Capitalism-and-Its-Critics-A-History-From-the

Hobson was aghast at these policies. After returning from South Africa and turning his series of articles for The Guardian into a short book on the background to the war, he started work on a broader study of imperialism and its economic roots.

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Imperialism: A Study of the History, Politics and Economics of the Colonial Powers in Europe and America was published in London in 1902, just months after the war in South Africa ended. “Those readers who hold that a well-balanced judgment consists in always finding as much in favour of any political course as against it will be discontented with the treatment given here,” Hobson wrote in a preface. “For the study is distinctively one of social pathology, and no endeavor is made to disguise the malignity of the disease.”27 With that disclaimer out of the way, he reexamined the claims from Rhodes and other imperialists that newly acquired colonial markets in Africa and other parts of the globe were of vital importance to the British economy. The reality, Hobson said, was that “the smallest, least valuable, and most uncertain trade is that done with our tropical possessions, and in particular with those which have come under imperial control since 1870.”28 (Here, Hobson was referring to places like Nigeria, Ashanti [Ghana], Egypt, and Kenya.) During the same period, he pointed out, Britain had expanded its trade most rapidly with other developed countries, particularly France, Germany, and the United States, and with its long-established and selfruling colonies in Australasia and Canada. Thus, Hobson concluded, “the Imperialism of the last three decades is clearly condemned as a business policy, in that at enormous expense it has procured a small, bad, unsafe increase of markets, and has jeopardised the entire wealth of the nation in rousing the strong resentment of other nations.”29

This passage echoed Adam Smith’s critique of colonialism in The Wealth of Nations. It also raised anew the question of how the British government had been persuaded to embark on so many imperialist ventures. “The only possible answer is that the business interests of the nation as a whole are subordinated to those of certain sectional interests that usurp control of the national resources and use them for their private gain,” Hobson wrote. “This is no strange or monstrous charge to bring; it is the commonest disease of all forms of government. The famous words of Sir Thomas More are as true now as when he wrote them: ‘Everywhere do I perceive a certain conspiracy of rich men seeking their own advantage under the name and pretext of the commonwealth.’”30

Among the obvious beneficiaries of imperialism, Hobson identified armaments makers, shipbuilders, shipping companies, and members of the military. “These men are Imperialists by conviction; a pushful policy is good for them,” he wrote.31 To his list, he added “the great manufacturers for export trade,” noting that, even though the new colonial markets were small, “Manchester, Sheffield, Birmingham, to name three representative cases, are full of firms which compete in pushing textiles, and hardware, engines, tools, machinery, spirits, guns.”32 Together these commercial interests constituted a sizable imperialism lobby, Hobson said. But he insisted that its influence on government policy was greatly exceeded by that of another big interest group: the financial capitalists in the City of London and beyond. “By far the most important economic factor in Imperialism is the influence relating to investments,” he wrote. “The growing cosmopolitanism of capital is the greatest economic change of this generation. Every advanced industrial nation is tending to place a larger share of its capital outside the limits of its own political area, in foreign countries, or in colonies, and to draw a growing income from this source.”33

Citing income tax data and estimates from the Irish journalist and statistician Michael George Mulhall, Hobson pointed out that between 1862 and 1893, the total volume of Britain’s foreign investment had risen more than tenfold.34 And between 1884 and 1900, the annual income it received from foreign investments had virtually doubled.35 These developments hadn’t merely altered the nature of British capitalism, Hobson argued: they had also transformed its foreign policy. “It is not too much to say that the modern foreign policy of Great Britain is primarily a struggle for profitable markets of investment,” he wrote. “To a larger extent every year Great Britain is becoming a nation living upon tribute from abroad, and the classes who enjoy this tribute have an ever-increasing incentive to employ the public policy, the public purse, and the public force to extend the field of their private investments, and to safeguard and improve their existing investments. This is perhaps the most important fact in modern politics, and the obscurity in which it is wrapped constitutes the gravest danger to our State.36

Again, there were echoes here of Smith’s critique of the East India Company and other state-chartered monopolies. But Hobson took the state capture argument further and generalized it, writing: “What is true of Great Britain is true likewise of France, Germany, the United States, and of all countries in which modern capitalism has placed large surplus savings in the hands of a plutocracy or a thrifty middle class.”37 The inclusion of the United States on Hobson’s list of imperialist countries was no accident. He viewed the rapid expansion of American industry and finance during the post–Civil War era as the essential precursor to the imperialist thrust that had found its political champion in Theodore Roosevelt. “The adventurous enthusiasm of President Roosevelt and his ‘manifest destiny’ and ‘mission of civilization’ party must not deceive us,” Hobson wrote. And he added:

