For a long time we have been hearing about "the trade war" with Japan. According to the media, the whole populations of America and Britain have been incensed about the flood of Japanese imports and the reluctance of the Japanese to buy foreign goods, and are demanding that their governments put pressure on Japan to stop it.
This is a half-truth that is wholly misleading. The American and British companies making fat profits importing Japanese goods, and their customers who buy them, are not incensed and are not asking their governments to do anything. They "buy Japanese" because the goods are cheap, and they want to go on buying them. The people who do want it stopped and who happen to have got the support of their governments are those American and British manufacturers who are being driven out of business because they cannot produce as cheaply as can their Japanese rivals. It is a development seen many times before in the history of world capitalism, but with different countries taking the leading role.
At first it was Britain, "the workshop of the world", which flooded other countries with its cheap manufactures. Among the later leaders have been the USA and Germany. Now it is Japan, but in due course it will be the Japanese manufacturers complaining about cheap imports. Already there are signs of this but it will be the Japanese manufacturers who will complain, not the Japanese import companies and their customers.
The important aspect of this to take note of is that it is just one example of the sectional conflicts of interest inside the capitalist class in each country — those who favour "free trade" and those who favour protective tariffs; the borrowers who want interest rates to fell and the lenders who want them to rise; the export industries pressing for a lower foreign exchange rate for the currency and the import industries pressing for a higher rate; and the capitalists who want inflation with its higher prices, those wanting deflation with its lower prices and those who prefer the gold standard and a stable price level.
Illusions about Free Trade
The row with Japan raises the issue of Free Trade. In the mid-nineteen century two Liberal politicians, Cobden and Bright, evolved a comprehensive theory. Each country should, they said, cease all forms of discrimination against foreign goods and always buy in the cheapest market. Prices would fall, production would increase and all would benefit through universal peace and prosperity.
It suited British manufacturers at the time because the cheapness of their manufactures would give them access to the markets of all countries operating a free trade policy. The Tory, Benjamin Disraeli, understood the world better than did the Cobdenites when he said that "the Continent will not suffer England to be the workshop of the World". Not only was he right about that, but within thirty years, when British goods no longer had the advantage of cheapness, the manufacturers were campaigning for protection against foreign imports.
The error of the Cobdenites was in their belief that the nations are simple geographical associations of manufacturers, traders and workers happily co operating together and ready to join with those in other nations to the advantage of all the people. As a picture of the one hundred and sixty nations in the world it is not recognisable. Capitalism is not like that. In all the nations there is exploitation of one class by another, production carried on for sale and profit, and armed forces both to protect the property of the owners and to maintain their interests against the other nations. The nations were born in conflict and live in conflict.
The nations came into existence, with greater or less violence, out of the break-up of the old empires such as the Turkish and Austro-Hungarian, and later, out of the dismantling of the British, French, Spanish and Portuguese colonial empires. How violently, can be seen in our own times because nation-forming is still going on: the creation of Israel and its wars with neighbouring states; the breakaway of Bangladesh from Pakistan and of Pakistan from India, which now faces separatist movements of the Sikhs in the Punjab and the Ghurkas in West Bengal; the Corsican independence struggle against France and of the Basques against Spain; the Tamils in Sri Lanka and the movements by the Kurds in Turkey, Syria, Iraq and Iran to form a Kurdish nation. In other parts of the world there are similar movements including parts of Russia. Twenty years ago the Nigerian government in a bloody civil war beat off an attempt by oil-rich Biafra to form an independent state.
There is a common pattern in all the past and present, successful and unsuccessful attempts to form new nations. Local groups of politicians and businessmen who think they can do better for themselves on their own form so-called national independence movements, using as their power-base local populations having the same language, or religion, or tribal loyalties or the the same facts or legends of history (some Israelis invoke the real or supposed events of 2,000 years ago).
Constant battle for resources and trade routes
Marx and Engels sketched out the nation-forming process in the Communist Manifesto in 1848. In opposition to the idealised vision of Cobden and Bright, Marx and Engels wrote:
The bourgeoisie finds itself in a constant battle . . . at all times, with the bourgeoisie of foreign nations.
The principal forms taken by the constant battle are attempts to grab sources of raw materials, minerals and fuels needed for industry and the need to protect the sea and air routes along which they are transported. An interesting example comes from Alsace and Lorraine. Acquired by France in the 17th and 18th centuries, this area was taken in war by Germany in 1870; reoccupied by France in 1918; retaken by Germany in 1939 and returned to France again after World War II. The lure was the rich iron ore deposits.
Then there is the so-called trade war between the nations. It has been widely misunderstood and has produced a crop of fallacious theories from economists and others to explain how it works. It can happen, though instances are few, that a group of capitalists can induce the government to turn trade war into real war, as when, early in the 19th century, Britain made war on China to force the Chinese government to allow the import of opium into China.
The extent to which a nation depends on foreign trade reflects the extent to which it has all the resources it needs within its own borders. For the USA and Russia, with their great land mass, exports are only ten per cent of total production and are correspondingly of limited importance except to the industries concerned. For Britain it is about 30 per cent and for Belgium, Switzerland and some other countries very much more.
In general foreign trade ranks in importance far below the vital strategic interests of the nations. Despite the long "trade war" between the USA and Japan no one has suggested that it might lead to real war: the mutual interest of the two governments in strategic control of the Pacific is much too vital. As Professor Edwin Cannan pointed out during the 1914 war:
Where there are not supposed to be divergent strategic interests, no amount of divergent or supposedly divergent commercial interests produces either war or preparations for war.
