REVIEW OF THE MONTH

IS IMPERIALISM REALLY NECESSARY?

BY HARRY MAGDOFF

The following is the first part ot a reply to a critical essay on Harry

Magdoff's The Age of Imperialism, The second, and concluding, part
will appear in the next issue of MR.
Both the essay (by S. M. Miller, Roy Bennett, and Cyril Alapatt)
and the reply are appearing in the September/October issue of Social
Policy. The original title of their essay was "Is Imperialism Really Neces-
sary?" but it was finally published as "Does the U.S. Economy Require
Imperialism?" In this reply we have retained the original title, and a few
minor editorial changes have been introduced.-The Editors.

PART ONE

How a question is formulated usually defines the limits

of its answer. Hence, a most important aspect of scientific in-
quiry is discovering the right questions to ask. In this context,
the very formulation of the question about imperialism by
S. M. Miller, Roy Bennett, and Cyril Alapatt takes us off the
path of understanding modern imperialism.
Their article is directed to the question, "Is imperialism
really necessary?" Imperialism, however, is so intertwined with
the history and resulting structure of modern capitalist society-
with its economics, politics, and ruling ideas-i-that this kind of
question is in the same category as, for example, "Is it neces-
 MONTHLY REVIEW OCTOBER 1970

sary for the United States to keep Texas and New Mexico?"
We could, after all, return these territories to the Mexican
people and still maintain a high-production and high-standard-
of-living economy. We could import the oil, mineral ores, and
cattle from these territories and sell U.S. goods in exchange.
Any temporary decline in our gross national product would
surely be a small price to pay for social justice. And given our
growth rate and supposed ability to regulate our economy,
continued economic growth should soon make up any losses
resulting from the return of stolen lands.
Or one might ask, "Is Manhattan necessary for the United
States?" It would surely be equitable to return land obtained
from the Indians in a sharp deal. Such a transfer might at first
have some small downward economic effect, but eventually
should make for more prosperity. Manufacturing on the island
is an insignificant percentage of total U.S. output. The profit-
able port activity could be shifted to New Jersey or other excel-
lent Atlantic ports. Other economic functions--stock and com-
modity exchanges, investment and commercial banks, head-
quarters of large corporations-could be transferred lock, stock,
and barrel to the interior. Such a move to wipe out a terrible
blot on the conscience of white America could be socially use-
ful. Moreover, a new financial headquarters of the United
States (and the capitalist world) could be designed to avoid
slum, smog, pollution, and traffic crises; the demand for build-
ings, housing, and transportation and communication equipment
in the new "Manhattan" might spur the economy to new
heights.
Such questions might be useful in the classroom to help
stimulate students' imagination and to illustrate the contradic-
tions of a capitalist economy. But they will not contribute to
an understanding of the role of territorial expansion in the
evolution and functioning of the economy, or the unique role
of a financial center in the operations of a capitalist economy.
Our Critics* no doubt justify their question on the grounds
* To avoid the awkwardness of listing the three authors at each
reference, and to somewhat depersonalize the controversy, we will refer
to them as the "Critics." We trust they will not take offense. "Critic," to
our way of thinking, is an honorable designation.

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 REVIEW OF THE MONTH

that some popularizers on the Left formulate the issue purdy

in terms of "economic necessity"-as if every political and
military action were in response to an immediate economic
cause or to a telephone call from a corporation executive. Such
a mechanical cause-effect approach is an obvious oversimpli-
fication, an inadequate guide to history, and more rhetoric
than analysis. But when one merely meets an exaggerated
rhetoric head on and makes the rhetoric the focus for debate,
one departs from the tasks of scientific inquiry: one may thus
be at a ball park, but not where the game is being played.
The major task, in my opinion, for the study of imperialism
is to discover and understand what Bernard Baruch described
as "the essential one-ness of [V.S.] economic, political, and
strategic interests."* In such a study, we have to seek the
key roots--the mainsprings-of this "one-ness" as well as to
understand the interactions and interdependence of the eco-
nomic, political, and military drives. .
It takes no deep perception to recognize the limits of the
"necessity" formula. Thus, a substantial part of the world,
notably the Soviet Vnion and China, has chosen the path
of economic independence and therefore broken the trade and
investment ties with the imperialist network. The advanced
capitalist countries adjusted to these changes and have in
recent decades achieved considerable prosperity and industrial
advance. However, important as it is to recognize that such
adjustments can take place, it is equally important to under-
stand the route that these adjustments take: via wars, depres-
sions, and huge armament programs. The economic adaptations
emerged in the midst of recurrent struggles for control over
spheres of influence--over other advanced countries as well
as over Third World areas, it should be noted. And, most
important, these adjustments have in no way lessened the
intensity of the counter-revolutionary thrust of imperialist states,
by wars and other means, directed (a) to preventing a further
narrowing down of the territory in which they can freely trade
and invest, an~(b) to reconquering the space lost to the
•

