Imperialism Then and Now: Wealth, Unemployment and Insufficient Demand

Yves here. I hope you have time to listen to or read this video series by Lynn Fries. It gives a long historical sweep of the interconnections between imperialism and capitalism. This piece starts with the British Empire.

By Lynn Fries. Originally published at GPE Newdocs

Imperialism which existed in the colonial era persists to this day and the system cannot do without it. Prabhat Patnaik discusses his read on the history of capitalism from colonialism into the present. As per Chapter 6 (Periods in Capitalism) of Capital & Imperialism: The periodization we follow is: (1) Colonialism prior to the First World War; (2) the interwar years; (3) the post-Second World War years of the ‘Golden Age of Capitalism’; (4) the era of globalization; and (5) the current conjuncture, which marks the dead end of globalization.

LYNN FRIES: Hello and welcome. I’m Lynn Fries producer of Global Political Economy or GPEnewsdocs. Today’s guest is Prabhat Patnaik. He is talking about his read on the history of capitalism that he breaks up into 5 periods from colonialism into the present. And how imperialism which existed in the colonial era persists to this day and the system cannot do without it. Topics sourced from a new book Capital and Imperialism: Theory, History, and the Present authored by Prabhat Patnaik and Utsa Patnaik and published by Monthly Review Press.

A world renowned economist, Prabhat Patnaik is Professor Emeritus at the Centre for Economic Studies and Planning, Jawaharlal Nehru University in New Delhi. Earlier books by Prabhat Patnaik include Accumulation and Stability Under Capitalism, The Value of Money and Re-Envisioning Socialism. Welcome, Professor Patnaik. And thank you for joining us.

PRABHAT PATNAIK: Thank you. Thank you, very much.

FRIES: Let’s start from the beginning, so open with comments on the first of five periods in your read the history of capitalism. And then also in this segment, comment on the theory and so logic behind why you break up the history of capitalism into these five periods.

PATNAIK: We really begin with the pre First World War period of colonialism. A very long boom during the Victorian era which spilled over into the Edwardian era in Britain. Which was marked by the existence of the gold standard. So, that very long boom is something which in our view was quintessentially based upon colonialism. And therefore we take the pre-First World War period as quintessentially the period in which capitalism has this kind of a relationship with colonialism.

That relationship is of a very interesting kind because Britain was the leading capitalist country of that period. It was the leading capitalist country because it had the biggest empire. Now Britain as the leading capitalist country kept her markets open to other newly emerging capitalist powers like the United States, like Germany and then so on. They exported their goods to Britain. So Britain kept its markets open to their goods. So that there was no conflict between the emerging capitalist powers and Britain.

Britain itself sold its goods in the colonial market. But the colonial countries sold a whole range of primary commodities and raw materials to these newly emerging capitalist powers. So they [colonial countries] had not only large exports, they had an export surplus vis-a-vis these powers. And therefore Britainbecause of taxing the colonies and using these taxes as the means of getting hold of the goods which the colonies were selling in these new markets not only balanced her own payments by getting hold of the export surpluses of the colonies but actually got hold of additional resources with which it made capital exports. That means it actually exported capital to these countries which were newly emerging.

So Britain actually was having vis-a-vis let’s say the U S, Germany and so on (different periods with different countries) both a trade deficit and also a capital account deficit. You know when you export capital to any country that is the same as importing IOUs. That means you have a deficit in the capital account. And Britain was exporting capital to the same countries with which it had a trade deficit.

How is that possible? It’s possible because of being an imperial power. That was the period in which capitalism had this very strong boom. And that was the pre First World War period. That period came to an end with the First World War for a variety of reasons. But obviously the colonial markets where Britain was selling its goods, they tend to get exhausted. They get saturated because  incomes in the colonies  were not growing. These sales by Britain were at the expense of local producers. And once you have more or less displaced local producers, there is no further growth in the market. So colonial markets came to an end for that reason.

FRIES: That gives us a look into the leading capitalist country in that period as an imperial power in relation to the colonies. As background to all this, comment briefly on some of the theory you discuss in your book on Capital and Imperialism and what you mean by imperialism.

