of keeping them away from the revolu-
tionary struggle.
This counter-revolutionary theory is refuted at every step by contempo-
rary capitalist reality. This theory is completely shattered as soon as it is re-
garded in the light of the analysis of imperialism given by Lenin.
We have already seen that imperialism does not eliminate, but, on the
contrary, strengthens and sharpens all the fundamental contradictions of the
capitalist system. Anarchy of production not only does pot disappear, but, on
the contrary, assumes gigantic proportions and gives rise to particularly
devastating consequences. Competition between the monopoly alliances is
much fiercer than it formerly was between individual capitalists. Under im-
perialism crises become keener and more devastating, and their conse-
quences affect the working class even more severely. The crisis of 1907 al-
ready bore witness to this fact, as it struck the country where monopoly had
grown most – the U.S.A. – with particular force. The present world crisis of
capitalism most thoroughly and completely exposes the futility of the legend
about organized capitalism, disseminated by the lackeys of the bourgeoisie.
The fairy tale about organized capitalism serves the Social-Democrats
only to deceive the working class, to detract their attention from the uncom-
promising class struggle, to justify their traitorous tactics of class peace with
the bourgeoisie and struggle against the revolutionary labour movement.
The legend of organized capitalism was caught up by the Right wing
183
opportunists in the ranks of the C.P.S.U. and other Parties in the Communist
International. Comrade Bukharin claimed that “the problems of markets,
prices, competition and crises become ever more problems of world econ-
omy, being replaced within the country by problems of organization.”
From this the Right opportunists drew the inference that the inner con-
tradictions in capitalist countries are abating, that capitalism is getting
stronger and that there could be talk about a rise in the revolutionary tide
only after a new imperialist war.
The crude error with regard to the theory of organized capitalism is not
accidental with Comrade Bukharin. This anti-Leninist position is closely
connected with a whole series of errors in the field of the theory of imperial-
ism, which he had committed beginning with the commencement of the war.
Lenin fought Bukharin’s mistakes over a number of years (1915-20).
Against Lenin’s theory, Bukharin counterposed his own theory of so-called
“pure imperialism.” Captured by “Left” phrases and masking themselves
with them, the adherents of this theory, in practice, allied themselves to the
opportunist social-democratic views on questions of imperialism.
The main fault in Bukharin’s theory of “pure” imperialism lies in its ex-
treme simplification and incorrect representation of imperialist reality. The
adherents of this theory gloss over the deepest contradictions inherent in
imperialism. They shut their eyes to the fact that imperialism grows out of
and develops on the basis of the old capitalism, that because of this imperial-
ism does not eliminate the fundamental contradictions of capitalism but, on
the contrary, sharpens them to the extreme.
In his report on the Party program at the Eighth Congress of the Party in
1919, Lenin, touching on his disagreements with Bukharin, pointed out that
“...pure imperialism, without the fundamental base of capital-
ism, never existed, does not exist now and never will exist.”*
In the same speech Lenin said further:
“Bukharin’s concreteness is a bookish description of finance
capitalism. Nowhere in the world does monopoly capitalism exist
without free competition in a number of fields, nor will it exist in
the future.”
And Lenin continued:
“If we had to deal with an integral imperialism which had com-
pletely remade capitalism our problem would be a thousand-fold
easier. We should then have a system where everything was subject
* Lenin, Collected Works, Vol. XXIV, “Report on the Party Program,” p. 131,
Russian ed.
184
to finance capital only. Then, we should only have to remove this
control and leave the rest to the proletariat. This would be very
agreeable, unfortunately it is not so in reality. In reality the devel-
opment is such that we have to act entirely differently. Imperialism
is a superstructure on capitalism.... We have the old capitalism
which, in a number of fields, has grown up into imperialism.”*
The erroneous theory of “pure” imperialism, defended by Bukharin
when he was one of the leaders of the group of so-called “Left Commu-
nists,” served as the direct basis for the theory of organized capitalism.
The present crisis of capitalism clearly exposed the absolute untenability
of this theory. It is quite evident that this opportunist fiction about organized
capitalism, borrowed from the Social-Democrats, has nothing whatever to do
with Marxism-Leninism. Lenin repeatedly emphasized that monopolies,
growing out of competition, do not eliminate it but exist over and alongside
it, giving rise thereby to a special sharpening of all contradictions, and con-
flicts. Lenin has written:
“Imperialism aggravates and sharpens the contradictions of
capitalism, it intertwines monopoly with free competition, but it
cannot abolish exchange, the market, competition, crises, etc.
“Imperialism is capitalism passing away, not capitalism gone...
dying, not dead. Not pure monopolies, but monopolies, alongside of
competition, exchange, markets and crises – this, generally, is the
most essential feature of imperialism.”†
That is why Lenin emphasized that
“It is this very combination of contradictory principles, of com-
petition and monopoly, that is the essence of imperialism, it is this
that leads to the final crash, the socialist revolution.”‡
The parasitism and decay of capitalism
Imperialism is parasitic or decaying capitalism. Capitalist monopolies
inevitably give rise to a tendency towards stagnation and decay. They tend to
establish monopoly prices and maintain them at a high level. With free com-
petition every capitalist tries to increase his profits by cutting down his out-
lay on production, and in order to cut down his outlay all kinds of technical
improvements are introduced. Monopolies, in-as-much as they can maintain
* Ibid., pp. 133-34.

† Lenin, Collected Works, Vol. XX, Book I, p. 331, International Publishers,
New York, 1929.
‡ Ibid.
185
high monopoly prices, are not interested in the introduction of technical in-
novations. On the contrary, they frequently fear technical inventions more
than anything else, since they threaten to undermine their monopolist hold of
production or to make their tremendous capital investments valueless. Mo-
nopolies thus frequently delay technical progress artificially. The epoch of
imperialism knows countless such instances.
In his work on imperialism Lenin cites the example of the Owens bot-
tling machine which was invented before the war in the U.S.A. A German
cartel bought the Owens patents and held up their utilization. The post-war
period knows a number of such instances. Not so long ago an electric lamp
that cannot burn out was invented, an “everlasting lamp.” This invention has
not been put on the market to this day because it would curtail the sale of
lamps by the electrical equipment monopoly trusts. The Swedish Kreuger
Match Trust that had its tentacles over practically the entire world and
worked with the help of American banks was not a little disturbed by the
invention of an “everlasting” match by a certain Viennese chemist. The
method of obtaining oil from coal, discovered by Professor Bergius of Ger-
many, has been bought out by the American oil trust which is holding up its
application. The American railroads are not being electrified only because it
would be disadvantageous to the monopolists.
Nevertheless, it must be borne in mind that the tendency to increase
profits by means of technical improvements persists to a certain extent. That
is why the biggest trusts establish excellent laboratories and scientific re-
search institutes where thousands of engineers, chemists and physicists
work. Because of monopolies, however, only a small part of the discoveries
are applied. Under certain conditions now one, now the other tendency
comes to the surface, now the tendency towards stagnation, now the ten-
dency towards technical improvement.
Trotskyism distinguishes itself by a total lack of comprehension of the
real character of the contradictions of imperialism as a parasitic and
decaying system. Trotskyism does not perceive the struggle of two
tendencies that is in effect under imperialism: the tendency to develop the
productive forces on the one hand, and the tendency to retard technical
progress on the other. It is this struggle, the continuous conflict of these
tendencies, that gives rise to the sharpening of contradictions which is
characteristic of imperialism. Trotskyism tries to make things appear as if
there is absolute stagnation of technical development under imperialism, a
complete “bottling up” of the development of productive forces. Such a
viewpoint leads directly to the traitorous theory of the “automatic collapse of
capitalism,” with which we became acquainted above. This position is also
inseparably connected with the Trotskyist denial of the Leninist law of
uneven development under imperialism.
The parasitic character of the bourgeoisie is manifested with particular
186
clarity in the epoch of imperialism. The overwhelming majority of the bour-
geoisie has absolutely no connection with the process of production. The
majority of the capitalists are people who live by “clipping coupons.” The
capitalists have become owners of shares, bonds, government loans and
other securities which bring them an income. Enterprises are managed by
hired technical forces. The bourgeoisie and its numerous toadies (politicians,
the bourgeois intelligentsia, the clergy, etc.) consume the products of the
arduous labour of millions of hired slaves of capital. Entire countries (like
Switzerland) or whole regions (in the South of France, Italy, partly England)
are turned into playgrounds for the international bourgeoisie where they
come to spend their unearned incomes on mad luxury.
The epoch of imperialism brings with it a great decline of capitalist civi-
lization. Venality grows and penetrates all spheres of politics, public life, art,
etc. The biggest monopolies openly maintain in their pay definite groups of
representatives in parliament, high government officials, etc. The heads of
governments are most closely connected with the biggest banks, corpora-
tions and trusts. Millions in “presents” to the higher government officials
make it possible for the banks and trusts to do anything they please in the
country. The press is the hireling of big capital. The oldest and most “meri-
torious” bourgeois newspapers change their political physiognomy at once
upon going over to a new owner. An enormous number of yellow journals
prove to be owned by the same businessmen. Thus in Germany after the war
the great majority of yellow journals and even a great many “serious” news-
papers were owned by the big capitalist, Stinnes, who had grown rich during
and particularly after the war, by the most unrestrained speculation. After the
collapse of the Stinnes concern that had owned coal and ore mines, ocean
steamship lines and cinemas, a large part of his fortune in newspapers fell to
another big capitalist in heavy industry – Hugenberg (one of the leaders of
the German bourgeoisie who did most towards the ascension to power of the
bloody fascist dictatorship of Hitler).
Outright fraudulence, forgery, deceit and cheating become more and more
the customary means of rising for the big capitalists and bourgeois politicians.
These crimes are only rarely discovered – in cases of fiascos, when loud scan-
dals result. Thus, in 1932 the scandal about Ivar Kreuger – the head of the
Swedish match trust and one of the most violent instigators of anti-Soviet in-
tervention – burst over the entire world. He committed suicide when on the
verge of bankruptcy. After his suicide a whole chain of forgeries and misrep-
resentations were revealed, by means of which he wanted to save himself from
the collapse that threatened him in the circumstances of the crisis. The same
year, 1932, marked a tremendous scandal in France about the Oustric Stock
Company, which proved to be the work of a few clever swindlers connected
with the most prominent government politicians and bankers. With the help of
all kinds of false promises this gang succeeded in drawing tens of millions of
187
francs out of the pockets of credulous petty bourgeois. In 1933 in the U.S.A.
much noise was occasioned by the discovery of a number of shady transac-
tions by the biggest capitalist of that country – Morgan.
In America there are several well organized bands of gangsters which
are particularly notorious and which even enjoy respect. They have their
own trusts which maintain the best of relations with the police and the
government.
In the foremost countries imperialism bribes the upper circles of the
working class. From the enormous incomes obtained from the colonies, the
super-profits squeezed out of the backward countries and at the expense of
greater oppression and impoverishment of the great mass of the proletariat,
trustified capital raises the wages and generally improves the conditions of a
small, privileged section of the workers. This bribed section of the proletar-
iat becomes a bulwark of the bourgeois order. The Social-Democratic Sec-
ond International also rests upon this upper stratum which furnishes the
counter-revolutionary cadres that stab the struggling working class in the
back at the most critical moment. Imperialism, however, can only bribe a
very small minority of the working class. This bribery is at the expense of
the continually greater exploitation of the basic mass of the working class. In
the end, it leads to an even greater growth of class contradictions, to an even
greater deepening of the chasm between the classes.
Imperialism – the epoch of the doom of capitalism
Imperialism is a distinct historical stage of capitalism. This distinctive-
ness is, as we have seen, threefold: imperialism is, first, monopoly capital-
ism; secondly, parasitic or decaying capitalism, and thirdly, moribund capi-
talism. This characterization of the epoch of imperialism, the epoch of mo-
nopolies, as an epoch of parasitic, decaying, moribund capitalism is the di-
viding line separating revolutionary Marxism-Leninism from all kinds of
distortions and falsifications of Marxism. In the epoch of imperialism all the
fundamental contradictions of capitalism reach their final limits, are sharp-
ened to the utmost degree. The most important of these, as Stalin points out
in his book on the foundations of Leninism, are three contradictions.
These are: first, the antagonism between labour and capital. Imperialism
denotes the omnipotence of a handful of capitalists in the monopolies and
banks. The oppression of the financial oligarchy is so great that the previous
methods of struggle of the working class – labour unions of the old type,
parliamentary parties – prove entirely inadequate. Imperialism, increasing
the impoverishment of the working class to an unprecedented degree, in-
creasing the exploitation of the workers by a small group of monopolist and
banker sharks, puts the problem of new, revolutionary methods of struggle
before the workers in its full force. Imperialism brings the worker face to
face with revolution.
188
Secondly, the antagonisms between the various cliques of financial sharks
and between imperialist powers in their constant struggle to seize new territo-
ries, sources of raw material and markets for sales and for the investment of
capital. This frenzied struggle between the individual imperialist cliques inevi-
tably leads to wars in which the biggest imperialist powers shed oceans of
blood and pile up mountains of corpses in the struggle to redivide the already
divided world, in the struggle to grab new sources of enrichment for a few
billionaires. The struggle of the imperialists inevitably leads to their mutual
weakening, to the weakening of the capitalist positions in general, and thus
brings closer the day of the proletarian revolution, makes this absolutely nec-
essary in order to save society from perishing altogether.
Thirdly, the antagonism between the small number of the so-called
“civilized” nations and the enormous masses of the population of the colo-
nial and dependent countries. Hundreds of millions of people waste away in
the colonial and semi-colonial world under the domination of imperialist
robbers.
“Imperialism means the most shameless exploitation and the
most inhuman oppression of hundreds of millions of the population
of vast colonies and dependent countries.”*
Hunting super-profits, the imperialists build plants and factories in the
colonies and semi-colonial countries, build railroads there, break up the old
order of things, clear the way with fire and sword for new capitalist rela-
tions. The growth of imperialist exploitation leads to the strengthening of the
liberation movement in the colonies and dependent countries, weakening the
capitalist position throughout the world, undermining it at its roots, and lead-
ing to the transformation of these countries, as Stalin points out, “from re-
serves of imperialism into reserves of the proletarian revolution.” The na-
tional liberation movement in the colonies becomes a threat to imperialism,
a support for the revolutionary proletariat.
The extreme sharpening of all the contradictions brings about a situation
in which imperialism becomes the eve of the socialist revolution. Capitalist
contradictions sharpen to such a degree that the further maintenance of capi-
talist relations becomes an unbearable encumbrance to the further develop-
ment of human society. Capitalist relations hinder the further progress of
productive forces; as a result of this, capitalism decays and begins to fall to
pieces while still alive. This tendency to decay does not exclude the devel-
opment of individual countries or individual branches of industry even in a
period of a general capitalist crisis. Tremendous amounts of value are
* Stalin, Foundations of Leninism and Problems of Leninism, p. 12, Moscow,