* Foreword by Bernard Baruch to Samuel Lubell, The Revolution

..,in World Trade and American Economic Policy (New York, 1955), p. xi.

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 MONTHLY REVIEW OCTOBER 1970

imperialist world. Nor has this counter-revolutionary activity,

which began during the first days of the Bolshevik Revolution,
diminished since the United States took the reins as leader and
organizer of the capitalist world.
The relevant question is not whether imperialism is neces-
sary for the United States, but to discover the "rationality"
of the historic process itself: why the United States and other
leading capitalist nations have persistently and recurrently acted
in an imperialist fashion for at least three quarters of a century.
The contrast between speculative hypotheses about the
"necessity" of imperialism and the actual course of history is
excellently demonstrated by the Critics themselves when they
illustrate their interpretation of imperialism by referring to, and
endorsing, the theoretical position of Karl Kautsky in his debate
with Rosa Luxemburg. Kautsky argued, they point out, that
imperialist expansion was sustained by only a small and power-
ful group of capitalists and that such expansion conflicted with
the interests of the capitalist class as a whole. Because of this,
Kautsky believed that the majority of the capitalist class would
increase its opposition to, and eventually prevent, armed im-
perialist expansion.
It is strange indeed, in this day and age, to come across
a revival of Kautsky's theory-a theory that has been de-
vastatingly refuted by events. Our Critics refer to Kautsky's
exposition at the 1907 Stuttgart Conference of the Second
International. But only seven years later the First World
War broke out, to be followed at the earliest practical op-
portunity by the Second World War. It doesn't take much
insight to recognize the role that Germany's expansionist aims
played in both wars: Kautsky's optimism turned out to be
mere illusion.
The Critics remind us of the current dissatisfaction of
some U.S. businessmen with the Vietnam War. That there
are shrewd businessmen who recognize that at times one must
cut one's losses should hardly come as a surprise. The surprise
is that it has taken them so long to awaken-to the reality of
a lost war and its social and economic consequences. However,
the acid test of Kautsky's and the Critics' position would be:
how many of these businessmen would agree (1) to an im-,
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 REVIEW OF THE MONTH

mediate pullout of Ll.S. forces from Vietnam, leaving the fate

of Vietnam to the Vietnamese people, and (2) to a complete
withdrawal of all V.S. military forces and equipment from
all of Asia?
The major weakness of Kautsky's theory was precisely
its concentration on "necessity." By casting his argument within
this sterile framework, he distinguished between capitalists who
"need" and those who "don't need" expansion. He thus ignored
what was most important in explaining the course of militarism
and imperialism: the industrial and financial structure of the
economy, the strategic elements of change, and the special
nature of the political system associated with successful monop-
oly capitalism. It should go without saying that a full ex-
planation of, say, German imperialism would have to take
into account the special socioeconomic features and history of
Germany.)
On their part, the Critics in effect adopt for their own
economic analysis the same limited and crude economic inter-
pretation of imperialism that they are criticizing. Accordingly,
they look at only some of the relevant economic elements;
those that they examine are treated as isolates, not as part
of a social and economic organism; and then they whittle down
even these isolates. This shrinking process takes on the following
forms: (1) They eliminate from the realm of imperialism
U.S. economic activity in other advanced capitalist nations;
(2) they restrict the field of economic penetration in under-
developed countries to exports and direct private investment;
and (3) concerning foreign mineral resources, they deal only
with the so-called national interest, ignoring the drive for con-
trol over such resources by monopolistic interest groups.