PATNAIK: Well, you know, the book begins by discussing capitalism essentially as a money using economy. If you have money using economy in which money is used for making transactions. We sell goods on the basis of which we get money with which we buy other goods. So money is used for transactions. Every transaction requires a use of money. If money is used for transactions, then it is logically necessary that money must also be periodically held.

In other words, suppose I sell a good, get money but instead of using that money immediately, I decide to hold it for some time. In that case, I am actually using money as a form of wealth. Now it is impossible to have money as a means of effecting transactions without at the same time having money in which it is held as a form of wealth.

Now, if capitalism therefore is seen as a money using economy in which money is held as a form of wealth, in that case, several conclusions follow. One conclusion is that if people suddenly decide to hold a bit more of money than they have been doing, in that case, there would be a shortage of demand for goods. And if there’s a shortage of demand for goods, then you have unemployment. Therefore, the use of money as a form of wealth necessarily carries with it the prospect of involuntary unemployment. Involuntary unemployment can arise the moment money is a form of wealth.

Now, if so, once an economy is caught with involuntary unemployment, there is no obvious reason how it can come out of it. Because in such a case, if let us say capacity utilization drops because there is less output produced because people want to get rid of stocks of commodities which have become unsaleable, in that case investment would fall further and so on. Then there is no obvious reason how such an economy can get out of this kind of what one would call an overproduction crisis.

Therefore the moment one visualizes the role of money as a form of wealth then it follows that capitalism would have overproduction crises. And if so, then to get out of this overproduction crisis capitalism would require some kind of an external intervention. Which historically was in the form of external markets, markets outside of capitalism proper namely by selling to the pre capitalist setting. So that is one way in which the pre-capitalist setting becomes essential for the continuation of capitalism.

The other way that it becomes essential is because there’s a whole range of commodities which are required by capitalism that essentially [capitalism] grew up in the temperate regions of the world. And that these commodities while required are not produced in the temperate regions of the world.

When we think of the Industrial Revolution, that was the beginning of industrial capitalism that occurred in the cotton textile industry in Britain. But Britain can never grow any cotton. It’s impossible for Britain to grow cotton. And therefore Britain has to import cotton.

Therefore, capitalism cannot do without a whole range of raw materials which are produced and producibleonly in the tropical region that is outside of where capitalism was born.

Likewise, if you’re buying these goods then it is absolutely essential that the supplies of these goods must be made available to you as your requirement keeps increasing. Many of these goods, for instance, tropical goods that capitalism requires are goods whose supplies do not necessarily increase because the tropical landmass is of a given magnitude.

And capitalism does not make investments in this tropical landmass which would really have required an active state intervention. Which capitalism has always shied away from. And therefore it has to get these goods more or less by reducing their local absorption in order to prevent inflation both locally and in the metropolis.

So for all these reasons capitalism needs to have not only an area around itself which it has access to, which is a pre- capitalist surrounding but what is more it also needs to control that pre-capitalist surroundings through what we call income deflation. Compressing local absorption of commodities there, in order to keep getting larger and larger supplies for meeting the requirements of the metropolis.

Therefore, our argument is that it is impossible to visualize capitalism without visualizing a setting in which it must be placed. And a setting that it must actually dominate. And that relationship is what we call imperialism.

FRIES: Comment more on this relationship that you call imperialism and the changing role of the Third World.

PATNAIK: The relationship of capitalism to the setting has several dimensions. It requires the setting as a market where it displaces local production so that exports of capitalist products from the capitalist sector can be accommodated. It also requires this as a source of raw materials and so on.

Now in different periods of time, different roles of the setting have become important. But one role which continues to remain important from the beginning till now is the role of its being a source of raw materials, food stuffs and so on. And that is a common feature between the contemporary period and the colonial period.

So in so far as we think of imperialism not as confined only to the colonial period but something which in fact is always there, ever present therefore, we actually emphasize this common character of providing essential raw materials.