It is Messrs. Rockefeller, Pierpont Morgan, Hanna, Schwab, and their associates who need Imperialism and who are fastening it upon the shoulders of the great Republic of the West. They need Imperialism because they desire to use the public resources of their country to find profitable employment for the capital which otherwise would be superfluous  … American Imperialism is the natural product of the economic pressure of a sudden advance of capitalism which cannot find occupation at home and needs foreign markets for goods and for investments.38

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Having laid out this economic theory of imperialism, Hobson went on to examine its underpinnings, further developing some of the arguments he had made in his earlier books about underconsumption and oversaving. “It is admitted by all business men that the growth of the powers of production in their country exceeds the growth in consumption, that more goods can be produced than can be sold at a profit, and that more capital exists than can find remunerative investment,” he wrote. “It is this economic condition of affairs that forms the taproot of Imperialism.”39 Hobson also insisted that this state of affairs wasn’t inevitable, and that the solution was in plain sight: raising the spending power of the masses. “If the consuming public in this country raised its standard of consumption to keep pace with every rise of productive powers, there could be no excess of goods or capital clamorous to use Imperialism in order to find markets,” he wrote.40 Some foreign trade would still take place, he added, but the home market would be able to absorb most of the products that the country’s businesses produced.

Hobson had now reached the crux of his argument: the fundamental factor driving imperialism was a chronically lopsided distribution of income and wealth. If income were distributed according to needs, “consumption would rise with every rise of producing power, for human needs are illimitable, and there could be no excess of saving,” he wrote. “But it is quite otherwise in a state of economic society where distribution has no fixed relation to needs, but is determined by other conditions which assign to some people a consuming power vastly in excess of needs or possible uses, while others are destitute of consuming power enough to satisfy even the full demands of physical efficiency.”41 Citing the work of the social researcher and industrialist Seebohm Rowntree, who had recently published a detailed study of poverty in the English city of York, Hobson pointed out that “more than one-fourth of the population of our towns is living at a standard which is below bare physical efficiency.”42 He continued: “If, by some economic readjustment, the products which flow from the surplus saving of the rich … could be diverted so as to raise the incomes and the standard of consumption of this inefficient fourth, there would be no need for pushful Imperialism, and the cause of social reform would have won its greatest victory.”43

Returning to the US experience, Hobson argued that oversaving and deficient demand constituted a particularly grave problem in a society “where multi-millionaires rise quickly and find themselves in possession of incomes far exceeding the demands of any craving that is known to them.”44 But Hobson also emphasized that the oversaving problem wasn’t confined to one country: it afflicted all capitalist countries once their economies reached a certain level of development, inequality, and rent-seeking. “It is not industrial progress that demands the opening up of new markets and areas of investment, but mal-distribution of consuming power which prevents the absorption of commodities and capital within the country,” he wrote. “The over-saving which is the economic root of Imperialism is found by analysis to consist of rents, monopoly profits, and other unearned or excessive elements of income, which not being earned by labour of head or hand, have no legitimate raison d’être.”45

Until this point in his analysis, Hobson had refrained from offering any detailed prescriptions. Now, he called for an aggressive program of income and wealth redistribution, justifying it on practical as well as moral grounds. An economy in which so much of the consuming power is restricted to a tiny minority is “a suicidal economy even from the exclusive standpoint of capital, for consumption alone vitalises capital and makes it capable of yielding profits,” he wrote. “An economy that assigns to the ‘possessing’ classes an excess of consuming power which they cannot use, and cannot convert into really serviceable capital, is a dog-in-the manger policy.”46

Given this imbalance, which Marx and some of his followers had also identified as one of capitalism’s self-contradictions, moving to “deprive the possessing classes of their surplus will not  … inflict upon them the real injury they dread,” Hobson insisted.47 To the contrary, it would raise domestic demand for the products businesses manufactured and undermine the economic arguments for imperialism, which he described, with an eye to the rising military tensions between the imperialist powers, as “a wrecking policy” for all concerned. “The only safety of nations,” he concluded, “lies in removing the unearned increments of income from the possessing classes, and adding them to the wage-income of the working classes or to the public income in order that they may be spent in raising the standard of consumption.”48

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Particularly on the left, Hobson’s theory of imperialism was to prove enormously influential. In bringing together inequality, poverty, unemployment, oversaving, and state capture, it seemed to supply a unified field theory of capitalist pathologies. It also provided an economic explanation for the shift from the trade-based colonialism that had been exercised by the East India Company and other similar ventures to the outand-out imperialist land grabs of the late nineteenth century: this formal imperialism, as it came to be known, was an outgrowth of industrial capitalism and the huge surpluses of capital that it generated.