Imperialism and Relations between Developed Countries

A large part of the Critics' article is devoted to statistical

computations based on the assumption (and argument) that
U.S. trade with, and investment in, other advanced capitalist
nations have nothing to do with imperialism. Imperialism, they
claim, concerns only the relations between advanced and under-
developed countries.
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MONTHLY REVIEW OCTOBER 1970

This assumption misses an essential distinguishing feature

of modem imperialism. The occupation and/or manipulation
of a weaker by a stronger nation and the building of empires
by powerful military states have occurred frequently in human
history, in ancient, medieval, and modem times. Moreover,
the birth and adolescence of capitalism were marked by military
penetration of noncapitalist areas to bring the latter into the
trade and investment sphere of the dominant capitalists.
Because empire-building has been prevalent over long
stretches of history, the use of the term imperialism to cover
all such activities leads to definitions that stress the superficial
and avoid the essential. The value of distinguishing different
periods of history, to which convenient labels are attached, is
to provide a useful analytical framework for discovering and
understanding the main operating levers of the particular stage
under study. For that reason, it seems to us, the term imperial-
ism is best used to designate the international practices and
relations of the capitalist world during the distinct stage of
mature capitalism that begins in the last quarter of the nine-
teenth century.
But even if one disagrees with this terminological approach,
it still has to be recognized that the international economics
and politics of the past seventy to ninety years have certain
unique features. Hence some historians follow the practice of
calling the new stage modern or new imperialism, to distin-
guish it from that of mere empire-building. The rationale for
this should become clearer if we spell out some of the major
features of this new or modem imperialism:
(1) As noted above, capitalism from its earliest days sank
its roots in the noncapitalist world. It prospered by adapting
(through force and economic pressure) the rest of the world
to fit the needs of the more advanced capitalist nations. How-
ever, it is in the stage of modern imperialism that its "historic
task" is fulfilled: the entire globe is fitted into the world
capitalist system (until, in more recent years, parts of this
system break away). Prices of commodities produced around
the world become dominated by one world price established in
the major financial centers. In this period of modern imperial-
ism, there is a sharp step-up in the international flow of com-
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 REVIEW OF THE MONTH

modities, men, and capital-in response primarily to pressures

emanating from the most advanced centers of capitalism, includ-
ing the pressures of competition among the advanced capitalist
countries themselves.
(2) The resulting world capitalist system of modem im-
perialism comprehends an intricate and interdependent set of
relations between countries at various stages of industrial de-
velopment. The most striking aspect of this world system is
the freezing of the so-called Third World countries as industrial
and financial dependencies of key metropolitan centers--a
dependency that is continuously reproduced by the normal
behavior of capitalist markets. In addition, among the more
advanced capitalist nations, there are a variety of relations of
dependency of weaker nations on stronger ones.
(3) The technical underpinning of the modem inter-
national world economy is the growth of what Veblen called
the "technology of physics and chemistry": steel, electricity,
oil refining, synthetic organic chemicals, internal combustion
engines, etc. The technology of modem imperialism became
the material base of decisive concentration of economic power
in large industrial corporations and large financial institutions.
The maturation of this economic concentration of power (called,
for convenience, monopoly capital) affected the whole economic
and political structure of advanced capitalist nations. On the
economic side, in contrast with the earlier stage of competitive
capitalism, economic change and economic policy are primarily
determined by the imperatives of monopolistic-type industries
(oligopolies, to be technical). The latter, to protect their
assets and maintain their leading positions, are impelled to
seek control over supplies of raw materials and over markets-
wherever these raw materials and markets may exist. Further-
more, the evolution of an economic structure based on mono-
polistic firms limits the alternatives open to the political regimes
of these countries. Governments, whether liberal or conserva-
tive, can operate with a successful economy only if they sup-
port, and help make more efficient, the major determinants
of the economy; the monopolistic firms and the international
financial arrangements with which these firms operate.
(4) Finally, a distinctive feature of the new imperialism
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MONTHLY REVIEW OCTOBER 1970