Because I believe the market role of the Third World is something which receded into the background sometime ago. In fact, in the First World War itself. Pre-First World War the market role, the provision of the market role of the Third World for capitalism in the metropolitan countries was important.

But that role ceases to be significant after the First World War which in fact, this is how we explain the Great Depression of 1930 namely the Interwar period. But on the other hand, the raw material role of the setting of the Third World is something which continues to remain important till this day. It’s one common feature from the beginning right till now.

FRIES: As you explain you see imperialism as a relationship between capitalism and its setting. And that it is impossible to visualize capitalism without this setting that it dominates. Well now Marx as we know largely saw capitalism as a closed system. What’s your take on that?

PATNAIK: Yes. Marx was acutely aware of the fact that capitalism has colonies, has imperialism, dominates these colonies and all that as a matter ofempirical fact. But when he analyzed capitalism in Capital, he really looked at it in terms of a system in which there are capitalists and their workers.

I suppose his idea was essentially to look at the origin of surplus value. Which is why he really looked at only that as a system. The relationship of capitalism with its setting with the Third World is something that really does not enter into Marx’s analysis. Notwithstanding references to this phenomenon here and there. It really does not enter into his analysis as a crucial factor. It comes into the analysis only with Rosa Luxemburg.

Now, I was arguing that if you have a money using system in that case accumulation of capital, which is not necessarily from people’s volition, but this is because they’re compelled to accumulate. If they are compelled to accumulate the form in which they accumulate capital is not necessarily by adding to fixed capital or inventories or to goods or to physical productive capacity. It can be accumulation of capital in the form of money. Now that being the case, you have the possibility of crisis.

The moment you think of capitalism being a money using economy, then in a period for instance in which people wish to hold more money, accumulate capital in the form of money, hold more money as their wealth, you would find that there will be a tendency towards overproduction. Because goods are being produced, but people don’t want to buy goods. They want to hold money. So that creates a tendency to overproduction.

And once you have a tendency to overproduction, then the accumulation process gets disrupted. In fact, it’s difficult to explain sustained accumulation once you recognize this role of money. And sustained accumulation then becomes possible only if in such periods, you actually can have access to an outside market.

In addition, of course there is the requirement of raw materials, foodstuffs, and so on, which have to be procured from these other regions. There are two ways in which they can be procured. One is that you actually increase their output. So that the local absorption remains the same. Your additional requirements in the metropolis are met by larger output. But on the other hand, that requires State action.

Typically, for instance, an increase in tropical agricultural output requires State action in irrigation and so on. This is something which Marx had talked about. That being the case, typically since capitalism is opposed to actions of that kind being undertaken by the colonial state, in order to enlarge, uh, what they do is the squeezing of local absorption reduction of local consumption. So then the output does not increase, but you simply take more and more out of it for meeting the requirements of the metropolis.

So the point is that in these very many different ways, capitalism requires this outside setting. And it requires an outside setting that it can actually dominate and manipulate. That’s what we are calling imperialism.

FRIES: So in this first period in your read of the history of capitalism, comment on this phase of imperialism in the colonial period up until its exhaustion and collapse.

PATNAIK: The colonial period, the colonial arrangement was in a sense the best arrangement for capitalism. Because the two basic roles, the two basic requirements of capitalism, namely the availability of an external market of an outside market and the availability of raw materials at non increasing prices as the system keeps growing, the growing availability of raw materials at non-increasing prices from the colonial empire, both these requirements were satisfied by the colonial relationship.

Capitalism sold its manufactured goods in the colonies by causing what we call de-industrialization where the local producers, the local craftsmen were displaced. And therefore capitalism acquires that market for its own industrial products. At the same time, it actually got hold of the raw materials including food stuffs and so on by taxing the colonies and using the tax proceeds as its own source of revenue.

And therefore corresponding to the tax  proceeds, it actually acquired a set of goods which these colonies provided to the metropolis. And this it did at non increasing prices because you could always squeeze the consumption, local absorption of these goods by raising your taxes.