1934.
189
wasted unproductively under imperialism; the capitalist class with all its
toadies finally becomes a most malignant parasitic cancer which presses
more and more unbearably on the tremendous masses of disinherited toilers.
Monopoly capitalism at the same time creates all the necessary premises for
the realization of socialism.
“The extremely high degree of development of world capitalism
in general and the replacement of free competition by state monop-
oly capitalism, the fact that the banks and the capitalist corporations
are creating an apparatus for the social regulation of the process of
production and distribution of products, the rise in prices and in-
creased oppression of the working class by the syndicates due to the
growth of capitalist monopolies, the enslavement of the working
class by the imperialist state, the gigantic handicaps imposed on the
economic and political struggle of the proletariat, the horrors, ca-
lamities and ruin caused by the imperialist war – all make the col-
lapse of capitalism and the transition to a higher type of social eco-
nomic system inevitable.”*
Imperialism inevitably leads to devastating imperialist wars. The World
War of 1914-18 plunged the entire capitalist system into a general crisis,
characterized by the extreme acuteness and intensity of all the contradictions
of imperialism. The principles laid down by the Comintern on the question
of the general crisis of capitalism, which means a period of dissolution and
collapse of capitalism, are based directly on the Leninist theory of imperial-
ism and form an integral part of it, an inseparable link. The assertion of all
kinds of Trotskyist contrabandists, denying the principles laid down by the
Comintern concerning the general crisis of capitalism, signify their complete
renegacy from Marxism-Leninism, their complete break with the Leninist
theory of imperialism.
Imperialism is the epoch of the downfall and destruction of capitalism,
the period of the victorious proletarian revolution. Lenin more than once
pointed out:
“Imperialism is the highest stage of development of capitalism.
Capital in the advanced countries has outgrown the boundaries of
national states, and it has established monopoly in place of competi-
tion, thus creating all the objective prerequisites for the achievement
of socialism.”†
* The Program and Rules of the Communist Party of the Soviet Union
(Bolsheviks), p. 6, Moscow, 1932.
† Lenin, Collected Works, Vol. XIX, “The Socialist Revolution and the Right «f
190
Elsewhere Lenin says that the epoch of imperialism is the epoch of ripe
and over-ripe capitalism which is on the eve of its collapse, matured to the
extent that it must yield its place to socialism.
The epoch of imperialism is therefore the epoch of the collapse and de-
struction of capitalism, the era of proletarian revolutions.
REVIEW QUESTIONS
1. How does competition lead to the formation of monopolies?
2. Do monopolies eliminate competition?
3. What is the source of the profits of the monopolists?
4. How does the role of the banks change in the epoch of imperialism?
5. What gives rise to the export of capital?
6. What is the function of tariffs?
7. What is the law of uneven development?
8. What is there essentially traitorous in the theory of organized capitalism?
9. How is the theory of organized capitalism connected with the theory of
ultra-imperialism?
10. How does the decay of capitalism manifest itself under imperialism?
11. What are the five fundamental attributes of imperialism?
Nations to Self-Determination,” p. 37, Russian ed.

191
CHAPTER X
The War and the General Crisis of Capitalism
Imperialism and the collapse of capitalism
The fundamental contradictions of the capitalist order reach their highest
development in the epoch of imperialism. On the one side – a handful of de-
generate capitalist magnates; on the other – the tremendous majority of dis-
inherited humanity. Such is the picture of capitalist society under the domi-
nation of imperialism.
In the epoch of imperialism the decay and decline of the capitalist order
takes place. The existing order becomes an impediment to further develop-
ment. Human thought, science and engineering record ever new victories
over nature. Man subjects one after another of its most terrible forces to his
will. The fruit of these victories, however, is gathered by a handful of the
elect. More than that, capitalist relations narrow down the possibility of ap-
plying many of the most brilliant discoveries and inventions.
Mankind as a whole has become wealthy enough for everyone to be
provided with a good existence. What prevents this is again capitalist rela-
tionships. Tremendous wealth is used not for the benefit of the broad
masses, but to their detriment. Devastating wars, inevitable under imperial-
ism, take many human victims, destroy the fruit of the hard labour of many
generations.
Socialism or destruction, socialism or inevitable degeneration – that is
how the question is put in the epoch of imperialism. The world proletariat
must carry out a task of the utmost importance – they must tear mankind
away from the clutches of imperialism. In the struggle for the overthrow of
the reign of imperialism the proletariat finds many allies among the disinher-
ited of the earth. The toiling masses of the colonial countries, who feel on
their own backs the full “charm” of the imperialist regime, the ruined masses
of the peasantry and the intermediate sections of toilers, are the source of
assistance for the proletariat in its struggle for the overthrow of capitalism.
Regardless of temporary defeats in one country or another, the final victory
of the proletariat is inevitable.
Thus imperialism brings class contradictions and the class struggle to an
extreme acuteness. In this struggle the fate of the capitalist system is de-
cided. Hence the struggle is a very stubborn one.
The unevenness of capitalist development, increased in the epoch of im-
perialism, creates different conditions for the victory of the proletariat in the
different countries. Naturally the proletariat captures power and proceeds
with the building of socialism first of all in those countries where and when
conditions are the most favourable.
“Enormous technical progress in general, and of the means of
192
THE WAR AND THE GENERAL CRISIS OF CAPITALISM
communication in particular, the colossal growth of capital and
banks have resulted in a ripening and over-ripening of capitalism. It
has outlived itself, has become a most reactionary hindrance to hu-
man development. It has reduced itself to the reign of an omnipotent
handful of billionaires and millionaires, inciting nations to mutual
slaughter in order to decide whether a German or an Anglo-French
group of robbers are to get the imperialist plunder: power over the
colonies, financial ‘spheres of influence’ or ‘administrative man-
dates,’ etc.
“During the war of 1914-18, tens of millions of men were killed
and maimed for this reason, and for this reason alone. An under-
standing of this truth is spreading with uncontrollable force and
speed among the masses of toilers in all lands – and this so much
the more since the war has wrought unprecedented ruin everywhere,
and everyone, including the ‘victorious’ nations, has to pay for the
war in interest on debts.
“The collapse of capitalism is inevitable. The revolutionary
consciousness of the masses is growing. Thousands of indications
speak of this.
“The capitalists, the bourgeoisie, may, under circumstances
most favourable for themselves, delay the victory of socialism in
one or another individual country at the cost of the destruction of
additional hundreds of thousands of workers and peasants. But save
capitalism they cannot.”*
The imperialist World War
The struggle between the imperialists for a redivision of the world
brought about the World War of 1914-18. This war shook the capitalist sys-
tem to its very foundation and brought untold suffering to the masses of the
people. In all the warring countries sixty-two million men were called to
arms. More than ten million were killed and the number of wounded and
maimed who remained cripples for life reached twenty-four million. Tre-
mendous wealth of the most prosperous countries in the world was sense-
lessly shot into the air. It has been estimated that the war cost three hundred
billion dollars. In order to grasp this figure it should be noted that the entire
wealth of all the warring countries on the eve of the war amounted to six
hundred billion dollars. The war thus swallowed a sum amounting to half of
what all the nations of Europe had been able to amass at the price of ardu-
ous, slave-like labour for many generations.
The war wrought havoc with capitalist world economy. It broke what-
* Ibid., Vol. XXIV, “Answers to the Questions of American Journalists,'’ p. 404,

Russian ed.
193
ever connections had existed between certain states. Some of the countries
became completely isolated (Germany). The supply of imported raw mate-
rial and food was curtailed. Tremendous masses of the producing popula-
tion, workers and peasants, were withdrawn from their occupations by the
call to arms. In some countries almost one-third of all the workers in indus-
try and agriculture was under arms. It must not be forgotten that the war took
the best producing sections of the population – healthy young men. Only old
men, adolescents and women, whose labour was of course much inferior,
were left at home.
Tremendous regions were devastated and reduced to ashes in the proc-
ess of military actions. The fronts in the World War were located not only in
agricultural sections but often in most important industrial centres also. Rav-
aging artillery fire wiped plants and factories off the face of the earth. Mines
were flooded. Entire cities, industrial regions, were wiped out as, for in-
stance, Northern France where the most important front of the World? War –
the Western Front – was located.
Finally, the most important feature of the economic ruin wrought by the
war was the transformation of the entire national economy, changing the
character of production at the dictates of the needs of warfare.
With the advent of war the character of production changed radically.
To the former three basic varieties of commodities – means of production,
articles of consumption and articles of luxury – a fourth was now added,
occupying an ever more prominent place: instruments of destruction and
extermination – artillery, ammunition, bombers, submarines, rifles, tanks,
poison gas, etc. The expenses of the World War amounted to
$300,000,000,000 at a time when the entire wealth of the warring countries
amounted to about $600,000,000,000. The annual national income of these
countries amounted to $85,000,000,000. If we assume that the national in-
come of each country during the war was reduced only one-third because of
the tremendous withdrawal of workers and thus amounted to approximately
$57,000,000,000, and if we further assume that the entire non-military ex-
penditure absorbed 55 per cent, we reach the conclusion that the current na-
tional incomes could only cover war expenses to the amount of
$25,000,000,000 a year. For the four years of the war this makes
$100,000,000,000. Consequently, the other $200,000,000,000 had to come
from the fixed capital of the warring nations. It therefore follows that the
total wealth of these nations after the war no longer was $600,000,000,000
but only $400,000,000,000, i.e., one-third less.
The war wrought untold havoc in the field of human labour power.
In 1913 the population of Europe was 401,000,000 and with the normal
growth of population, had there been no war, it should have been
424,500,000 in 1919. Actually it was only 389,000,000. In other words,
Europe lost 35,500,000 people, or 9 per cent of its entire population. The
194
influence of the war in the reduction of the European population was felt,
first, in the direct loss of people – on the front in battles, and in the rear be-
cause of epidemics; secondly, in the reduction of the birth rate since almost
all the men were mobilized, and thirdly, in the increase in the death rate due
to worse living conditions (hunger, privation, etc.).
If we take into consideration that this enormous loss of people was pri-
marily the very best labour power of the warring nations, then the picture of
the destruction of the human apparatus of production will become clear.
To this should be added the fact that during the war, wide sections of
highly skilled workers were replaced by others of little skill. A decrease in
the number of qualified workers employed thus took place, which brought
great loss to the nations involved.
The war brought untold torture to the broad masses of toilers. The work-
ers and peasants dressed in military uniforms were cannon fodder at the
front where death or unendurable suffering awaited them. The workers who
remained in the rear worked in the factories to the point of exhaustion for
starvation wages. Under conditions of a military dictatorship, any sign of
dissatisfaction on the part of the workers was suppressed in the most unmer-
ciful and inhuman fashion. The workers at the rear lived under constant
threat of being shipped to the front where death or injury awaited them. Dur-
ing the war the toiling masses were doomed to starvation.
The war intensified to the extreme all the contradictions of the capitalist
system. The war widened the gulf between the workers and the capitalists.
The war brought ruin to the broad masses of the peasantry. The war contrib-
uted towards the undermining of the position of the office employees and the
petty bourgeoisie by bringing about their impoverishment.
“…The war is imperialistic on both sides.... Both the German
and the Anglo-French bourgeoisie are waging war for the grabbing
of foreign territory, for the strangulation of small nations, for the fi-
nancial supremacy over the world, for the division and redistribu-
tion of colonies, for saving the tottering capitalist regime by means
of deceiving and disuniting the; workers in the various countries.”*
Consequences of the World War and the general crisis of capitalism
The war was an inevitable result of the entire development of imperial-
ism. The war showed that capitalism has finally become a hindrance to the
further development of human society. The war disclosed what enormous
danger and menace capitalism bears within itself for the further destiny of
mankind.
The imperialist World War was the beginning of the general crisis of
* Ibid., Vol. XX, Book I, p. 29.