is the rise of intensive competitive struggle among advanced

capitalist nations. It is this competitive struggle which helps
determine the new world-economic arrangements and which
is a major source of continual turbulence in the world capi-
talistic system. Before the era of modem imperialism, Great
Britain was the undisputed dominant nation in foreign trade,
investment, and finance. The rise of industrialized nations,
based on advanced technology that permitted economic and
military competition with Britain, led to the hectic struggle
for conquest of those parts of the globe not yet incorporated
into the global capitalist arrangements. It also led to struggles
for re-division of colonies and spheres of influence. But, it
should be noted most especially,the competitive struggle is not
restricted to dominance over the underdeveloped world. It
also entails struggle for dominance and/or special influence
over other advanced capitalist nations, as was seen in two world
wars. Present also as a major element in the power struggle
between nations and between monopolistic firms of these na-
tions is the use of investment in one another's territories and/or
cartel arrangements for the division of markets.
Thus, if one sees modem imperialism in historical per-
spective, it should be clear that there are two attributes of
the power struggles of this period: ( I) the struggle for eco-
nomic power vis-a-vis other industrial nations, and (2) the
struggle for economic power over the underdeveloped nations.
Furthermore, to understand the imperialist drives since the
Second World War, and the strategic alternatives confronting
the decision-makers of U.S. foreign policy, one must take into
account the past and potential rivalries of the industrialized
nations. Not the least aspect of the latter is the maneuvering
of U.S. government policy, and of U.S. firms, to take over
trade and investment outlets of former allies (as well as
former enemies) in the underdeveloped world.
Narrowing down imperialism to trade with, and invest-
ment in, the Third World thus eliminates a vital sector of
international economic and political activity: the imperialist
rivalries associated with the investment operations of advanced
capitalist nations across one another's borders. In addition,
the Critics do not face up to the reality of world economic
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 REVIEW OF THE MONTH

interdependence and the significance of U.S. international

financial and military preeminence. The latter might be better
appreciated if we focus on the balance of payments situation.
The United States has had a deficit in its balance of
payments for all but one or two of the past twenty years, and
that deficit shows no signs of disappearing. This is unique in
capitalist history. Any other country-and the United States
itself prior to its post-Second World War dominance-would
have had to submit to the discipline of the international mar-
ketplace long, long before the twenty years were up. What
would this discipline of the marketplace imply? Adoption by
the U.S. government of such measures as would produce
deflation: a sharp rise in unemployment and downward eco-
nomic adjustment. Instead, the United States has been able
to maintain its kind of prosperity through the 1950s and 1960s
without undertaking effective measures to eliminate the inter-
national payments deficit. Quite the opposite: its prosperity
was sustained by the very kind of activities which have gen-
erated the persistent deficit.
Why the deficit? As a rule, U.S. exports of goods and
services (on current account) exceed imports. The deficit there-
fore arises because the U.S. government and investors spend
in international markets over and above their "means." The
government spends huge sums for its military establishment
around the globe, for its wars, and for military and economic
assistance to other countries. Corporations spend on investment
in foreign business undertakings-in advanced as well as under-
developed countries. All of these activities, independently of the
motives which induce them, contribute to the prosperity of
the economy as it is constituted.
The nub of this whole development is that it is made
possible by the fact that the other capitalist nations have,
willingly and unwillingly, accepted the U.S. dollar as if it
were as good as gold.
One need not follow too carefully the financial news to
be aware that the other industrialized nations are not too happy
about the necessity to accept the U.S. dollar as a substitute
for gold; indeed, considerable friction has resulted, and still
exists. Yet they do accept it, for several reasons. First, they
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MONTHLY R.EVIEW OCTOBER. 1970