We actually argue that in the period after the First World War no such beautiful arrangement from the point of view of capitalism has been possible.

FRIES: Clarify what you mean by colonies when you talk about the colonial arrangement.

PATNAIK: The term colony is somewhat misleading. We use the term colonies exclusively to refer to the tropical colonies. In which there was very little settlement from the metropolitan countries by which I mean the European countries where capitalism was growing. There was not that much of settlement there.

Settlement was in the temperate regions because in Europe they just migrated from the European temperate lands to the lands in Australia, New Zealand, the United States, Canada, and so on. Now these were the temperate regions of settlement. And of course there was a period when they were also colonies. We call them the colonies of settlement. The colonies of settlement obviously were the colonies that actually became independent of Europe much earlier. And what is more they are the ones to which capitalism actually got diffused from Europe.

So, at one level,  you actually had along with the migration from the temperate lands to the other temperate regions like Canada and the US and so on, along with that you also had the migration of capital. By which I mean that Europe gave loans to these countries in order to buy goods so that they could actually themselves develop as capitalist powers.

But on the other hand, that migration of capital was actually financed by taking away resources from the tropical colonies. So when we use the word, colonies it is actually misleading because it refers to both. In a juridical sense, India was a colony like the United States before its liberation. But as a matter of fact, the United States even when it was a colony had a very different status from India as a colony.

So, we actually use the terms “colony, colonialism, empire” to refer exclusively to the colonies of conquest as opposed to the colonies of settlement.

FRIES: So as you say, colonies of settlement like for example the United States experienced a diffusion of capitalism and along with that a trajectory of industrialization and higher wages. Comment on the experience and trajectory of the colonies of conquest under the impact of metropolitan capital.

PATNAIK: The colonies of conquest were the ones which actually faced two kinds of consequences from the encroachment of capitalism from the metropolis. One, as I mentioned, was the de-industrialization. I mean, obviously you had very substantial industrial development there; not capitalist industrial development, pre capitalist craft production. I mean after all the East India Company was formed in order to buy these kinds of products and sell them abroad.

So the point is you had pre capitalist craft production, pre capitalist industrial craft production, which got decimated because of competition from industrial capitalism. And that generated unemployment. And the unemployed were thrown onto a land mass which was more or less already fully used up. Therefore they increased the pressure of population on the land. And that gave rise to a whole lot of phenomena of overcrowding, low w ages, high rents on land, and all that.

The second thing that happened is that the peasantry in these countries was heavily taxed. Now the peasants were producing all kinds of goods. They were heavily taxed. And this tax amounted in effect to taking away those goods from them. Because after all corresponding to the cash that they pay as taxation effectively they are paying some goods as taxation. Now, these goods were taken away from them in the form of an export surplus. And this is something that was used by the metropolis.

So these countries saw growing unemployment and poverty, In fact, we argue that the roots of modern mass poverty lie in colonialism.

Therefore the origin of mass poverty that we see today really is because of capitalism.

FRIES: We are going to break and be back with Prabhat Patnaik for Part 2 of our conversation on Capital and Imperialism. Prabhat Patnaik, thank you.

PATNAIK: Thank you.

FRIES: And from Geneva, Switzerland thank you for joining us in this episode of GPEnewsdocs.


Prabhat Patnaik is professor emeritus at Jawaharlal Nehru University, New Delhi, Centre for Economic Studies and Planning where he taught for four decades. He was Vice-Chairman of the Kerala State Planning Board from June 2006 to July 2011. An eminent and prolific economist, his published works include numerous books such as The Value of Money, Re-Envisioning Socialism and Accumulation and Stability Under Capitalism. His most recent book co-authored with Utsa Patnaik and published by Monthly Review Press (2021) is Capital and Imperialism: Theory, History, and the Present.

Print Friendly, PDF & Email


  1. .Tom

    Is there an RSS feed for this series or for GPEnewsdocs? I’d like to be able to listen to the audio using PocketCasts on my phone.