195
capitalism. A new page was turned in world history. The October Revolution
broke through the imperialist front in Russia. In place of tsarist Russia – the
bulwark of darkest reaction – the Soviet state arose. One-sixth of the globe
was torn from the power of capital and became the country where socialism
is being built. The October Revolution marked the beginning of the interna-
tional socialist revolution of the proletariat. It divided the world into two
camps – the camp of capitalism and the camp of socialism under construc-
tion. It made the first gaping breach in the capitalist structure. In place of the
formerly universal capitalism, two systems, radically opposed to each other,
are now struggling – the system of capitalism and the system of socialism.
Since the October Revolution capitalism has ceased to be the only exist-
ing social order, ruling the earth. Alongside it a new system has grown up, a
new order – that of socialism. The Soviet Union is the fatherland of the
world proletariat. The present epoch is the epoch of the downfall and de-
struction of capitalism, the epoch of the proletarian world revolution and the
triumph of socialism.
The World War remade the map of the world. It radically changed the
relation of forces among the different capitalist countries. The proletarian
revolution has triumphed on one-sixth of the world and has wrenched it from
under the sway of capital. But in the rest of the world, which has remained in
the power of capitalism, very important changes have also taken place.
The war thoroughly undermined the national economy of all the coun-
tries that participated in it. The victorious countries – the Allies – of course
tried to transfer the whole burden of the war expenses onto the vanquished
countries. Among the vanquished, however, it was possible to get something
only from Germany since the allies of the latter (Austria-Hungary, Turkey
and Bulgaria) were in a very deplorable state. Germany was the principal
enemy of the Allied countries. It had been competition with German imperi-
alism that had brought the imperialist rulers of Great Britain and France to
war. Hence the first business of the victors was to settle with Germany, to
delete it from the list of possible competitors, to safeguard themselves
against its competition by stopping or retarding its economic development
for a long time to come. At the same time it was necessary to load the
greater part of the war expenses upon Germany. The peace treaty signed in
Versailles in 1919 provides a number of measures for pilfering Germany. A
number of regions were taken away from Germany, France getting regions
rich in coal and iron; Germany further had to turn over its merchant fleet to
the Allies; she had to renounce her colonies and all the territories she owned
beyond her own borders. Finally – and this is most important – tribute was
imposed on Germany in the form of payments which were to reimburse the
Allied countries for the destruction caused by the war (reparations). These
payments were set in Versailles at 132,000,000,000 gold marks; according to
the treaty the payments were extended over a number of years.
196
The pillage of Germany by the robber peace of Versailles resulted in
Germany finding itself, of all the countries involved in the war, the most
ravaged (with the exception of little Austria which American charity had to
save from actual starvation).
The war radically changed the relation of forces in the camp of the vic-
tors. The U.S.A. gained most by the war, as it took a very insignificant part
in the military action but profited tremendously on all kinds of war supplies.
The sun of British capitalism set as a result of the war. Great Britain lost its
primacy on the world market. It had to yield its place to its young competi-
tor, the U.S.A. The contradictions between the U.S.A. and Great Britain are
the pivot around which the imperialist contradictions of the entire post-war
period revolve.
America proved sufficiently powerful to extract tremendous advantages
from the war in which its old competitors (primarily, Great Britain and Ger-
many) had cut one another’s throats.
The warring countries could not themselves satisfy their growing war
requirements of endless mountains of coal, iron, steel, bread, oil and cloth.
This tremendous demand came to America. At the same time the markets for
manufactured goods in the agricultural countries of South America, Asia,
etc., were freed. Before the war Great Britain, Germany and other European
countries exported their goods to these markets. During the war there could
be no thought of export from these countries. All this resulted in an unprece-
dented development of industry and agriculture in the U.S.A. America be-
came the richest country in the world. The war shifted the centre of gravity
of world capitalism from Europe to America.
Before the war, industry had not occupied a predominant place in the
economy of the U.S.A. In 1905 the U.S.A. had exported agricultural prod-
ucts amounting to $1,000,000,000 and industrial products amounting to only
$460,000,000. During the war industry developed with unparalleled rapidity.
In 1914 the industries of the U.S.A. produced commodities to a total amount
of $24,246,000,000, in 1918 the production already amounted to
$62,580,000,000.
During the period of the war the production of textiles rose 40 per cent,
of steel 40 per cent, of coal and copper 20 per cent, of zinc 80 per cent, of oil
45 per cent. From 1913 to 1918, the construction of ocean-going steamships
increased more than tenfold, the production of automobiles doubled. For the
period of the war the U.S.A. was transformed into an industrial country ex-
porting manufactured goods. In 1919 the U.S.A. exported manufactured
goods amounting to $2,072,000,000 and only $1,408,000,000 worth of
means of consumption and raw material.
However, agriculture in the U.S.A. also made progress during the war.
Between 1913 and 1918 the harvest increased 12 per cent and the number of
cattle even more.
197
The war made the U.S.A. the richest nation in the world. Before that
Great Britain had been the wealthiest: it had played a leading role in the
capitalist world, it had owned capital in all lands including America – all
were in debt to Great Britain. British currency – the pound sterling – was
considered the most stable currency in the world; it was almost impossible to
conceive of the depreciation of the British pound. The war changed all this:
Great Britain lost a great part of its wealth in the war and receded to second
place while the U.S.A. became monstrously wealthy.
From 1915 to 1920 U.S.A. export amounted to $18,000,000,000 more
than its import, in other words, it gave the warring nations of Europe goods
amounting to $18,000,000,000 more than the goods it received from them.
How was this tremendous sum covered? What did the U.S.A. get for it?
First of all, enterprises in the U.S.A. which had previously belonged to
European capitalists went over to American owners. The considerable sum
of $3-5,000,000,000 went for this purpose. Further, more than half the
world’s gold reserve was concentrated in America; the warring countries had
to give up their gold reserves to America for the great quantities of war sup-
plies and means of consumption which the U.S.A. supplied for their troops
and for their population. Finally the Allied debt to America amounted to the
enormous sum of $10,000,000,000. Great Britain, in debt to the U.S.A. to
the extent of £900,000,000 sterling, was supposed to receive £1,600,000,000
sterling from its debtors. As a result of the agreements reached between
1923 and 1927 on the regulation of the war debts, the indebtedness of the
former Allies and other countries to the U.S.A. was set (with accumulated
interest) at £2,400,000,000 sterling. The debts of Great Britain’s old allies
were reduced to such an extent that their payments only just balanced the
British payments to the U.S.A.
As regards German reparations the sum originally set was
132,000,000,000 marks. The Dawes Plan adopted in 1924 left the total sum
of reparations open but obliged Germany to make annual payments until
1929, amounting to 2,500,000,000 marks annually. The Young Plan, super-
seding the Dawes Plan in 1929, obliged Germany to pay an average annual
sum of 1,900,000,000 marks for a period of 59 years. The Young Plan func-
tioned for only a year and ten months. On July 1, 1931, the so-called Hoover
Moratorium went into effect, holding up all payments on reparations and
war debts for one year.
The amount of cash reparations payments by Germany for the entire pe-
riod amounted to £645,000,000 sterling.
German reparations and the inter-Allied debts inherited from the World
War constitute one of the sorest problems of the post-war capitalist system,
one of the main points of contention and strife in the camps of the capitalist
countries, one of the knots of sharpest contradictions. The U.S.A. occupies a
position of non-interference in the matter of reparations: this is, as it says, an
198
internal matter of the Europeans with which America has no concern. But so
much the more insistently does it demand payment of the Allied debts to
itself.
The development of the economic crisis brought about a virtual discon-
tinuation of reparations payments as well as payments on other debts. It is
self-evident that such a non-payment of debts sharpens the relations between
the imperialists to an even greater degree.
Three periods of the general crisis of capitalism
The downfall of capitalism extends over an entire historical epoch. This
is the period of the revolutionary struggle of the international proletariat for
its dictatorship, for socialism.
The years since the imperialist war fall into three periods. The first post-
war years 1918-21 were a period of the sharp disintegration of the entire
capitalist system and of fierce struggle between the proletariat and the bour-
geoisie, going over in a number of countries to open civil warfare. As a re-
sult of the destruction caused by the war, the tremendous losses in life and
material values, the economic ruin reached unparalleled proportions. All the
contradictions of capitalism were brought to a point. The dissatisfaction of
the masses, who found themselves stranded in the same old misery, was
tremendous. The Central European countries flared in the fires of civil war.
A Soviet republic was set up in Hungary in 1919, lasting several months,
and one in Bavaria held out several weeks. In 1920-21 a deep economic cri-
sis gripped the capitalist countries causing the contradictions to become even
more acute.
Soviet Russia during these years was repelling the attacks of the united
forces of the Russian whiteguards and the international bourgeoisie. The
Civil War ended in the victory and consolidation of the Soviet power, all
attempts at intervention met with defeat at the hands of the iron force of the
invincible proletarian revolution. The Communist International – the mili-
tary staff of the world revolution – was established. For the first time in
many capitalist countries, Communist Parties arose, which unfurled the flag
of revolutionary socialism that had been stamped into the dust and steeped in
blood by the traitors to socialism from the Second International.
With the help of the traitorous Social-Democracy, the bourgeoisie suc-
ceeded in repelling the attacks of the revolutionary proletariat and breaking
down its resistance in a number of countries. In 1923 the German bourgeoi-
sie succeeded in again inflicting defeat on the revolutionary proletariat in
that country. The first period thus ended, on the one hand, in the victory of
Soviet power in the U.S.S.R. and, on the other, in the temporary defeat of the
West European proletariat.
After inflicting defeat on the working class the West European bour-
geoisie took the offensive. Thus, the second period began – the period of the
199
gradual advent of partial stabilization in capitalist countries. A certain
amount of “reconstruction,” necessitated by the havoc left by the World
War, took place in the capitalist camp. On the other hand, this period was a
period of the rapid reconstruction of the national economy of the U.S.S.R.,
and of the most vital successes of socialist construction.
Having repelled the attacks of the masses of workers, the bourgeoisie
proceeded to bind up the more gaping wounds left by the World War. Their
method of curing these wounds was by transferring the entire burden of the
heritage of the imperialist slaughter onto the shoulders of the working class.
At the cost of an unbelievable reduction in the standard of living the bour-
geoisie achieved a temporary and partial stabilization of capitalism. In a
number of countries money circulation was re-stabilized after it had been
completely upset by the war and post-war chaos. The bourgeoisie began to
put capitalist rationalization methods into effect. Rationalization under capi-
talism means an enormous increase in the rate of exploitation of the workers.
This is accomplished by the aid of technical innovations introduced by the
rationalizers. Capitalist rationalization reduces the number of workers em-
ployed while increasing their productivity. Part of the workers are thrown
out on the streets without the slightest hope of ever getting employment
again. Those workers who remain are forced to work twice and three times
as intensively, exhausting their entire strength for the benefit of capital.
Partial stabilization of capitalism could only be temporary, tottering, rot-
ten. It could only succeed in deadening the effect of some of the contradic-
tions of contemporary capitalism for a very short time indeed, as it is abso-
lutely unable to solve these contradictions. On the contrary, these contradic-
tions have made themselves felt more and more sharply from year to year.
The process of stabilization was characterized by an increase in the un-
evenness of development of the various countries. Some countries succeeded
in getting on their feet after the ravages of war more or less rapidly, while
others lagged behind in this respect. Currency was relatively stabilized in
various countries at different times. The temporary revival of the production
machinery also began at different times in the various countries. Unevenness
of development in the years of stabilization was one of the sources of those
contradictions which revealed themselves very soon afterwards.
Together with the temporary stabilization of capitalism, the reconstruc-
tion of the economy of the Soviet Union forged ahead with giant strides; the
deep wounds inflicted on the economy of the country by the imperialist war
and the civil war that followed were healed in a comparatively short time,
independently and without recourse to any outside aid. The consolidation
and growth of the power of the Soviet Union deepen the general crisis of
capitalism and render it more acute.
The colonial countries, exploited by the imperialists, rise in a struggle
against their exploiters. The revolution in China, regardless of temporary
200
setbacks, does not let the imperialists rest. The revolutionary movement in
India and other colonies of British and French capital continues to grow. The
contradictions between the imperialist countries increase and become
sharper. The transference of the world’s economic centre to America, the
transformation of the U.S.A. into a world exploiter, greatly sharpens the re-
lations between the American and the European, primarily the British, bour-
geoisie. The contradictions between America and Great Britain form the
pivot around which the world imperialist struggles revolve. As capitalist
industry reaches pre-war dimensions again in some countries (1927-28) the
struggle for markets becomes more intensified.
The third period of the post-war general crisis of capitalism arrives.
This period is characterized by the sharpening of the basic contradictions of
contemporary capitalism. In 1927 as compared with 1913, world economy
produced: oil – 300 per cent, iron – 102 per cent, steel – 127 per cent, cotton
– 125 per cent, wheat – 110 per cent, rye – 95 per cent. The following year,
1928, resulted in a further increase in production for many commodities.
Capitalism, about ten years after the war, exceeded its pre-war limits. Simul-
taneously, an exceptional increase in capitalist contradictions resulted both
within individual countries and between them. The third period in the devel-
opment of the general crisis of capitalism is the period of the shattering of
the partial and temporary stabilization of capitalism; under the circumstances
of the world economic crisis that began in 1929 and shook the entire econ-
omy of the capitalist countries to its very foundations, the end of capitalist
stabilization finally arrives, as was pointed out in the resolution of the
Twelfth Plenum of the E.C.C.I., held in the autumn of 1932.
Capitalist rationalization brings with it an unprecedented increase in the
exploitation of the working class by the bourgeoisie. Rationalization sharp-
ens the class contradictions to their extreme limits. Rationalization under
conditions of capitalism results in the shutting down of a number of anti-
quated enterprises and a reduction in the number of workers employed at the
remaining plants and factories. Chronic unemployment sets in. The condition
of the working class becomes worse even in a number of the most highly
developed capitalist countries.
Thus, for instance, in even the wealthiest capitalist country, which the
reformists point to as being almost “heaven on earth” – the U.S.A. – the fol-
lowing changes took place between 1919 and 1925. The number of workers
employed in industry, in agriculture and on the railroads decreased 7 per
cent; production increased 20 per cent; the productivity of labour increased
29 per cent. During these years, the number of workers employed in these
fields fell by almost 2,000,000 people. Part of these found employment in
the sphere of trade and service, but the majority remained unemployed.
In Germany there were no less than three million unemployed at the be-
ginning of 1929. During the later years of capitalist rationalization a constant
201
reserve army grew, which even at times of industrial revival never fell below
one to one and half million people in number. Of these, from half a million
to a million people were permanently unemployed and their condition hope-
less. These were real victims of capitalist rationalization, which, had taken
all their strength from them and then thrown them out onto the street.
The total number of unemployed, thrown out of employment by ration-
alization in the foremost capitalist countries, amounted to ten million people.
Precisely the same number as that killed in the World War! Like the victims
of the war, these also are doomed to death by capitalism; the only difference
is that the capitalist victims of “peace” die slowly.
The impoverishment of the working class proceeds apace with the
growth of technical improvement, throwing workers out of employment and
at the same time enormously increasing the quantity of commodities pro-
duced. Together with the tremendous increase in the quantity of commodities
produced, the internal market contracts, as it depends on the well-being of
the broad masses. The increase in production conflicts with the decreased
consumption of the masses. The difficulties of selling increase, and. compel
the capitalists of the various countries to conduct a savage struggle for ex-
ternal markets.
In the third period the contradiction between the development of pro-
ductive forces and the contraction of the markets becomes particularly acute.
The internal as well as the external contradictions grow, rending the capital-
ist countries asunder under the conditions of a general crisis of the capitalist
system. The third period brings with it devastating crises and the ever grow-
ing danger of new imperialist wars.
At the same time, in the U.S.S.R. a transition takes place from the resto-
ration to the reconstruction period. The great Five-Year-Plan of reconstruc-
tion begins to be realized. The reconstruction of national economy, the co-
lossal growth of socialist industry, the radical transformation of agriculture
on the basis of collectivization – all this marks the victorious progress of
socialism on the vast territory which covers one-sixth of the world. The third
period intensifies the struggle between two systems – that of moribund capi-
talism and that of rapidly developing socialism. The absolute hopelessness
of the capitalist system and all the advantages of socialism stand forth with
particular clarity in this period when the enormous growth of socialism in
the U.S.S.R. takes place against the background of a crisis of unprecedented
depth which shook the capitalist countries to their very foundations.
During the years of partial stabilization the bourgeois scribblers and So-
cial-Democratic lackeys of capital made every effort to prove that the capi-
talist system had completely healed the wounds inflicted by the war and had
definitely overcome the post-war crisis. They asserted that capitalism was
full of strength and vitality, that it had a brilliant future before it. The Social-
Democrats, in their slavish catering to the bourgeoisie, asserted that a period
202
of capitalist prosperity and well-being had arrived, the millenium of organ-
ized capitalism which knows no shocks, wars or crises.
The opportunists within the Communist Parties repeated these ravings of
the defenders of the bourgeoisie in a more concealed form. The Right oppor-
tunists repeated the Social-Democratic arguments about organized capital-
ism. During the transition from the second to the third period the Right op-
portunists tried to show that the third period is not the end of capitalist stabi-
lization, but a period of its further entrenchment. The Right opportunists
supported the fiction of American prosperity, creating the theory of Ameri-
can “exceptionalism,” asserting that America was unaffected by the general
crisis of capitalism. In the opinion of the Right opportunists, the stabilization
of capitalism was permanent and unshakable. The Trotskyists, rather, at first
tried to deny the significance of capitalist stabilization, disposing of it with a
few “Left” phrases, but soon they joined the chorus of those who sang the
praises of the permanence and steadfastness of capitalist stabilization. The
Right opportunists and the Trotskyists did not want to admit the advent of
the present world crisis even when the majority of the bourgeois politicians
were compelled to admit its existence.
Even at the time of partial stabilization the C.P.S.U. and the Comintern
foresaw the inevitability of the advent of a new crisis. They based them-
selves on the revolutionary, Marxist-Leninist analysis of those inner contra-
dictions which inevitably develop in modern capitalism. In his report to the
Fifteenth Congress of the C.P.S.U. in December 1927, Stalin emphasized
that “from stabilization is born the growing crisis of capitalism.” He said:
“As early as the Fourteenth Congress it was stated in the report
that capitalism may return to pre-war level, may surpass the pre-war
level, may rationalize its production, but that this does not yet mean
– does not mean by far – that because of this the stabilization of
capitalism can become durable, that capitalism can recover its pre-
war stability. On the contrary, out of its very stabilization, out of the
fact that production expands, that commerce develops, that techni-
cal progress and productive capacity increase, while the world mar-
ket, the limits of this market and the spheres of influence of individ-
ual imperialist groups remain more or less stationary – out of this
the deepest and most acute crisis of world capitalism is growing,
pregnant with new wars and threatening the existence of any stabili-
zation. Out of partial stabilization an intensification of the crisis of
capitalism ensues, the growing crisis disrupts stabilization – this is
the dialectics of the development of capitalism in the given histori-
cal period.”
Later developments showed the absolute correctness of this estimate
given by Stalin. Already at the end of 1929 the “deepest and most acute cri-
203
sis of world capitalism” had set in. This crisis upset all the fairy tales of the
bourgeois and Social-Democratic apologists of capitalism, all the opportun-
ist theories. This crisis showed the full correctness of the estimate of the
third period which was given by the C.P.S.U. and the Comintern. The pre-
sent crisis, with its development, brought about the advent of the end of the
relative stabilization of capitalism, as was pointed out in the resolution of the
Twelfth Plenum of the E.C.C.I. of September 1932.
Fascism and Social-Democracy
An unwonted sharpening of class contradictions takes place under the
conditions of the general crisis of capitalism. In the new situation the bour-
geoisie, feeling the approach of its downfall, makes use of the severest and
cruellest methods of repression against the working class. In a number of
countries the bourgeoisie, after repelling the first attacks of the working
class in the very first years after the war, established fascist dictatorships
(e.g., Italy and Hungary). In Germany the bourgeoisie established a fascist
dictatorship only after a number of intermediate steps, in February 1933,
when the Hitler government came into power.
The bourgeoisie finds it continually more difficult to maintain itself in
power by means of the more veiled forms of bourgeois dictatorship. It goes
over to open fascist dictatorship. It represses the labour movement by the
bloodiest methods. It passes over to open terror against the working class
and its organizations. All this is clear evidence of the instability of capital-
ism, of the uncertainty of the bourgeoisie concerning what the morrow will
bring.
The fascist form of open dictatorship of the bourgeoisie is extremely
characteristic of capitalism in the epoch of its decay and downfall. Fascism
tries to create a bulwark for the bourgeoisie against the working class. It ap-
peals to the broad masses of the petty bourgeoisie, the peasantry, office em-
ployees and clerks, small businessmen, and the intelligentsia. It penetrates
into the more backward elements of the working class. It widely mobilizes
all the declassed elements. It conducts its frantic defence of capitalism, at
least at first, under the mask of anti-capitalist agitation. The hazy demagogy
against capitalism serves fascism as a decoy to catch adherents from among
the disinherited but politically backward sections of the petty bourgeoisie.
“The principal aim of fascism is to destroy the revolutionary la-
bour vanguard, i.e., the Communist sections and leading units of the
proletariat. The combination of social demagogy, corruption and ac-
tive White terror, in conjunction with extreme imperialist aggres-
sion in the sphere of foreign politics, are the characteristic features
of fascism. In periods of acute crisis for the bourgeoisie, fascism re-
sorts to anti-capitalist phraseology, hut, after it has established itself
at the helm of state, it casts aside its anti-capitalist rattle and dis-
204
closes itself as a terrorist dictatorship of big capital.”*
Under conditions of the general crisis of capitalism, Social-Democracy
completes its course of treachery. The roots of opportunist degeneration had
deeply penetrated the parties of the Second International even before the
period of the war. The World War clearly exposed the complete treachery of
international Social-Democracy to the interests of the working class. The
social-patriots and social-chauvinists in each country supported the bour-
geoisie of “their own fatherland” in its annexationist policies. After the war,
Social-Democracy was the force which played the biggest and leading role
in suppressing the workers’ uprisings. In all countries the Social-Democrats
saved their “own” capitalism, not stopping at the vilest means of struggle
against the revolutionary vanguard of the working class. In this situation the
bourgeoisie is continually passing over to fascist methods of dictatorship. To
the Social-Democrats, as to the fascists, the most dangerous enemy is the
revolutionary proletariat. When in power the Social-Democrats employ the
methods characteristic of fascism more and more in their struggle against the
revolutionary forces of the proletariat. At the same time, Social-Democracy
clears the way for the fascist advent to power. This was most clearly seen in
Germany.
“The principal function of Social-Democracy at the present
time is to disrupt the essential militant unity of the proletariat in its
struggle against imperialism. In splitting and disrupting the united
front of the proletarian struggle against capital, Social-Democracy
serves as the mainstay of imperialism in the working class.”†
Anxious to save the bankrupt capitalist system, the bourgeoisie goes
from one method of struggle against the revolutionary proletariat to another.
Now it rules by means of an open fascist dictatorship, now it prefers to back
Social-Democracy which has had such tremendous experience in duping and
betraying the working class.
“Fascism is the militant organization of the bourgeoisie, relying
on the active support of Social-Democracy. Objectively, Social-
Democracy is a moderate wing of fascism. There is no basis for the
supposition that a militant organization of the bourgeoisie could
achieve decisive success in battles or in the administration of the
country without the active support of Social-Democracy. There is
just as little foundation for the idea that Social-Democracy could
achieve decisive successes in battles or in the administration of the
* Program of the Communist International, p. 19.