fear that if they rock the boat too much, all the central bankers
will sink in a sea of financial difficulties. Second, they are
impressed with U.S. economic strength, though this confidence
is being increasingly shaken. Finally, and not the least of the
considerations, is U.S. military might and its global presence.
In fact, the United States has undertaken the major responsi-
bility for maintaining the world imperialist system. It first
supplied the armaments, armies, and Marshall Plan aid to
prevent social revolution in Western Europe. It has furnished
naval and air bases around the world, sufficient not only to
encircle the Soviet Union and China but to act as a threat of
military intervention or for actual intervention in the Third
World.
Thus the United States provides the main military might
for the "security" of the Western world, including Japan. The
quid P'Yo quo has been the reluctant acceptance of the U.S.
dollar as a reserve currency, despite the inability of the United
States to provide adequate gold coverage for its dollar debts.
And one of the results of this quid P'Yo quo is that U.S. busi-
ness can keep on investing in Western Europe and buying up
European firms, in effect paid for by credit extended by other
advanced capitalist nations to the United States.
Suppose, however, one does not accept this analysis of
the interrelationship between U.S. investment in advanced
capitalist nations, on the one hand, and (1) the actual and
incipient tensions between imperialist nations, and (2) the
maintenance of control and "stability" in the Third World, on
the other. Would the Critics then be correct in isolating U.S.
investments in advanced countries as a thing apart from eco-
nomic and political concern with the Third World? In our
judgment, they would still be mistaken in such a narrowing
down of imperialism. The reason is simple: when firms invest
in advanced countries they become directly involved in the
ties between those countries and "their" parts of the Third
World. The larger U.S. investments in Europe and Japan
become, the more extensively are U.S. interests bound up
with the spheres of influence and neocolonial arrangements of
the entire capitalist world.

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 REVIEW OF THE MONTH

The simplest and most direct illustration is the oil industry.

Some 24 percent of U.S. direct private investment in Europe
is in oil: oil refining, production of by-products, and the mar-
keting of these products to Europeans and their foreign cus-
tomers. But where do the U.S. subsidiaries get the oil to refine?
From the Middle East, of course. Note especially that the
rapid rise in U.S. oil investments in Europe was accompanied
by a decisive change in U.S. ownership of nearby oil deposits:
before the Second World War, U.S. firms controlled some
10 percent of Middle East oil reserves; by 1967, this percentage
rose to 59. The success and prosperity of U.S. investment in
the European oil industry depends on access to the oil extracted
from Third WorId countries. Conversely, U.S. companies in-
crease their profits on Middle Eastern oil by investing in oil
refining and distribution in nearby Europe.
In less dramatic fashion, yet equally relevant, is the grow-
ing interest in the Third WorId entailed by other investments in
the advanced nations. Thus, half of all U.S. direct investments
in Europe and Japan is in manufacturing other than petroleum
refining. Where do these firms get the raw materials to process?
A significant portion comes from the Third World.
On top of this is the growing involvement of U.S. firms in
the markets of the other advanced nations in the Third World.
Manufacturers in the advanced countries have special positions
and privileges in some of these markets through treaties and
currency arrangements. Some of these preferred market outlets
exist because of tariff barriers and distribution channels estab-
lished in colonial days. U.S. firms thus extend their markets,
getting a foothold in the preserves of other advanced countries,
by investing in and thus becoming business "citizens" of the
mother countries.
We have by no means exhausted the number of ways
U.S. investment in advanced nations extends U.S. involvement
in the economic affairs of the Third WorId. Let us look at just
one other way. Quite recently, three U.S. banks made invest-
ments in England (a developed country, to be sure): Mellon
National Bank and Trust Co.. acquired a 25 percent stake
in the Bank of London and South America Ltd. (BOLSA);

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MONTHLY REVIEW OCTOBER 1970

New York's First National City Bank obtained a 40 percent

share of National & Grindlay's Bank Ltd.; and Chase Man-
hattan Bank acquired a 15 percent interest in Standard Bank
Ltd. Note, however, that while all three of these U.S. bank
affiliates are based in London, "their main operations are in
broad chunks of the underdeveloped world. National & Grind-
lay's operates in India, Pakistan, and the Middle East, Stand-
ard is in Africa, and BOLSA concentrates on Latin America."
(The data and the quotation are from the American Banker,
January 28, 1970.)

Investment in Underdeveloped Countries

Having disposed of V.S. investment in advanced countries
as unrelated to imperialism, the Critics train their guns on the
relative smallness of U.S. business interests in underdeveloped
countries. In the statistical process of estimating the degree of
V.S. economic interests, they reduce the dimensions of this in-
volvement by restricting the discussion to exports and direct pri-
vate investment. Perhaps they do so because of the availability of
export and investment data and the lack of other adequate data.
Whatever the reason, this concentration on direct private
investment and exports results in overlooking other major
involvement. For example:
( 1) Licenses of patents, processes, and trademarks granted
to foreign manufacturers by U.S. manufacturing firms. This
represents a growing business interest in the Third World as
well as in advanced countries-in part a by-product of the
worldwide distribution of U.S. movies, 'IV, and advertising.
One finds, for example, such ordinary products as inks and
paints manufactured in the Philippines under licenses from
U.S. manufacturers.
(2) An important source of income to U.S. business is
profit derived from shipping food and raw materials from the
Third World to the United States, and the reciprocal trade.
A considerable number of these ships are U.S. ships flying the
flags of Liberia and Panama. Investments in such shipping
companies are included in the Department of Commerce statis-
tics under the category "International Shipping" and are ex-