  2. Sound of the Suburbs

    The Enlightenment revealed far too much.
    We have been running away from reality ever since, and we’ve come a long way.
    We can’t find our way back.

    Any serious attempt to study the capitalist system always reveals the same inconvenient truth.
    Many at the top don’t create any wealth.
    The classical economists identified the constructive “earned” income and the parasitic “unearned” income.
    Most of the people at the top lived off the parasitic “unearned” income and they now had a big problem.
    This problem was solved with neoclassical economics, which hides this distinction.

    Our knowledge of banking has been going backwards since 1856.
    Credit creation theory -> fractional reserve theory -> financial intermediation theory
    “A lost century in economics: Three theories of banking and the conclusive evidence” Richard A. Werner

    The upward flow of Adam Smith has become today’s trickle down.
    “The labour and time of the poor is in civilised countries sacrificed to the maintaining of the rich in ease and luxury. The Landlord is maintained in idleness and luxury by the labour of his tenants. The moneyed man is supported by his extractions from the industrious merchant and the needy who are obliged to support him in ease by a return for the use of his money. But every savage has the full fruits of his own labours; there are no landlords, no usurers and no tax gatherers.”

    We have become so detached from any sort of economic reality, its making life very difficult.

    “The interest of the landlords is always opposed to the interest of every other class in the community” Ricardo 1815 / Classical Economist
    Do you mean the Ricardo, of Ricardo’s Law of Comparative Advantage?
    Yes, I do.
    They had to get rid of this bit of classical economics when they were hiding the effects of rentier activity on the economy.

    Ricardo was part of the new capitalist class, and the old landowning class were a huge problem with their rents that had to be paid both directly and through wages.
    “The interest of the landlords is always opposed to the interest of every other class in the community” Ricardo 1815 / Classical Economist
    What does our man on free trade, Ricardo, mean?

    Disposable income = wages – (taxes + the cost of living)
    Employees get their money from wages and the employers pay the cost of living through wages, reducing profit.
    Employees get less disposable income after the landlords rent has gone.
    Employers have to cover the landlord’s rents in wages reducing profit.
    Ricardo is just talking about housing costs, employees all rented in those days.
    Low housing costs work best for employers and employees.

    Who pays?
    It’s the right question, but we keep getting the wrong answer with neoclassical economics.
    Employees get their money from wages and it is employers that are paying, via wages, reducing profit.

    Everyone pays their own way.
    Employees get their money from wages.
    The employer pays the way for all their employees, via wages, reducing profit.
    No wonder all our firms are off-shoring.

    Capitalism actually works best with a low cost of living, but no one can see that with neoclassical economics.
    It’s rentier economics; this is what it’s supposed to do.

    1. Sound of the Suburbs

      The rentier activity that is hidden in the economics flourishes in the economy.
      “Income inequality is not killing capitalism in the United States, but rent-seekers like the banking and the health-care sectors just might” Angus Deaton, Nobel prize winner.

      Everyone had expected economic liberalism to unleash capitalist dynamism.
      Instead there was a stampede towards the easy money of “unearned” income.
      In 1984, for the first time in American history, “unearned” income exceeded “earned” income.
      The rentiers have never had it so good.

      It’s rentier economics, and it works.

  3. Susan the other

    Wow. Thank you for Prabhat Patnaik. Pretty straightforward thinker. “The roots of modern mass poverty lie in colonialism.” I’ll submit also that colonialism always came home to roost among the poorest citizens. They became the fall-back “outside setting” for capital accumulation. I don’t see how Marx would have disagreed with Rosa Luxembourg about that; he called it by a different term, “surplus value”. It’s “extraction” by any other name and it has to happen to keep capitalism running smoothly. Going forward. Overpopulation does the same thing. It churns capital. And capital in turn, by its very nature (the necessity to accumulate it) causes economic depressions; it fails over and over again. Imo it’s Because it seems to be addicted to the 15% solution: We have needed social/industrial economics for a century and have not bothered to pass necessary legislation – we’ve just handed it off to a scheme of population ponzi. But creating no universal livable-wage employment whatsoever. So about 15% of the population lives in poverty while the 1% accumulates. 15% + or – remains almost inevitable. 15% of the US population at the end of WW2 (which solved nothing really) was about 15 million. Today it is almost 50 million. And about all the US Congress has done is repeatedly quote Alfred E. Newman: “America is the land of the free and the home of the brave with democracy, justice and equality for all… it’s the land of the free-for-all!!” Never mind all the mess and devastation you see with your lyin’ eyes.