Several writers, including J.A. Hobson, Major Douglas, founder of the Social Credit movement, and the economist J.M. Keynes, took a different view, giving the pressure to find export markets an importance out of all proportion. Keynes, in particular (in the last chapter of his General Theory), holding that the pressure to export is a principal cause of war. All three based their theories on a supposed, but in fact non-existent, overall "deficiency of purchasing-power" in every nation.
Fallacies about why countries export
The governments in all countries face an acute political problem in the discontent that arises if large numbers of workers are unemployed. They and their advisers are therefore concerned to find out what it is that causes the periodic crises, and the depressions which follow the crises, that are an inevitable feature of the whole modern world.
One of the flimsiest of the anti-Marxist theories selects as the cause of crises the restricted purchasing power of the working class. Because the ability of the workers to buy consumer goods is limited to their wages, the theory held that the industries producing consumer goods soon find themselves in financial difficulties as they compete with each other for a limited market, so a crisis occurs. This theory was known to Marx, who ridiculed it. He pointed out that in the boom which is the forerunner of every crisis, the wages of the whole working class not only rise because wage-rates rise and more workers are in work, but the working-class "get a larger share of the annual product intended for consumption". So the sales of the consumer goods industries do not go down but go up. As Marx said, "such a period should rather remove a crisis".
Hobson, Douglas and Keynes put forward a more substantial version of the deficiency theory. They argued that the combined purchasing power of the capitalists and the workers together is insufficient to buy all the commodities on sale in the market. They offered different reasons for this deficiency. Hobson said it was due to the existence of monopolies, Douglas said it was because the government did not put enough currency (notes and coins) into circulation. Keynes said it was because the government borrowed and spent too little to create full employment.
There is no need to go into the details of their theories because history has disproved all of them. Crises and depressions with mass unemployment have occurred before monopolies were formed and after they had been suppressed. The amount of currency in circulation in the 1980's when unemployment has been over three million is a dozen times more than it was in the 1950's when there was a continuing labour shortage. There has been a similar big increase of government borrowing and spending in the 1980's compared with the 1950's.
Louis Boudin, who had written usefully about Marxian economics in The Theoretical System of Karl Marx, went quite off the rails about the supposed deficiency of purchasing power and consequent compulsive pressure to find markets for exports. He argued that industrially developed countries cannot export to each other at all. Their only outlet, he said, is in primitive economies not yet in the sphere of capitalism. So, as those economies become industrially developed all exports would dry up. Rosa Luxemburg put forward a similar theory in her book the Accumulation of Capital. Boudin and Luxemburg expressed these views some seventy years ago, but the volume of world trade now is enormously greater than it was then, most of it between the industrially developed nations.
If it were true that capitalists have to export because of a deficiency of purchasing power at home and therefore British capitalism had to export £75,000 million of commodities in 1985, who is it who bought the £80,000 millions of imports?
The Marxian Position
Marx dealt with and disposed of the whole deficiency theory. There is not and cannot be an overall deficiency of purchasing power to buy all the commodities on sale in the market; however possessing purchasing-power is not the same as using it at once to buy the commodities in the market.
Marx made this point in his reply to the French economist J. B. Say, in the first volume of Capital (Chapter on Money, or the circulation of commodities). Say held that serious depression is impossible because, in his phrase, "every seller brings a buyer to market"; by which he meant that every capitalist who has sold commodities then has the money with which to go out at once and buy other commodities. To which Marx replied by pointing out that being able to buy at once does not mean that the capitalist has to buy at once. "No-one is forthwith bound to purchase, because he has just sold." He went to say:
If the interval in time . . . between the sale and the purchase becomes too pronounced the intimate connection between them, their oneness, asserts itself by producing — a crisis.
If the buyers of a certain line of commodities suddenly cease to buy them the industry producing the commodities is in financial trouble.
This happens because in every boom some industries overproduce for their particular market. Prices drop, profit margins disappear and production is curtailed or halted. Because of growing unemployment, the total wage of the working class falls and with it the sale or consumer goods too.
Capitalists produce to make a profit. They are not interested in production for its own sake. It is how capitalists behave that causes crisis, not the limited purchasing power of the working class.
What about imports?
It has to be emphasised that the "trade war" is not just about exports but about both imports and exports. The pressure behind both is the same, the search for profits by the import and export capitalists.
The competition is the same. Export capitalists compete with each other for overseas markets and with foreign manufacturers. Import capitalists compete with each other and with foreign manufacturers for access to the home market. Each section seeks to get the backing of the government and some governments help export industries with subsidies. But equally, some governments put obstacles in the way of the export industries in order to help home producers.
At the beginning of the century the British government levied a heavy tax on every ton of coal exported. The coal owners objected but it was welcomed by British factory owners because it meant lower coal prices in the home market. The Argentine government levies a tax on the export of wheat and the Indian government fixes a minimum price for the export of tea. Only the high-priced tea can be exported, with the effect of keeping prices low and promoting sales in the home market. Developing nations producing raw materials to be manufactured abroad eventually decide to restrict exports in order to promote the development of manufacture at home. It all depends on which section of the capitalist class succeeds in getting government support for its particular benefit.
Edgar Hardcastle (Britain)
Blogger's Note:
As both Louis Boudin and Rosa Luxemburg are mentioned in Hardcastle's article, readers might be interested in the following articles and book reviews from the pages of the Socialist Standard and the Western Socialist that covers both writers in greater detail:
- A review of Louis Boudin's The Theoretical System of Karl Marx by Ren (1968 No. 3 issue of The Western Socialist)
- A review of Louis Boudin's The Theoretical System of Karl Marx by Edgar Hardcastle (August 1968 issue of the Socialist Standard)
- Rosa Luxemburg and the Collapse of Capitalism by John Crump (January 1969 issue of the Socialist Standard)
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