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 REVIEW OF THE MONTH

eluded from statistics on direct private investments in under-

developed countries. (Incidentally, control over shipping and
related insurance required for Third-World trade are important
elements of the dependency relation between the peripheral
countries and the metropolitan centers.)
(3) Excluded from direct private investment statistics are
such significant and expanding areas of economic involvement
as: (a) direct loans by U.S. banks to foreign governments
and businesses, (b) many types of foreign bonds floated in the
United States, and (c) loans made in foreign countries by
Edge Act corporations (subsidiaries of U'.S. banks). It should
also be noted that a favorite form of financing by Edge Act
corporations is the convertible bond, a financial instrument
whereby the U.S. banking corporation can convert the bond
to shares of ownership in the foreign company if the latter
proves profitable.
( 4-) The data on direct private investment do not include
or measure the degree of diffusion of U.S. business interests in
the economic life of underdeveloped countries. This is especially
evident in the case of the operations of foreign branches of
U.S. banks and foreign banks owned by U.S. banks. (This is
over and above items referred to in the preceding paragraph.)
For example, direct private investment in banks abroad shows
up in the catchall category of "other investments," which
takes in a wide variety of activities, including such investments
as those in sugar and banana plantations. Thus, direct private
investment in Latin America under the category "other invest-
ments" amounted to $1,057 million in 1968. Since bank invest-
ments are only one component of this category, investments in
banks as counted by the Department of Commerce would be
considerably below $1,057 million. But the assets of the branches
of U.S. banks alone in that year amounted to $1,736 million.
And this does not include the extent of financial involvement
of U.S. banks through (a) Edge Act corporations owned by
U.S. banks, (b) finance companies owned by U.S. banks and
other financial institutions, (c) assets controlled directly via
equity holdings in Latin American banks, or (d) indirect control
over Latin American financial assets through branches of Eu-

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MONTHLY REVIEW OCTOBER 1970

ropean banks, such as noted above in the case of the Mellon

Bank stake in BOLSA. The financial assets controlled and in-
fluenced represent a diffusion of V.S. interests throughout the
interstices of the Third World economies far beyond direct in-
vestments-in the day-to-day activities of the native firms as
well as of other V.S. investors.
The importance of V.S. business interests in Latin Amer-
ica, for example, is indirectly reflected in the reason given
for the partnership arrangement that Mellon National Bank
made with BOLSA to enter the Latin American markets:

By 1961 it was becoming obvious to the bank's manage-

ment ... that because of its lack of international banking facili-
ties Mellon's share of the domestic market was being threatened.
Huge banks from New York, California, and Chicago were taking
advantage of their international expertise to obtain larger shares
of the domestic businessof Mellon's traditional customers. (Amer-
ican Banker, January 28, 1970.)

In this we can see several important aspects of V.S. in-

volvement in the underdeveloped world: ( I) it is becoming
increasingly important-important enough for banks to be
able to win customers from each other based on the services
they can give businessesoperating abroad; (2) there is an inter-
connection of domestic and international business activities, one
that exists in nonfinancial business too; and (3) competition
within an industry spurs further penetration into the under-
developed economies-also a factor in promoting pressure for
investments other than banking in the Third WorId.
(To be continued)

For what is, in my OpInIOn,central to the Marxian position is the

capacity and willingness to look beyond the immediately observable
facts and to see the tree of the future in the tiny shoots barely per-
ceptible in the present. It is the combination of historical vision and
the courage to be utopian-with the vision sternly disciplined by an
analysis of tendencies discernible at the present time, and with! the
utopia rendered concrete by the identification of the social forces that
may be expected to further its realization.
-Paul A. Bar4n

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