† Ibid., p. 18.
205
country without the active support of the militant organization of
the bourgeoisie. These organizations do not contradict but supple-
ment each other. They are not antipodes but twins.”*
REVIEW QUESTIONS
1. What were the causes of the imperialist World War?
2. What destruction did the World War cause?
3. Which country profited most from the war?
4. How did the relation of forces among the Powers change as a result of the
war?
5. What is the general crisis of capitalism?
6. What is the distinguishing feature of the first period of the general crisis
of capitalism?
7. Why could the stabilization of capitalism only be temporary, partial and
shaky?
8. What are the distinguishing features of the third period?
9. What are the roles of fascism and Social-Democracy?
* Stalin, On the International Situation, pp. 6-7, Russian ed.

206
CHAPTER XI
The Contemporary World Crisis of Capitalism
The economic crisis amidst the general crisis of capitalism
The present crisis which has shaken the capitalist world for a number of
years is distinguished by its unprecedented force.
The present crisis developed amidst the general crisis of capitalism that
set in with the imperialist war. It broke out in the period of the decline and
collapse of capitalism, in an era of wars and proletarian revolutions.
This crisis is distinguished from all previous capitalist crises by one ex-
tremely important circumstance. Side by side with the capitalist system there
now exists a land where socialism is being built and is triumphing – the
U.S.S.R. The world is now going through a period of struggle and contest
between two systems – the system of moribund capitalism and the system of
triumphant socialism. A crisis of unwonted force is shaking the capitalist
countries while a vast amount of construction work and an altogether ex-
traordinary rise in socialist economy is taking place in the U.S.S.R. The
struggle of the two systems acutely sharpens the crisis of capitalism. The
existence of the U.S.S.R. is a constant reminder of the inevitable doom of
the capitalist system. The triumphant construction of socialism in the
U.S.S.R. shows the disinherited and enslaved masses of toilers in the capital-
ist countries the only road of escape from the reign of slavery and oppres-
sion, poverty and ruin.
“It means first of all, that the imperialist war and its aftermath
have intensified the decay of capitalism and destroyed its equilib-
rium, that we are now living in the epoch of wars and revolutions;
that capitalism no longer represents the sole and all-embracing sys-
tem of world economy; that side by side with the capitalist system
of economy there exists the socialist system, which is growing,
which is flourishing, which is resisting the capitalist system and
which, by the mere fact of its existence, is demonstrating the rotten-
ness of capitalism and shaking its foundations.”*
The world crisis began almost simultaneously in the autumn of 1929 in
two opposite places: in the backward countries of Eastern and Southern
Europe (Poland, Rumania) and in the foremost, most powerful country of
contemporary capitalism – the U.S.A. From these centres the crisis spread
over the entire capitalist world.
The crisis hit the most powerful and foremost country of modern capi-
talism – the United States of America – with the greatest force. For several
* Stalin, Leninism, Vol. II, “Political Report to the Sixteenth Congress,” p. 254.
207
years all the lackeys of the bourgeoisie, all its learned hirelings and toadies
from the Social-Democratic camp glorified American “prosperity” and as-
sured the world that there could be no end or limit to this prosperity. The
crisis unmercifully exposed and refuted these traitorous arguments.
The present crisis came as the first post-war world economic crisis. It
developed unevenly in the various countries: some countries experienced the
crisis sooner, some later. The crisis hit various countries with various de-
grees of force. Nevertheless, it embraced the entire capitalist world and there
is not a single capitalist country which it has spared. Thus, regardless of the
unevenness with which it affected the various countries, the present crisis
caught all the capitalist countries in its iron embrace.
In previous epochs, before capitalism had begun to decline, crises ap-
peared after comparatively long periods of prosperity and a rise and growth
of the national economy of capitalist countries. The present crisis, in this
respect, differs radically from all previous, “usual” crises. The present crisis
was preceded by only temporary flares of revival in various countries.
These “booms” appeared in various countries at various times and were
very short-lived. In Germany the year 1927 was one of revival. But 1928
already showed a decline. In Poland there was a certain revival in 1927-28;
in Japan, in 1928 and the beginning of 1929. On the other hand in such
countries as England, Australia, and Brazil there was no revival whatsoever
before the crisis. In the economy of these countries the pre-crisis period was
one of great stagnation.
Describing the condition of the capitalist world during recent years in
his report to the Seventeenth Congress of the Communist Party of the
U.S.S.R., Comrade Stalin said:
“In the economic sphere these years have been years of continu-
ing world economic crisis. The crisis has affected not only industry,
but also agriculture as a whole. The crisis has not only raged in the
sphere of production and trade, but has also swept into the sphere of
credit and the circulation of money, and has overturned the estab-
lished credit and currency relationships between countries.
“Formerly, there were disputes here and there as to whether
there was a world economic crisis or not, but now nobody argues
about this because the existence of the crisis and its devastating ef-
fects are only too obvious. Now the controversy centres around an-
other question, viz., is there a way out of the crisis or not? And if
there is a way out, where is it to be found?”*
* Stalin, Report on the Work of the Central Committee of the C.P.S.U.