    1. lance ringquist

      free trade can never work till we get the star trek economy, matter transfer and replicator machines. till then the only real comparative advantage is horrendous human and environmental degradation.

      the only way out of this mess which is essentially fascism, is to get rid of free trade. once you trap the oligarchs free trade has created inside borders under democratic control, only then can you eliminate them and rebuild.

  4. JEHR

    These three sections are well worth reading. The third section was the weakest as it suggests socialism as the means for overcoming the dead end of financial capitalism.

  5. David

    I know it’s an interview, but nonetheless Paitnak could have tried to be a bit more coherent. He uses “capitalism” “imperialism” and “colonialism” in several different and conflicting senses, and by his definition, Uganda was a colony, but Kenya wasn’t.
    In fact, at the time that Marx was writing, the British Empire as we think of it (map covered with red) hardly existed beyond Australia, Canada and India. The Cape Colony was mostly a naval base, as was Singapore, the Gold Coast was a trading station, and there were some islands. Indeed, the political temper of the period was very Liberal and anti-colonial. Empires were seen as old-fashioned relics of monarchies, not appropriate to a commercial nation, and anyway very expensive (which they were). Even liberal “imperialists” like Mill thought largely of creating some kind of a federation with Australia and Canada. It was only at the end of the nineteenth century that this began to change, and even then the first colonies were private ventures which failed and had to be nationalised.
    What Britain did have, was the ability to establish and police trade routes with its Navy, and for most of the nineteenth century this was what British ruling classes wanted. The colonies that came later were never fully tied into this system. So the argument is only correct if you define ‘”capitalism” and “empire” to mean what you want them to mean.

  6. B24S

    There have been some attempts to defend indigenous (if that’s the proper term) design and craft.

    My grandmother was a textile designer, who, along with another woman, concieved of, and helped create, the Index of American Design during the Depression (though most credit, no surprise, is given to the man running the WPA). In her later years she worked for the Indian government in what was known as the Cottage Industries Program, whose aim was to document and preserve pre-industrial handcrafts, including cire perdue bronze casting and many various fabric techniques, that were endangered by the onslaught of post WWII industrialization. It was so successful that after she passed an extensive collection she made for a US university was considered of minimal value.

    She came back to the US for a medical diagnosis, but immediately returned to India where she died. She was cremated, with half of her ashes cast into the Ganges, the rest residing by the stream near her home in the woods north of NYC.

    I can’t say whether or not, in the long run, it made much of a difference, but in the late ’70s there was still a reverence for their efforts.

  7. Dr. R.k. Barkhi

    While the commentator discusses many useful concepts I feel that these discussions of c[r]apitalism* (the reality) as if it was Capitalism (the theory) are misleading and confusing. The theory isnt causing the awful effects,the people operating a perverted misuse of it (incorrectly,imo, called capitalism) are the cause and are known as c[r]apitalists. Pointing fingers at an economic theory is , in effect,providing cover for the actual unamed perpetrators .

    The other problem i see is that every conversation like the above acts as if imperialism,colonialism,extractive policies et al came about due to c[r]apitalism. History details the many pre industrial imperialist empires who conquered and enslaved whole populations and then extracted every valuable asset while taxing the subjugated people into the deepest poverty. Assertions above about poverty caused by c[r]apitolists ,while true,ignores the long history of human poverty,mostly caused by extractive rulers and conquering empires.

    Btw-This is not a defense of any economic theory eg Capitalism or its misnamed sociopathic modern construct.

    * more accurately called Profitism (my term) as its links to any actual economic theory are tenuous at best.

Comments are closed.