Like many grand theories, this one oversimplified some things and failed to account for others. Hobson was correct when he pointed to the massive outflows of financial capital from late nineteenth-century and early twentieth-century Britain. However, modern economic historians emphasize that most of these investments didn’t go to the country’s new colonies in Africa and Asia: they went to North America and South America. But even though this criticism of Hobson has some force, it doesn’t negate his argument that finance capital played an important role in the scramble for Africa and parts of Asia. Hobson was well aware that most of Britain’s foreign investments were directed toward the United States and other independent countries rather than its colonies. In his 1902 book, he cited contemporary estimates showing that in the 1890s, the majority of the income that Britain derived from its foreign investments came from these sources. But he also emphasized the growth in income derived from recently acquired colonies. “The investing and speculative classes in general also desire that Great Britain should take other foreign areas under her flag in order to secure new areas for profitable investment and speculation,” he wrote.49

A more penetrating criticism of Hobson is that his analysis of finance capital was tarnished with antisemitism. In The War in South Africa, his 1900 collection of journalistic articles, he described the conflict as a “Jew-Imperialist design that is in the course of execution.”50 In Imperialism: A Study, he referred to international banking houses that form the “central ganglion of international capitalism  … controlled, so far as Europe is concerned, chiefly by men of a single and peculiar race, who have behind them many centuries of financial experience, they are in a unique position to control the policy of nations.”51 It is a matter of record that Rhodes founded De Beers with backing from the British branch of the Rothschild banking concern, and that some prominent Randlords, such as Alfred Beit and Sigismund Neumann, were Jewish. But many of the mining magnates were gentiles. They included Rhodes himself; his partner Charles Rudd; Sir

Julius Wernher, a partner of Beit; and Sir Joseph Robinson, the founder of Randfontein Estates. To the extent that Hobson’s statements implied imperialist politicians like Joseph Chamberlain, Jules Ferry, and Teddy Roosevelt were controlled by Jewish banking interests, they were equally ahistorical. In singling out Jewish financiers and claiming that they exercised sweeping power over global capitalism, Hobson was peddling a trope that Hitler and other antisemitic rabble-rousers would later seize upon.

Offputting as these passages were, though, they weren’t essential to Hobson’s analysis. His economic theory of imperialism hinged on the search for profitable investment opportunities by financial capital in general, not by the subset controlled by Jewish banking houses. Nothing in his theory depended on the religion or ethnicity of the individuals who supplied the capital. Indeed, Hobson, by singling out one specific group, weakened his argument and made it appear less general than it was.

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Viewed in broad terms, Hobson’s theory of imperialism and his other writings on oversaving and industrial capitalism were a response to what late Victorians referred to as the “social question”: the rise of the industrial working class and the attendant problems of poverty, inequality, and social strife. Marx’s followers insisted that it was folly to believe these issues could be resolved within the existing economic system. Hobson and other progressive liberals, even as they jettisoned some elements of the liberal creed, retained an underlying faith in reform and progress. This British “New Liberalism,” which also encompassed the writings of Hobhouse and the philosopher T. H. Green, aspired to transcend the old individualism while not entirely abandoning it. The New Liberals adopted an organic view of society, in which the social organism couldn’t be reduced entirely to its constituent parts. In practical terms, they endorsed vigorous efforts to raise the living standards (and consuming power) of the working class, through labor union activities and new government programs, such as expanded schooling, public housing, and old-age pensions. They said that social reforms should be financed by taxing some of the “unearned elements” of income, which in their view constituted a significant part of all great fortunes.52 Hobson argued that imperialism, and the costly military expenditures it entailed, blocked this progressive spending agenda, because it “visibly drains the public purse of the money which might be put to such purposes.”53

The imperialists dismissed these arguments and continued to claim that expanding the colonial trade would safeguard British jobs. Chamberlain, who had made his name as a radical mayor of Birmingham, argued that introducing a system of imperial tariffs would provide the revenues to finance the sorts of social programs that Hobson and others were demanding. But popular revulsion at the atrocities of the Boer War turned the political climate against the imperial lobby. In the general election of 1906, the Liberal Party, which had campaigned on a platform of social reform and anti-imperialism, recorded a landslide victory. The recently founded Labour Party also won twenty-nine seats in the House of Commons.