(Seventeenth Party Congress), p. 7.
208
THE CONTEMPORARY WORLD CRISIS OF CAPITALISM
A crisis of overproduction
Like all crises under the capitalist system, the contemporary crisis is one
of overproduction. More commodities have been produced than the market
can absorb.
“It means that more textiles, fuel, manufactured articles, food-
stuffs have been produced than can be bought for cash by the main
consumer – the mass of the people – whose income remains at a low
level. And as the purchasing capacity of the mass of the people in
conditions of capitalism remains at the lowest possible level, the
capitalists leave the ‘surplus’ commodities, textiles, grain, etc., in
store, or even destroy them, in order to maintain high prices. They
reduce production, dismiss their workers, and the mass of the peo-
ple are forced to suffer privations because too many commodities
have been produced.” *
A crisis of overproduction means a lack of sales, the contraction of mar-
kets, the closing of factories and plants, a curtailment of production. Tre-
mendous quantities of commodities cannot be sold. This leads to an accumu-
lation of reserves of all kinds. Tremendous stores of raw material, industrial
goods and agricultural products are accumulated. These stores exert pressure
on the market. In order to maintain prices, a considerable part of these stores
of goods are destroyed by the capitalists. For this purpose also, production is
curtailed. By means of these measures the capitalists maintain the prices of
some commodities at a comparatively high level for a short time, but the
force of the crisis proves stronger than all the measures they adopt. The cur-
tailment of sales, the contraction of markets, the accumulation of reserves of
commodities inevitably lead to a decline in prices. Under contemporary mo-
nopoly capitalism the more powerful monopoly corporations do all in their
power to maintain high prices on their commodities. Hence, there is a great
lack of uniformity in the decline of prices. While the more powerful trusts
and cartels maintain fairly high prices on their commodities, prices of all
other commodities fall rapidly.
The lack of sales, the accumulation of reserves and the decline in prices
lead to a curtailment of production. The decline in production has a number
of serious consequences. The army of unemployed grows catastrophically.
There is a progressive underemployment of the working capacity of enter-
prises. As a result the cost of production rises, while the sales prices of
commodities sink. The weaker links of capitalist economy snap. Bankrupt-
cies multiply. A credit and financial crisis breaks out.
The capitalists throw millions of workers out onto the streets. The un-
* Stalin, Leninism, Vol. II, “Political Report to the Sixteenth Congress," p. 254.
209
employed are deprived of all means of subsistence or, at best, receive a beg-
garly dole. Those who remain at work receive greatly reduced wages. The
earnings of the workers become continually smaller. But this only results in
further lowering the purchasing power of the masses of workers. At the same
time the agricultural crisis cuts down the incomes of the agricultural popula-
tion. The peasant masses are ruined.
The contraction of the internal market compels the capitalists to conduct
a frantic struggle for foreign markets. But foreign markets mean either other
industrial capitalist countries, or colonial and semi-colonial agrarian coun-
tries. The bourgeoisie of every industrial country tries to fence in its own
market from the encroachments of foreign competition. With this end in
view, high tariffs, outright embargoes on the import of certain commodities,
etc., are introduced, and the markets of the colonial and semi-colonial agrar-
ian countries are ruined and drastically contracted because of the devastating
effects of the agrarian crisis and the growth of colonial oppression and ex-
ploitation. All this leads to a catastrophic decline in foreign trade, to an ex-
treme sharpening of the struggle for markets, to an enormous growth of the
contradictions in the capitalist world.
The most profound and protracted of all crises
There have been many crises in the history of capitalism, but never be-
fore has there been a crisis of such depth and acuteness. In scale, force and
prolongation, in the extent to which it has affected all phases of capitalist
economy, the present crisis far exceeds all previous crises.
“The present economic crisis in capitalist countries differs from
all analogous crises, among other things, by the fact that it is the
longest and most protracted crisis, Formerly, crises lasted one or
two years, the present crisis, however, is now in its fifth year and
from year to year has devastated the economy of capitalist countries
and has wasted the fat it accumulated in previous years. It is not
surprising that this crisis is the severest of all crises.”*
All the basic indices evidence of this and characterize the depth and
acuteness of the crisis. According to the basic indices showing the decline of
production, the extent of unemployment and wage reductions, the fall in
prices of commodities, the decline in foreign trade, the drop in stock market
quotations, etc., the present crisis far exceeds all the previous crises that
have taken place in the history of capitalism.
The following table gives the index numbers of the present crisis in
comparison with previous ones, in percentages of decline:

210
Stock Prices
Years of World Pro- Building World U.S.A. France Decline in
Crises duction of Industry of Foreign World Prices of
Pig Iron the U.S.A. Trade Commodities
1873-74 8.9 – 5 30 – 20.2
1883-85 10.0 – 4 29 – 20.4
1890-92 6.5 – 1 – 21 –
1907-08 23.0 20.0 7 37 5 0.8
1920-21 43.5 11.0 – 41 25 21.0
1929-32 66.8 85.2 60 75 50 47.0
The decline in production during the present crisis reached proportions
unequalled in the history of crises since the beginning of the existence of
capitalism. During previous crises a decline in production amounting to 10-
15 per cent was considered tremendous. In the present crisis the curtailment
in the production of the capitalist world as a whole reached enormous pro-
portions – a decline of from one-third to two-fifths; and in certain of the
most important countries production declined to half.
Such an unprecedented decline in production sets the capitalist countries
back considerably.
Exceedingly significant are the figures for individual branches of indus-
try in capitalist countries. The following table shows the year in the past in
which production was equivalent to that of 1932 when the lowest point of
the crisis was reached.
Country Coal Pig Iron Steel Consumption
of Cotton
U.S.A. 1906 1898 1905 1893
England 1900 1860 1897 1872
Germany 1899 1891 1895 1889
Thus, the basic industries in capitalist countries have been thrown back
twenty-five to forty years.
The unprecedented decline of production is intimately bound up with
colossal unemployment. In extent of unemployment the present crisis has by
far exceeded all previous crises. It is sufficient to point out that in the crisis
of 1921, when unemployment reached what was then considered colossal
proportions, the number of unemployed was about 10,000,000, whereas dur-
ing the present crisis the number of unemployed in the most important capi-
talist countries was 40-50,000,000 people.
What are the causes for such a long and protracted character of the cri-
sis, for its unusual extent and acuteness? In his report to the Seventeenth
Congress of the Communist Party of the Soviet Union, Comrade Stalin thus
211
analysed these causes:
“It is to be explained, first of all, by the fact that the industrial
crisis affected every capitalist country without exception and made
it difficult for some countries to manoeuvre at the expense of others.
“Secondly, it is to be explained by the fact that the industrial
crisis became interwoven with the agrarian crisis which affected all
the agrarian and semi-agrarian countries without exception and this
could not but make the industrial crisis more complicated and pro-
found.
“Thirdly, it is to be explained by the fact that the agrarian crisis
became more acute in this period and affected all branches of agri-
culture including cattle raising, degrading it to the level of passing
from machine labour to hand labour, to the substitution of the horse
for the tractor, to the sharp decline, diminution in the use of and
sometimes to the complete abandonment of artificial fertilizers,
which caused the industrial crisis to become still more protracted.
“Fourthly, it is to be explained by the fact that the monopolist
cartels which dominate industry strive to maintain the high prices of
goods, and this circumstance makes the crisis particularly painful
and hinders the absorption of stocks of commodities.
“Lastly, and what is most important, it is to be explained by the
fact that the industrial crisis broke out amidst the conditions of the
general crisis of capitalism, when capitalism no longer has, nor can
have, either in the home states or in the colonial and dependent
countries the strength and stability it had before the war and the Oc-
tober Revolution, when industry in the capitalist countries is suffer-
ing from the heritage it received from the imperialist war in the
shape of the chronic working of enterprises under capacity, and an
army of unemployed numbering millions from which it is no longer
able to release itself.
“Such are the circumstances which determine the extremely
protracted character of the present industrial crisis.”*
The decline in production
The crisis of overproduction leads to a colossal decline in production in
all fields of economy. Beginning with the autumn of 1929 a stoppage and a
curtailment of production, hitherto unprecedented, has been taking place in
capitalist countries.
While there is a considerable increase of production in the U.S.S.R.
every year, the capitalist world, caught in the iron vice of the crisis, curtails
* Ibid., pp. 9-10.

