This insight can make sense of the actual pattern of economic development during the high tide of imperialism at the end of the 19th century. Had the half of British investment that went overseas been invested domestically it would have raised the ratio of investment to labour (the organic composition of capital) and so lowered the rate of profit. As it was, estimates suggest that the capital-output ratio actually fell from 2.16 in 1 875-83 (the years of the first "Great Depression" ) to 1 . 82 in 1 891-1 901,53 and that the early 1 890s were a period of rising profit rates (following a fall from the 1860s to the 1 880s).54 And in these years what happened in Britain still had a major impact on the rest of the system.
This points to a wider and very important insight into the dynamic of capitalism in the 20th and 21st centuries to which we will return in later chapters. For the moment it is sufficient to recognise that imperialism arose out of the competitive drive of capitals to expand beyond national frontiers-and led, as a temporary side-effect, to a lessening of the pressures otherwise driving up the organic composition of capital and so lowering the rate of profit. But it could only be a temporary effect because eventually investments made in the new centres of accumulation would produce new surplus value seeking investment and exerting a downward pressure on profit rates. As that happened the old contradictions in the system would return with a vengeance, opening up a new period of economic instability which would lead to intensified competition, not only of an economic but also of a military sort. This is effectively what happened in the first decades of the 20th century, with an international tendency towards falling profit rates and increased tensions between states. Amended in this way, the insistence by Lenin, Bukharin and Luxemburg on the connection between capitalism and war could be made theoretically watertight.
A problem Marx left behind
The classic theory of imperialism has one important implication. It raises the question of the relation between states and the capitals within them. Marx left the question unresolved. He took up some of its aspects in his non-economic writings,55 but did not get as far as integrating them into his analysis of the capitalist system as a whole. But the question is not one that any serious analysis of capitalism in the century after his death can avoid. A quick glance at the growth of state expenditure shows why (see the graph below for the United States). From its share of national output being more or less static through the 1 9th century, except at times of allout war, it started growing in the second third of the 20th century and has never stopped doing so.
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Understanding the System: Marx and Beyond