In 1908 Herbert Henry Asquith, the Liberal leader who had recently been elevated from the post of chancellor of the exchequer to prime minister, replacing an ailing Henry Campbell-Bannerman, introduced an Old Age Pensions Act, which provided weekly benefits to people over seventy. After Asquith’s promotion, David Lloyd George, a fiery Welsh orator who had staunchly opposed the Boer War, took over at the Treasury. In his famous “People’s Budget” of 1909, Lloyd George proposed a series of tax increases to pay for new old-age pensions and other programs, including health and sickness benefits. He proposed raising the tax rate on high incomes from 3.75 percent to 5 percent, and the rate on very high incomes to 7.5 percent.54 With an implicit hat tip to Henry George and Mill, he also proposed a 20 percent tax on increases in land value whenever a property was sold. The House of Lords, which was stuffed with landed aristocrats, voted the budget down, creating a constitutional crisis. The government called an election that produced a hung Parliament and left the Liberals to rely on support from the Labour Party and Irish nationalists. Lloyd George pressed ahead. In April 1910, amidst a grave constitutional crisis, the House of Lords finally relented and voted through the budget measures.

The Liberal reforms, which were extended in the National Insurance Act of 1911, had shortcomings, including the fact that they didn’t cover everybody. In historical terms, however, they marked the foundation of the

British welfare state, albeit in a fledgling form. Intellectually, they marked a transition from the individualistic liberalism of Smith and Mill to the social liberalism of Hobson and Hobhouse—a development that Hobson remarked on in his 1909 book The Crisis of Liberalism, in which he declared: “The old laissez-faire Liberalism is dead.”55

It should be noted that not all the revenue Lloyd George raised in the People’s Budget went to social reforms. Some of it was allocated to building new battleships, which the British defense establishment deemed essential to meet the rising threat from Kaiser Wilhelm II’s Germany. Since succeeding his father in 1888, the Kaiser had pursued an aggressive foreign policy known as Weltpolitik, which aimed at making Germany a great global power and challenging Britain’s naval supremacy. On March 31, 1905, Wilhelm docked his yacht in the Moroccan port of Tangier and went ashore to express his support for the country’s independence, thereby violating a long-standing agreement between the European powers that, as they carved up the African continent, each would stick to its “sphere of influence.” Morocco was in France’s sphere of influence. The subsequent uproar relented only when Britain, Russia, Italy, and the United States took France’s side and forced Germany to back down.

From a dynastic viewpoint, the rising frictions between Britain and Germany were an absurdity. King Edward VII, who had succeeded his mother, Queen Victoria, at the start of the new century, was Kaiser Wilhelm’s uncle. In 1908 the two monarchs held a convivial meeting in the ancient German town of Kronberg. But family ties couldn’t disguise the fact that the remarkable growth of German industry, and the strength of its scientific base, had turned the young nation into an economic power that was now the equal, or even the superior, of Britain. In 1870 Britain’s GDP had been nearly 40 percent larger than Germany’s, and in 1880 its share of global manufacturing production had been nearly three times as large. By 1913, Germany’s economy was slightly bigger than Britain’s, and it had also caught up with its manufacturing share.56 In some heavy industries, particularly steel and chemicals, Germany had already left Britain far behind.

Like most of his fellow liberals, Hobson couldn’t fully conceive of where the Anglo-German rivalry was heading. Imperialist conflicts in Africa were one thing. But an all-out conflict between the great powers would be so catastrophic that it would be totally contrary to reason, and also to the profit motive: therefore, it was out of the question. As the arms race continued, and more potential flash points arose, Hobson and many of his friends took up the cause of pacifism without fully realizing how perilous the situation was. “There was no real belief in the possibility of any early large-scale war, or in such a collapse of democracy as followed,” he would later recount. “The long period of peace in Western Europe, the steady progress of popular self-government in all civilized countries, had fastened these achievements upon our minds as permanent testimonials to rationalism and ethics in the field of politics.”57

This reassuring picture was an illusion that didn’t make much of an impression on the far left, which interpreted rising tensions between the imperialist countries as a sign that the long-predicted implosion of capitalism was at hand and that it would be a violent one. Across continental Europe, various versions of this argument were being put forward. The most innovative one emerged from the central party school of the Social Democratic Party of Germany (SPD), Germany’s workers’ party, in Berlin, which employed a brilliant instructor and activist. Her name was Rosa Luxemburg.