212
production to an unprecedented degree.
Here is a table, compiled on the basis of official data, showing the trend
of the volume of production in the U.S.S.R. and in capitalist countries (given
by Comrade Stalin in his report to the Seventeenth Party Congress of the
C.P.S.U.*):
VOLUME OF INDUSTRIAL PRODUCTION
(Percentage of 1929)
1929 1930 1931 1932 1933
U.S.S.R. 100 129.7 161.9 184.7 201.6
U.S.A. 100 80.7 68.1 53.8 64.9
England 100 92.4 83.8 83.8 86.1
Germany 100 88.3 71.7 59.8 66.8
France 100 100.7 89.2 69.1 77.4
This table is very significant.
It shows, first of all, that industrial production in the biggest capitalist
countries suffered an extraordinary reduction, while industrial production in
the Soviet Union more than doubled.
It shows, in the second place, that the lowest point of the decline in in-
dustrial production in capitalist countries was reached in 1932, when the
volume of production diminished by fully one-third. Only in 1,933 did the
industries of the capitalist countries begin to pick up; production, however,
even in 1933 was almost one-fourth lower than in the pre-crisis year of
1929.
It shows, thirdly, that the crisis did not affect all countries with equal
force and that its effects in various countries differ greatly.
It should be borne in mind, however, that the situations of the various
countries at the beginning of the crisis were also different. From the table it
might appear that England is in the most favourable position. But this is
really not so. If we compare the present level of these countries with their
pre-war level, this becomes quite evident. Here is a table showing this:
VOLUME OF INDUSTRIAL PRODUCTION
(Percentage of pre-war level)
1913 1929 1930 1931 1932 1933
U.S.S.R. 100 194.3 252.1 314.7 359.0 391.9
U.S.A. 100 170.2 137.3 115.9 91.4 110.2
England 100 99.1 91.5 83.0 82.5 85.2
Germany 100 113.0 99.8 81.0 67.6 75.4
France 100 139.0 140.0 124.0 96.1 107.6
* Ibid., p. 12;
213
From this table it is plain that the industries of England and Germany
are below their pre-war level. The industries of the U.S.A., which in 1929
had reached 170 per cent of its pre-war volume of production, now exceed
the pre-war level by only 10 per cent. At the same time the industries of the
Soviet Union have increased practically fourfold compared with the pre-war
output of the industries of tsarist Russia.
The catastrophic decline of production in capitalist countries signifies an
unprecedented waste of productive forces.
The production apparatus created by the sweat and blood of the toiling
masses is utilized to an extremely small degree. A considerable portion of the
blast furnaces, open hearths, mines, machine-building plants and textile mills
is not utilized. Enterprises equipped according to the last word in engineering
stand idle. Tremendous means invested in these enterprises are wasted; the
plants themselves go to pieces as they are not used or attended to. The over-
whelming majority of enterprises work at only part capacity. The considerable
under-employment of the working capacity of enterprises is one of the clearest
expressions of the general crisis of the capitalist system.
Thus, for instance, in the United States, the chronic utilization of plants
below capacity expressed itself in the fact that even up to the beginning of
the crisis in 1929 coal mines were worked only to 68 per cent of their capac-
ity, oil wells to 67 per cent, oil refineries to 76 per cent, iron smelters to 60-
80 per cent, automobile plants to not more than 50 per cent, machine-
building plants to 55 per cent, textile mills to 72 per cent, and in some
branches even less – as in the polygraphic industry to 50 per cent, in the
flour-milling industry to 40 per cent and in the woollen mills to 36 per cent.
Thus the basic industries, even before the crisis, could not utilize their enor-
mous production capacity in full. The underemployment of the working ca-
pacity of the enterprises increased enormously as a result of the crisis and
the decline in production.
Only 13 per cent of the equipment of steel mills and only 11 per cent of
the machinery used in the manufacture of automobiles were still in operation
in the U.S.A. in October 1932. In Germany the entire industry worked at 36
per cent of capacity in December 1932, in heavy industry the percentage was
even smaller.
In the United States 60 blast furnaces were reduced to scrap in 4 years.
In 1931, 12 open-hearth steel furnaces with a total capacity of 710,000 tons
of steel and 13 rolling mills were torn down. In Germany 23 blast furnaces
and 38 open-hearth furnaces were destroyed.
In bourgeois newspapers one can find dozens of descriptions of tremen-
dous machinery “cemeteries” that have sprung up in all capitalist countries.
Plants and warehouses with boarded up doors, powerful cranes standing in
dusty neglect, abandoned, railroad branch lines overgrown with grass, whole
fleets of freight and passenger steamships, forests of dead factory chimneys
214
extend for miles in the industrial regions of the richest capitalist countries.
The decline in the national income and reduction
in the national wealth
The curtailment of production in industry and agriculture and the reduc-
tion in transportation involve a reduction in the total values produced annu-
ally in the capitalist countries. This means that the national income declines
in capitalist countries.
But it is not only the national income which declines in the capitalist
countries under the influence of the crisis. Factories that are standing idle go
to wrack and ruin. Houses that are not repaired become uninhabitable. Fields
that lie uncultivated become over-run with weeds. For lack of use and care
machinery rusts and becomes useless. Tremendous quantities of goods that
cannot be sold are destroyed in various ways. A wanton waste and destruc-
tion of wealth, accumulated by scores of years of persistent toil, take place in
most diverse forms. An extraordinary squandering of productive forces, ac-
cumulated by the toil of many generations, ensues.
The sum total of values in any country – plants, factories, buildings, ma-
chinery, equipment, manufactured goods and raw material – is usually called
the national wealth of that country. It is self-evident that in capitalist coun-
tries this wealth is not at all in the hands of the nation. On the contrary, un-
der capitalism it is concentrated in the hands of a small group of exploiters
and parasites, just as the preponderating part of the national income in capi-
talist countries does not at all go to the nation’s masses but to the minority of
drones.
Here is a table showing the decline in the national wealth and national
income of the most important capitalist countries for the first two years of
the crisis (in billions of dollars):
National Wealth National Income
Country 1929 1931 1929 1931
U.S.A. 400 240 90.0 54.0
England 115 69 19.0 11.4
Germany 80 48 15.5 9.3
France 68 51 9.0 6.7
Italy 30 18 5.0 3.0
These figures show that for two years of the crisis five of the most im-
portant capitalist countries lost almost 40 per cent of their national wealth
($267,000,000,000 out of $693,000,000,000 at the beginning of the crisis).
Their national income also fell from $137,500,000,000 a year to
$84,400,000,000 a year, that is, also, about 40 per cent.
These figures give a universal picture of the unprecedented devastation
wrought by the crisis in the capitalist world. These figures clearly illustrate
215
the senselessness, the criminality of the capitalist system which blindly de-
stroys untold wealth while condemning tens and hundreds of millions of
people to hunger and death.
The present crisis has far exceeded previous crises in the extent of the
decline of the national income and the destruction of national wealth. For
comparison it is sufficient to point out that in the 1901 crisis the national
income of Germany fell 6 per cent; the 1907 crisis reduced the national in-
come of Germany 4 per cent, and the national income of England 5 per cent.
Unemployment and the conditions of the working class
The entire weight of the world crisis of capitalism fell on the working
class. The crisis brought about an unprecedented aggravation of the condi-
tions of the working class, an extraordinary increase in the unemployment
and exploitation of the proletariat.
The universal crisis of capitalism which started with the World War
called forth a considerable increase in unemployment. After the war, unem-
ployment in the principal capitalist countries reached enormous proportions.
The industrial reserve army, which formerly disappeared in times of prosper-
ity, has become a permanent army of unemployed since the war. The size of
this army of permanently unemployed was quite large even before the be-
ginning of the present crisis. Thus in England the number of unemployed
since 1920 has never been below a million. Unemployment increased with
the wave of capitalist rationalization that spread in the years from 1925 to
1927. Because of the increase in the intensity of labour the capitalists
achieve “economies” in labour power. Hundreds of thousands of workers
prove “superfluous” for this reason.
In June 1927 the percentage of unemployed in England: amounted to 8.8
per cent and in February 1929 it was already 12.2 per cent; in Germany for
the same period 6.3 per cent and 22.3 per cent or 2,622,000 were unem-
ployed; in the U.S.A. in 1927 there were 2,100,000 unemployed, and at the
end of 1928 and beginning of 1929 there were 3,400,000 unemployed.
The crisis which began in 1929 brought about a colossal increase in un-
employment. The curtailment of production threw millions of workers out of
employment. Under pressure of the crisis a further intensification of labour
was inaugurated and the exploitation of those workers who remained at work
was increased.
In the period of the present crisis unemployment reached proportions
never before experienced in the entire history of capitalism. According to the
most conservative estimates the number of unemployed in the major capital-
ist countries was 45,000,000 people. If we take the families into considera-
tion this constitutes the entire population of a country like the U.S.A. To this
number must be added the tremendous number of workers who are only em-
ployed part time, that is, who work one to two days a week. Finally, these
216
figures do not include the vast masses of toilers in the colonial countries
whom the crisis deprived of their last piece of bread. For the period of the
crisis world unemployment increased four to five times, and in a number of
countries even more.
It must be kept in mind that the most important capitalist countries have
no really adequate or reliable statistics on unemployment. Usually the statis-
tical data greatly underestimate.
In a country like the U.S.A. there are no official data on unemployment.
But even bourgeois newspapers cannot hide the fact that at the very lowest
point of the crisis there were approximately 17,000,000 unemployed in the
U.S.A. This amounts to about half the working class in this richest of indus-
trial countries. In England there are some data on the number of unemployed
from the social insurance lists. These lists show about 3,000,000 unem-
ployed. But during the years of the crisis several hundred thousand workers
were removed from the social insurance list. Hundreds of thousands received
no social insurance. In Germany the official data on unemployment very
much underestimate the actual situation, particularly since the Hitler fascist
regime came into power; nevertheless, the number of unemployed there,
even according to official data, is not less than 5,000,000.
At the present time it is rare to find a worker’s family in a capitalist
country in which the head of the family or at least the children or some
member of the family is not unemployed. This means that the meagre wage
of the one who is working must feed a greater number of mouths. It means
that the one who is working cannot be sure of the morrow, cannot be at ease
as to his fate, since the threat of losing his job is always over him.
Capital conducts a desperate onslaught on the miserable dole that is
handed out to the unemployed in capitalist countries. On the pretext of
“economy” in government expenses the aid rendered the unemployed is
greatly reduced. In such countries as France and the U.S.A. there is no social
insurance against unemployment and the unemployed must die of starvation
or apply to private charity. But even in those countries where unemployment
insurance does exist there is a desperate attack on the unemployment dole. In
Germany and England the dole has been cut down considerably. In addition,
part of the unemployed have been deprived of the dole altogether.
Under the conditions of the crisis the bourgeoisie conducts an attack
against the standard of living of the working class. In all countries the de-
gree of exploitation of those workers who were still employed increased
enormously. In a number of cases the working day was lengthened. The in-
tensity of labour grew. Those who were partially employed were paid ex-
ceedingly low wages. Working conditions were aggravated in every way.
The bourgeoisie makes use of the crisis conditions for an organized at-
tack on the wages of the workers. During the crisis a reduction in wages was
217
effected in all capitalist countries, in every branch of the national economy.
During the years of the crisis the amount of money paid out in wages to
the working class as a whole decreased considerably. In the U.S.A. the
amount paid out in wages in 1932 was only 33 per cent of what it formerly
was. The wages of the working class in Germany fell off 26,000,000,000
marks for three years of the crisis. During this same period the wages fund in
the U.S.S.R., the land of socialism, increased from 8,000,000,000 to
30,000,000,000 rubles.
A certain German economist has investigated how the level of the real
wages of workers in the principal capitalist countries has changed in the past
ten years. On the basis of his investigation he came to the following
conclusion:
“If we compare the level of real wages at present with that of
previous decades we find the following: in Germany and the U.S.A.
the level of real wages is lower than it has ever been for the last half
century; in England real wages are at the same level as they were at
the end of the nineteenth and the beginning of the twentieth
centuries.”
Data from various countries prove this.
Germany. The level of real wages for the latest period has been continu-
ally reduced. Thus, taking 1913-14 as 100, we get the following index num-
bers (in 1928 the level of real wages as a result of slow increases was 100,
but the years following show a continuous decline):
1925 98
1928 100
1930 89
1931 79
1932 64
In 1933 there was a further reduction in the standard of living of the
German working class.
The conditions of the unemployed are even worse. Not to speak of the
great number of unemployed who were altogether deprived of government
aid mainly for political reasons, the fascist administration has reduced the
dole of all others.
England. The average wages of English workers were (taking 1895-
1903 as 100) 98 in 1927, 97 in 1929, 94 in 1932.
In the U.S.A. the wages of the working class as a whole, rising from
1922, reached their highest point in 1929. Taking 1898-1908 as 100, in 1929
they were 125. But at this point a sharp decline began to pull the standard of
living down to the level of years ago. In 1930 the index number fell to 105,
in 1931 to 91, in 1932 to 71.
218
Unemployed raking about in garbage cans for something to eat, forming
endless queues at the doors of charity soup kitchens – this is a common pic-
ture in any capitalist city now. Tramping the highways has become common
in the U.S.A. Hordes of people, in entire families, including their children
and their whole miserable household, can often be met on the highways
roaming about in a vain search for work. An investigation conducted by
some charity organization pointed out that in the U.S.A. over a million and a
half unemployed thus wander over the highways.
Hunger drives people to desperation. The number of suicides all over
the capitalist world is continually increasing. In Berlin alone an average of
sixty people daily commit suicide because of starvation.
The so-called help for the unemployed becomes a means of compulsion to
slavery, of forced hard labour. Forced labour for the unemployed is very much
in vogue now in many capitalist countries. At the threat of being deprived of
all assistance, the unemployed are driven to so-called “public works” (these
are mostly either unskilled labour requirements of some big landlords or some
kind of military construction), concentrated in various camps and settlements
where prison discipline prevails. The pay for this work, taken away from in-
dustrial or agricultural workers, is also prison pay. The fascist government of
Germany is hurriedly building such forced labour camps for the unemployed
youth. This example is most tempting to the other capitalist countries which a
few years ago raised such a self-righteous hue and cry about “forced labour”
in the Soviet Union where labour has really became “a matter of honour, a
matter of glory, a matter of valour and heroism.”
The attacks of capital against the vital interests of the workers call forth
resistance on the part of broad sections of the proletariat. A wave of strikes
sweeps over the capitalist countries. Under conditions of the present crisis
these strike struggles are distinguished by a special pertinacity. They help
the workers to understand the real situation. They show up clearly who is
their friend and who their enemy. Under the conditions of the crisis, strikes
soon assume the character of a challenge to the bourgeois order which
criminally condemns millions of people to hopeless misery.
Interweaving of the industrial and agricultural crises
The special acuteness and depth of this crisis are the result of the fact
that both industrial and agrarian countries, both industry and agriculture in
capitalist countries have been affected by it. The present crisis sharpened
and exposed all the fundamental contradictions of the capitalist system, in-
cluding the between industry and agriculture.
“In the course of development of the economic crisis, the indus-
trial crisis in the chief capitalist countries has not simply coincided,
but has become interwoven with the agricultural crisis in the agrar-
219
ian countries, aggravating the difficulties and predetermining the in-
evitability of a general decline in economic activity.”*
The industrial crisis leads to an unprecedented growth in unemploy-
ment, to the extreme impoverishment of the toiling masses. The poverty of
the masses means a curtailment in the sales of agricultural products. In addi-
tion to this the curtailment in production also means a curtailment in the de-
mand for agricultural raw material: cotton, wool, etc. In its turn, the agricul-
tural crisis, in ruining the masses of the peasantry, deprives them of the abil-
ity to purchase industrial commodities, thus contracting the sales market for
industry.
The agricultural crisis is a glaring instance of the inability of capitalism
to manage the modern development of productive forces. Modern engineer-
ing makes it possible to use entirely new methods of labour, opens up oppor-
tunities for mechanization which means a colossal increase in productivity.
The limits of capitalism are, however, too narrow for modern technical
achievements. Sharpening the contrast between city and village, capitalism
dooms the village to stagnation and decline. Capitalist relationships are a
stumbling block to the further development of agriculture.
The decline and stagnation of agriculture in capitalist countries is re-
vealed particularly glaringly when compared with the U.S.S.R. While the
area under cultivation in the Soviet Union increased in only the one year of
1931 by about ten million hectares, the area under cultivation for grain in all
capitalist countries has increased in the past twenty years by only thirty mil-
lion hectares. The World War evoked a profound crisis in the agriculture of
capitalist countries. The pauperization of the masses of the peasantry and the
curtailment of production in a number of countries were results of this crisis.
The present crisis, in which the industrial and agricultural crises are inter-
woven, is fatal to the existence of tens of millions of farmers.
Giving rise to an unprecedented impoverishment of the proletariat and
the toiling masses in general, the crisis drastically cuts down the demand for
agricultural products and contracts the sales market for these products to its
smallest possible limits. This extreme contraction of the market results in the
accumulation of tremendous reserves of agricultural products and a catas-
trophic decline in prices. The accumulation of reserves, the decrease in sales
and the decline in prices in their turn bring about a restriction of production
in agriculture.
Warehouses and grain elevators in capitalist countries are filled with re-
serves of agricultural products. The leaders of the bourgeoisie see only one
way of getting rid of this abundance – to burn, allow to rot, throw into the
sea and destroy these reserves, but mainly to reduce the area under cultiva-
* Stalin, Leninism, Vol. II, “Political Report to the Sixteenth Congress,” p. 254.
220
tion in order to compel agriculture to produce less. Mountains of wheat and
maize were allowed to rot or were burned, rivers of milk were poured out, in
Germany grain was treated with a special chemical which made it unfit for
human consumption, so that it could be fed only to cattle.
Prices of agricultural commodities have fallen sharply during the crisis.
For instance, the wholesale price of wheat on the world market declined 70 per
cent, cotton, sugar, coffee and wool became half price. It would seem that the
city consumers, the masses of the population, should gain by this. In practice,
however, this is not so. Before the commodity reaches the ultimate consumer
it passes through the hands of dozens of middlemen, wholesalers, who are
united into big monopolies that do not let the retail prices drop. Retail prices in
most capitalist countries did not decline much during the years of the crisis
and in some countries they even rose (Germany, for instance). But the farmer,
the mass of the toiling peasantry, has to deal with the wholesaler and sell his
products at extremely low prices which often do not cover his expenses on
seed and equipment, not to speak of the labour he has expended.
The farmer has to pay taxes to the government, rent to the landlord, in-
terest on bank loans, just as before and even in greater amounts. The pay-
ments in interest on loans and taxes take the lion’s share of what the poor
and middle farmer realize on the market. The farm and all the farmer’s
household goods are sold at auction for debts and taxes. Hundreds and thou-
sands of farms have thus been lost by the poor and middle farmers not only
in Europe but also in the U.S.A., the land to which the capitalists have al-
ways pointed as the paragon of the well-doing and thriving of agriculture
under capitalism. Such unprecedented ruin gives rise to a growing resistance
on the part of the toiling farmers against the pressure of capital, landlord and
bank. The farmers strive to unite, organize against the sale of their goods at
auction, refusing to buy the property. There have been cases in America
where the farmers of a district have gathered in an organized fashion at auc-
tion sales of ruined farmers and kept the bid down to one dollar for the entire
property. In this way, the representatives of the banks were compelled to call
off the auction and prolong the term of debt payments.
Abandoning their farms the ruined peasants swell the armies of beggars
that crowd the highways. The conditions of the hired farm hands in capitalist
countries are even worse. In both Europe and America it has become a
common thing for landlords and rich exploiting farmers who hire farm hands
to refuse to pay in money for the labour power. For a handful of grain, a
peck of half-rotten potatoes they can get an unemployed worker from the
city to do the same work. The bourgeois scribblers shout about returning to
the land. Special societies are formed for the organization of so-called “set-
tlements” for the unemployed. But this only means that there is an increase
in the number of petty farms which without equipment can hardly raise
221
enough to feed the workers who spend their hopeless days and nights in
working on them. The crisis of capitalist agriculture clearly shows the hope-
lessness of the situation of small-scale production under capitalism.
The poor and middle farmers suffer most from the blows of the agrarian
crisis. The crisis leads to the impoverishment of the broad masses of farm-
ers. The crisis speeds up the differentiation among the farmers, the transition
of many of them into the ranks of the proletariat. The burdens which the
peasantry have to bear in capitalist countries under the influence of the crisis
are especially unbearable. Taxes, rent, interest on debts and all other charges
– all this presses most heavily on the great masses of the peasantry under
conditions of the crisis.
The agrarian crisis causes a curtailment in the production of agricultural
products. Bourgeois governments in a number of countries frankly advise
curtailment of production declaring that this, in their opinion, is the only
way to alleviate the agrarian crisis. The curtailment of production in agricul-
ture, as in industry, involves a tremendous destruction of productive forces.
Wheat and maize fields stand bare and unsown, cotton, rubber and coffee
plantations remain unattended or are altogether cleared. And this at a time
when millions of people are starving, have no roofs over their heads and lack
even the most necessary clothing.
The agrarian crisis and the ruin of the masses of the peasants brought
about a decline in agriculture. The sale of agricultural machinery and artifi-
cial fertilizers has fallen off catastrophically. In the foremost capitalist coun-
tries the use of tractors, sowers and harvesters has been curtailed. The crisis
brought about the degradation and ruin of agriculture in the capitalist world.
The crisis and monopolies
One of the most important distinguishing characteristics of the contem-
porary crisis is its development on the basis of monopoly capitalism.
“Present-day capitalism, as distinguished from older capitalism,
is monopolistic capitalism, and this inevitably gives rise to the
struggle between the capitalist combines to maintain high monopo-
list prices of commodities in spite of overproduction. Obviously,
this circumstance, which makes the crisis particularly painful and
ruinous for the mass of the people, who are the basic consumers of
commodities; cannot but lead to the dragging out of the crisis, can-
not but retard its dissipation.”*
For many years the lackeys of the bourgeoisie claimed that the growth
of monopolies indicates a transition to organized capitalism. The apologists
of capital told fairy tales about crises being things of the past for monopoly
* Ibid., p. 254.
222
capitalism. The present crisis revealed the absolute falsity of these inven-
tions. Actually, the monopolistic nature of modern capitalism has led to an
extreme sharpening of the crisis, to its deepening and protraction.
The lords of monopoly tried, first of all, to shift the entire burden of the
crisis onto the shoulders of the broad masses of consumers, attempting to
maintain inflated prices even under conditions of overproduction. And actu-
ally, irrespective of overproduction, prices on a host of products of monopo-
lized branches of industry fell much more slowly than prices of commodities
produced by other branches.
Germany Austria Poland
(1926 = 100) (1923-31 = 100) (1928 = 100)
Years Cartel Free Cartel Free Cartel Free
Prices Prices Prices Prices Prices Prices
1928 102.1 106.8 – – –
1929 105.0 97.4 99 100 107.7 93.6
1930 103.1 79.7 96 87 108.9 80.9
1931 93.6 60.8 91 76 107.8 63.8
1932 83.9 47.5 93 73 106.1 52.5
1933 83.9 48.3 94 73 94.8 48.8
In a number of cases the pressure of the crisis nevertheless proves
stronger than monopolistic ties and then prices drop precipitately and the
monopoly itself goes to pieces. This is particularly true for the branches en-
gaged in the production of raw material. The sharp decline in the demand for
raw material and the accumulation of tremendous reserves compel the pro-
ducers ultimately to reduce prices considerably. In these fields the monopo-
lists proved unable to maintain prices at a high level.
All the contradictions inherent in the nature of monopoly capitalism
greatly increase under the circumstances of the crisis. It is perfectly clear
that the trend of monopolies towards maintaining high price levels leads to
the sharpest kind of conflict between a few monopolies, on the one hand,
and the entire mass of the consumers of their products, on the other. This
conflict becomes more acute between the monopolized branches of industry
and those branches where monopoly is negligible. Further, the conflict be-
tween the monopolies themselves is sharpened tremendously. The contradic-
tions that rend individual monopolies increase sharply, the struggle within
separate monopoly organizations grows keener. A number of monopolies
cannot stand the blows of the crisis and fall to pieces.
The following big monopoly combinations, for example, were dissolved
during the crisis: the International Zinc Cartel, the European Pig Iron Cartel,
the International Tin Cartel. The European Steel Cartel, under continual
powerful pressure, was practically compelled to sanction a return to free
223
competition among its members. In Germany the organization of the artifi-
cial silk producers fell apart and the zinc cartel failed; in France the pig iron
syndicate was dissolved, etc.
The governments of capitalist countries give the monopoly associations
powerful support. Monopolies which get into difficulties receive all kinds of
subsidies and other help from the government treasury. Many hundreds of
millions of marks, dollars and francs have thus been transferred from the
lean pockets of the taxpayers to the coffers of private capitalists.
The monopolistic nature of modern capitalism leads to a protraction of
the crisis. In the epoch of free competition, the general reduction of prices,
the failure of the weaker business organizations and the curtailment of pro-
duction led to a gradual dissipation of the crisis and to a renewal of the cy-
clical movement of industry. With the prevalence of monopolies this method
of the natural dissipation of the crisis becomes very much more difficult.
The reign of monopolies leads to a sharpening of the crisis and to its further
deepening.
The decline in foreign trade
The crisis of overproduction and the contraction of markets lead to a de-
cline in foreign trade. The present crisis exceeded all previous crises in the
history of capitalism with respect to the decline in foreign trade.
The following table, showing the decline in foreign trade for 1929-31 as
compared with that of previous crises, bears eloquent witness to this.
DECLINE IN FOREIGN TURNOVER
Crises Percentage
1873-1874 5
1883-1884 4
1900-1901 1
1907-1908 7
1929-1932 65
The decline in world trade weakened the economic ties without which
capitalist economy cannot exist. Industrial countries greatly reduced the
amount of imports of raw material. Agrarian countries reduced the import of
manufactured articles. This led to a still greater curtailment of both produc-
tion and consumption by the broad masses of the workers.
The decline in world trade most forcibly affected the biggest capitalist
countries, which occupy a dominant position in the world market. Here are
the index numbers showing the reduction in export and import of the most
important capitalist countries. (The figures for 1929 are taken as 100.)
224
DECLINE IN FOREIGN TRADE OF THE

MOST IMPORTANT IMPERIALIST COUNTRIES
1930 1931 1932
Import Export Import Export Import Export
U.S.A. 70 73 48 50 30.1 30.8
Germany 77 90 50 73 34.7 42.6
England 86 78 72 53 57.6 50.1
France 90 85 72 61 51.2 39.3
Italy 80 79 51 66 38.7 45.6
Such a decline in foreign trade leads to an unprecedented sharpening of

the struggle for markets. The competitive struggle between various countries
assumes extraordinarily acute forms. In every country the capitalists try, first
of all, to ensure the internal market for themselves, not to admit any foreign
competition. Unusually high tariffs are introduced. This unheard-of rise of
protectionism in all capitalist countries results in a great increase in dumping.
The credit crisis, inflation and the struggle for markets
The monopolistic nature of modern capitalism has put its stamp on the
whole process of development. One of the consequences of the monopolistic
character of modern capitalism is a certain peculiarity in the development of
the credit cost.
In previous crises the sphere of credit was one of the first in which the
crisis openly and stormily manifested itself. Sales difficulties soon resulted
in the crash of enterprises which did not find it possible to sell their prod-
ucts; having no money to meet their obligations they were compelled to de-
clare themselves bankrupt, i.e., unable to pay their debts. In pre-monopoly
times the failures of enterprises were quickly followed by the failure of the
banks with which they were connected. At the same time, the bankruptcy of
these enterprises led to a curtailment of production, eliminating the weaker
enterprises from the market, which was thus left to the stronger and more
adaptable ones. In this way, the crisis strengthened the position of some
groups of big capital even more, by destroying the small and part of the me-
dium-sized enterprises.
The monopolistic character of modern capitalism led to a situation
where the credit crisis openly broke out only in 1931, after the crisis had
already deeply affected the entire economic life of capitalist countries.
From the very beginning of the crisis, the monopolies reigning in mod-
ern capitalism began to shift the losses caused by the crisis onto the shoul-
ders of the non-monopolized fields where enterprises of medium magnitude
predominated. At the same time the monopolies had to restrict production
drastically in order to maintain a high level of prices on a rapidly falling
225
market. The restriction of production inevitably led to a fall in profits, to
losses and tremendous changes in the distribution of profits among the vari-
ous groups of capitalists.
The crisis led to an unprecedented number of bankruptcies of all kinds
of enterprises.
NUMBER OF BANKRUPTCIES
1929 1930 1931 1932 1933
U.S.A. 22,909 29,355 29,288 31,882 17,732
England 5,900 6,287 6,818 7,321 4,927
Germany 9,846 15,486 19,254 13,966 3,718
France 6,092 6,249 7,220 9,014 8,362
Poland 516 815 738 545 259
The credit crisis has been maturing for a long time. The failures of en-
terprises connected with banks, government budget difficulties, the decline
in profits and the increase in losses, the fall in the prices of stock – all this
prepared the way for an explosion of the credit crisis, which burst forth with
extraordinary force in 1931. Industrial failures caused by the decline in pro-
duction and prices, the impossibility of realizing products, the depreciation
of the stock in hand, etc., inevitably brought about the failure of credit insti-
tutions. Bank failures, in their turn, created difficulties for industry and re-
sulted in new industrial bankruptcies.
The credit crisis first developed in Germany and Austria. As early in the
spring of 1931 the biggest bank in Austria, which had control of 75-80 per
cent of all the industries of the country, crashed. This was followed by a
number of bankruptcies of the largest industrial enterprises in Germany. In
June 1931 the third biggest bank in Germany (the Darmstadt and National
Bank) and another big bank – the Dresden Bank – failed. From Central
Europe the wave of the credit crisis engulfed England, resulting in a credit
crisis in France, America and other capitalist countries.
Under the blows of the crisis a number of the biggest enterprises, consti-
tuting the “pride and glory” of world monopoly capital, failed during the sec-
ond half of 1931 and in 1932. The Swedish Kreuger Match Trust crashed.
Working on American capital, Kreuger wanted to seize the match monopoly
of all countries. He led a frantic campaign against the Soviet Union: the export
of matches from the Soviet Union was an unwelcome obstacle to him.
Kreuger shot himself on the eve of his bankruptcy. After his death it appeared
that in the last years he had held himself afloat by a number of forgeries and
swindles by means of which he delayed the moment of his failure. It was also
revealed that very high state officials of a number of countries had been in his
pay. Many Social-Democratic leaders were supported by him.
One of the biggest American business men – Insull – also proved to be
an outright swindler. In the spring of 1932 the corporation which he headed
226
and which owns electric power stations, gas plants and water supplies in
sixty cities, having a capital of half a billion dollars, crashed.
“...the crisis has not been restricted to the sphere of production
and trade, but has also affected the credit system, currency, the
sphere of debt obligations, etc., and this has broken down the tradi-
tionally established relations both between separate countries and
between social groups in the separate countries.
“An important role in this was played by the drop in the prices
of commodities. Notwithstanding the resistance of the monopolist
cartels, the drop in prices increased with elemental force, and the
drop in prices occurred primarily and mostly in regard to the com-
modities of the unorganized commodity owners, viz., peasants, arti-
sans, small capitalists; the drop was gradual and smaller in degree in
regard to the prices of commodities offered by the organized com-
modity owners, viz., the capitalists united in cartels. The drop in
prices made the position of debtors (manufacturers, artisans, peas-
ants, etc.) intolerable while on the other hand it placed the creditors
in an unprecedently privileged position. Such a situation had to lead
and really did lead to the colossal bankruptcy of firms and separate
entrepreneurs. During the past three years tens of thousands of joint
stock companies were ruined in this way in the United States, in
Germany, in England and in France. The bankruptcy of joint stock
companies was followed by the depreciation of the currency, which
to some extent eased the position of the debtors. Depreciation of
currency was followed by the legalized non-payment of debts, both
foreign and internal.”*
The development of the crisis led to the broadest inflation, that is, de-
preciation of currency. The drop in prices results in great difficulties for the
debtor: a debt of the same amount payable when prices have declined costs
him a considerably greater quantity of commodities than when he contracted
the debt. The drop in prices adds additional burdens to the shoulders of
debtor entrepreneurs and makes the positions of entire countries that are
considerably in debt much worse. What is the way out of this difficulty? The
capitalists and their governments seek a way out in two directions: by mora-
toriums, a stoppage of payment on debts, and by inflation. With the devel-
opment of the crisis capitalist countries one after another stopped their debt
payments. But that was not sufficient. They also adopted the course of infla-
tion. At first the weaker countries introduced this measure. Then in the au-

(Seventeenth Party Congress), pp. 10-11.
227
tumn of 1931, England took up the course of inflating its currency; the Brit-
ish government stopped changing its paper money into gold, and the pound
sterling began to fall in value. The depreciation of currency eases the posi-
tion of the debtor – he can now repay his debt with depreciated, that is,
cheaper, money. But inflation is also of tremendous importance in the strug-
gle for foreign markets.
Depreciation of its money gives the capitalist country an advantage over
other countries on the world market. The reason for this is that its commodi-
ties cost less on a gold basis. The price in paper money may even rise, but if
this money is exchanged for gold the commodities of the country with an
inflated currency will prove to be cheaper than the commodities of the coun-
tries which have remained on the gold standard. And with a low price it is
easier to overcome competition on the world market. Those countries whose
commodities are still priced in the old money, which is based on the gold
standard, are at a disadvantage. Thus we see that another of the biggest capi-
talist countries in the world, the U.S.A., the richest country of all, also in-
flated its currency, in March 1933. The American dollar and the English
pound sterling were considered the most stable currencies in the entire capi-
talist world. They were looked up to, the business men of all capitalist coun-
tries firmly believed in their stability, they were valued on a par with gold,
the accumulations of other, less wealthy countries were converted into these
currencies. And these two strongholds gave way, pulling down with them-
selves the currencies of other countries dependent on them. The third big
country that was enriched by the war, Japan, depreciated its money to almost
one-third of its former value in gold. With this wave of currency inflation on
the part of the more powerful capitalist countries a new wrangle arose, a new
scramble among the capitalists. The country with an inflated currency, since
it can sell its commodities cheaper on the world market, can beat its rivals.
Thus in the fight for markets, a new weapon came into use – inflation. And
with this weapon a currency war is being waged.
Towards the end of 1933 only four countries in the entire capitalist
world had currencies based on the gold standard: France, Belgium, Switzer-
land and Holland. All other countries had had recourse to inflation.
“It goes without saying that these phenomena which shook the
foundations of the credit system had to bring in their train, and did
bring in their train the cessation of payments on credits and foreign
loans, the cessation of payments on inter-Allied debts, the cessation
of the export of capital, the further diminution of foreign trade, the
further diminution of the export of commodities, the intensification
of the struggle for foreign markets, trade wars between countries
and – dumping. Yes, comrades, dumping. I do not mean the alleged
Soviet dumping, about which only very recently certain noble depu-
228
ties in noble parliaments of Europe and America were shouting until
they were hoarse. I mean the real dumping that is now being prac-
tised by nearly all the ‘civilized’ states, and about which the gallant
and noble deputies maintain a prudent silence.”*
The present depression and its peculiarities
The data on the movement of industrial production in capitalist coun-
tries show that the point of greatest decline was reached in 1932. The fol-
lowing year, 1933, industry in capitalist countries began to show a slight
upward trend. During the course of 1933 there were frequent fluctuations up
and down, nevertheless, industry did not drop to the low point it had reached
in the summer of 1932.
It would be incorrect to explain this phenomenon exclusively by the pol-
icy of inflation and the feverish war preparations which a number of gov-
ernments of capitalist countries have adopted. In some countries, Japan for
instance, colossal orders for the war industries have actually played a great
role. Improvement in the condition of industry is, however, to be observed in
all countries, including those which have a stable currency. It is conse-
quently evident that “side by side with the war-inflation boom the operation
of internal economic forces of capitalism also has effect here.”†
By means of the fierce intensification of the degree of exploitation of
the working class, by means of the ruin of the masses of the farmers, by
means of the robbery of the toiling masses of colonial countries, capitalism
has succeeded in obtaining a slight improvement in the condition of indus-
try. The increased exploitation, the heightened intensity of labour, the reduc-
tion in wages – all this makes it possible for a number of capitalists to con-
tinue production even with a small demand and low prices of commodities.
Prices of raw materials and foodstuffs have declined at the expense of the
peasants and toilers in the colonies; this also means lower costs of produc-
tion for the capitalists. The crisis has destroyed a tremendous part of the
productive forces. The destruction of large quantities of goods has at last so
reduced the reserves that the ratio between supply and demand has in a
number of cases become more favourable. The wiping out of weaker enter-
prises has here and there cleared the market for the surviving stronger ones.
Thus industry in the principal capitalist countries has passed its lowest
point. From this low point industry has entered the phase of depression,
“…not an ordinary depression, but a depression of a special kind which
does not lead to a new boom and flourishing in industry but which, on the
* Ibid., p. 11.
† Ibid., p. 14.
229
other hand, does not force it back to the lowest point of decline.”*
In ordinary times when capitalism had not yet reached its period of de-
cline and fall, crises were replaced by depressions, which were in turn re-
placed by periods of prosperity. But at the present time, capitalism is mori-
bund capitalism. It is undergoing its general crisis, rent by the most profound
contradictions which propel it to its doom. The present economic crisis broke
out amidst the general crisis of capitalism; that is why it is distinguished by
such depth and protractedness, such power of devastation and acuteness. The
new phase of depression has also been entered upon amidst this general crisis;
that is why this depression differs radically from the usual type of depression
and is not the forerunner of a new boom, a new period of prosperity.
“...because all these unfavourable conditions which prevent in-
dustry in the capitalist countries from rising to any serious extent
still continue to operate. I have in mind the continuing general crisis
of capitalism in the midst of which the economic crisis is proceed-
ing, the chronic working of the enterprises under capacity, the
chronic mass unemployment, the interweaving of the industrial cri-
sis with the agricultural crisis, the absence of tendencies towards
any serious renewal of fixed capital which usually heralds the ap-
proach of a boom, etc., etc.”†
The eve of a new round of revolutions and wars
The crisis raging in the whole capitalist world since 1929 has sharpened
to the utmost all the internal and external contradictions of the capitalist sys-
tem. The protracted crisis has brought about an unparalleled aggravation of
the conditions of the toiling masses. Colossal unemployment, ruthless reduc-
tion in wages, the intensification of exploitation – this is the fate of the
working class under the conditions of the present crisis. The crisis has also
subjected the broad masses of farmers to unprecedented ruin. Together with
their impoverishment there is a tremendous upsurge of the resentment of the
toiling masses against the capitalist system.
In the face of the indignation of the masses, the bourgeoisie is more and
more abandoning the old methods by means of which it formerly held the
working class in subjection and is passing over to open terrorist, fascist dic-
tatorship. In Germany the bourgeoisie, with the aid of the Social-Democrats,
set up the bloody dictatorship of Hitler in February 1933. Fascist tendencies
are growing among the bourgeoisie in other countries as well. The estab-
lishment of fascism in Germany bears evidence not only of the traitorous
role of the Social-Democrats who split the ranks of the working class and
* Ibid., p. 15.
Ibid., pp. 14-15.
230
thus weakened its resistance to the bourgeois dictatorship, the accession of
Hitler to power also bears witness to the weakness of the bourgeoisie which
can no longer maintain power in its hands by the old methods of administra-
tion. The bourgeoisie is throwing off its democratic tinsel and is going over
to open, bloody terror against the working class. But this only results in a
further sharpening of the class struggle, threatening to explode the entire
structure of capitalism.
The protracted crisis has extremely sharpened all the existing antago-
nisms between the capitalist powers. Under conditions of the crisis every
country tries to shift its burden onto other countries. The struggle for mar-
kets has grown exceedingly keen. Having recourse to dumping on foreign
markets every country, at the same time, raises barriers around its own mar-
kets against the encroachments of foreign competition. The non-payment of
debts sharpens the antagonisms between creditor and debtor nations. The
crisis has intensified the action of the law of uneven development under im-
perialism. It affected various countries with varying force and thus produced
a shifting in the relation of forces among the imperialist nations. All this has
sharpened the relations between countries to the extreme. The preparations
for a new imperialist war are already proceeding in the most open fashion.
Capitalist countries are arming to the teeth in preparation for a new battle for
the redivision of the world. While all branches of industry restricted produc-
tion as a result of the crisis, one branch of industry – the war industries – did
not contract, but on the contrary, expands from year to year. A number of
years have already passed since Japan first occupied Manchuria with armed
forces and began pushing deeper into Northern China. The Sino-Japanese
war renders the struggle for the Pacific Ocean, where the imperialist inter-
ests of Japan, the United States and Great Britain clash, extremely acute.
In the secret chambers of imperialist staffs the plans for future wars are
already being worked out. Prominent among these plans are projects for
armed intervention against the Soviet Union.
“The tremendous strain of the internal class antagonisms in the
capitalist countries, as well as of the international antagonisms, testify
to the fact that the objective prerequisites for a revolutionary crisis
have matured to such an extent that at the present time the world is
closely approaching a new round of revolutions and wars.”*
The correctness of this estimate of the situation has been confirmed by a
tremendous number of facts. The countries where fascism was “victorious”
are in turmoil. In Germany the Communist Party is conducting an heroic
* Theses and Decisions of the Thirteenth Plenum of the E.C.C.I., p. 5, Modern

Books, Ltd., London, 1934,
231
struggle against fascism and in the exceedingly difficult circumstances of a
deeply “underground” existence is preparing its forces for the overthrow of
the fascist dictatorship. In France fascist provocations called forth such pow-
erful resistance on the part of the masses of the workers that bourgeois poli-
ticians were thoroughly terrified by the indignation of the proletariat. In
Austria in February 1934 tens of thousands of workers conducted an armed
struggle for many days against the greater forces of the enemy and under the
extremely difficult circumstances of the treachery of their leaders. Soviet
China, embracing a number of regions with a population of over sixty mil-
lion people, has now become a powerful factor. It has successfully resisted a
number of crusades launched against it by the counterrevolutionary generals,
and has created its own powerful Red Army.
“The masses of the people have not yet reached the stage when
they are ready to storm the citadel of capitalism, but the idea of
storming it is maturing in the minds of the masses – there can hardly
be any doubt about that.”*
We already know that capitalism will not go off the stage on its own ini-
tiative, that it will not collapse automatically. We know that all the theories
of the automatic collapse of capitalism only bring untold harm to the cause
of the working class, lulling its will to the long persistent struggle which is
necessary in order to triumph over the exploiters. No sharpening of the con-
tradictions of capitalism creates a situation where the bourgeoisie can find
absolutely no way out. Only a persistent struggle will decide the collapse of
the capitalist system.
“The victory of the revolution never comes by itself. It has to be
prepared for and won. And only a strong proletarian revolutionary
party can prepare for and win victory.”†
REVIEW QUESTIONS
1. How is the protracted character of the present crisis to be explained?
2. In what is the exceptional acuteness and depth of this crisis expressed?
3. In what is the character of the present crisis as a crisis of overproduction
expressed?
4. How did the crisis affect the position of the proletariat?
5. How did the crisis affect the position of the peasantry?
6. What are the characteristics of the present depression?
7. What indications are there of the approach of a new round of revolutions
and wars?

† Ibid., p. 22,
232

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First printed in the Union of Soviet Socialist Republics

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CHAPTER I – WHAT IS POLITICAL ECONOMY AND

* Ibid., Vol. XXIV, “The Great Initiative,” p. 337, Russian ed.

* Lenin, Marx-Engels-Marxism, “Karl Marx,” p. 15, Moscow, 1934.

* Engels, Herr Eugen Dühring’s Revolution in Science, p. 167, Moscow, 1934.

* Resolutions and Decisions of the Seventeenth Congress of the C.P.S.U., p. 9,

* Marx, Critique of the Gotha Programme, p. 44, International Publishers, New

* Ibid., “Economics and Politics in the Epoch of the Dictatorship of the

* Ibid., “Greeting to the Viennese Workers,” p. 315, Russian ed.

* The Proletarian Revolution.

* Stalin, Speech at the First All-Union Congress of Collective Farm Shock

* “Especially on the northwest coast of America; see Bancroft. Among the

* Engels, The Origin of the Family, p. 195.

* Stalin, Speech at the First All-Union Congress of Collective Farm Shock

* Engels, Supplement (Nachtrag) to Vol. Ill of Capital, German ed., 1895.

* Lenin, Collected Works, Vol. I, “Explanation of the Program,” pp. 428-29,

* Lenin Collected Works, Vol. XVII, “The Taylor System – Enslavement of

* Marx, Capital, Vol. I, p. 1, Swan, Sonnenschein & Co., Ltd., 1908.

* Lenin, Marx-Engels-Marxism, “Karl Marx,” p. 15.

* Engels, Supplement (Nachtrag) to Vol. III of Capital.

* Lenin, Marx-Engels, Marxism, “Karl Marx,” p. 16.

* Marx, Value, Price and Profit, p. 38, Moscow, 1933.

* Lenin, Marx-Engels, Marxism, “Karl Marx,” p. 16.

* Marx, Capital, Vol. 1, p. 6.

* Marx, Capital, Vol. I, p. 27.

* Engels, Ludwig Feuerbach, Appendix, pp. 99-100, Moscow, 1934.

* Lenin, Marx-Engels-Marxism, “Karl Marx,” p. 17.

* Marx, Capital, Vol. I, p. 109.

* Greek letter used in mathematics to indicate the term sum.

* Ibid., pp. 52-3.

* Lenin, Marx-Engels-Marxism, “Karl Marx,” p. 18.

* Marx, Capital, Vol. I, p. 527.

* Lenin, Marx-Engels-Marxism, “The Three Sources and Three Component

* Lenin, Marx-Engels-Marxism, “Karl Marx,” pp. 17-18.

* Ibid., pp. 539-40.

* The Program of the Communist International, p. 1, Modern Books, Ltd.,

* Marx, Capital, Vol. I, p. 216.

Necessary labour Surplus labour

Necessary labour Surplus labour

Necessary labour Surplus labour

* Marx, Capital, Vol. I, p. 586.

* Marx, Value, Price and Profit, p. 74.

* Marx, Capital, Vol. I, p. 550.

* Marx, Value, Price and Profit, pp. 79-80.

* Lenin, Collected Works, Vol. XVI, “Destitution in Capitalist Society,” p. 212,

* Marx, Capital, Vol. I, pp. 659-60.

* Ibid., pp. 660-61.

Month and year Number of workers Amount paid out in

Capital Constant Variable Surplus Value of Sales Rate of

* Lenin, Marx-Engels-Marxism, “Karl Marx,” pp. 21-2.

* Lenin, Collected Works, Vol. IV, Book I, pp. 199-200, International

* Marx. The Class Struggles in France, p. 122, Moscow, 1934.

* Marx, Capital, Vol. III, p. 939.

* One dessiatin equals 2.7 English acres.

* Lenin, Selected Works, Vol. I, “The Development of Capitalism in Russia,” p.

* Marx, Capital, Vol. I, pp. 577-78.

Using this table in one of his articles in the pre-revolutionary newspa-