Much of the developed world saw a massive growth in industrialisation and militarisation in the early 20th century.
Marxists tried to come to terms with huge changes that were taking place in the world economy.
In 1910, Rudolph Hilferding, a theoretician of the German Social Democratic Party (SPD), produced the path-breaking book Finance Capital.
Hilferding analysed the development of big cartels and corporations and their importance to the economy.
He built upon Karl Marx’s prediction that the crises in capitalism would lead to a concentration and centralisation of capital into the hands of fewer and fewer capitalists – a growth in monopoly.
Now monopoly was a fact of life. In the US, half the years between 1873 to 1898 were spent in economic depression with many businesses collapsing.
Those businesses that succeeded were able to buy up their competitors at a bargain price.
As industrialist Andrew Carnegie noted, “So many of my friends needed money... I bought five or six of them out. This is what gave me my leading interest in the steel business.”
Alongside monopoly grew the joint stock company – the precursor to modern corporations. These companies were able to amass capital from many shareholders, enhancing their ability to expand rapidly.
Industrial states developing in the shadow of British global dominance needed favourable conditions so that they could attempt to catch up.
They created these through the imposition of tariffs and the unification of industrial and bank capital.
Protective tariffs were large taxes applied to otherwise cheap imports that were used to stop infant domestic industries from being undercut.
The unification of banking and industrial capital meant that money held in banks was used to finance the massive levels of investment necessary to fuel economic growth.
As Hilferding argued, “the previously separate spheres… are now brought under the direction of high finance, in which the masters of industry and of the banks are united in close personal association”.
The basis of this, he argued, “is the elimination of free competition among individual capitalists by the large monopolistic combines”.
This rise of finance capital and monopoly transformed the role of protective tariffs.
Hilferding argued that tariffs had the effect of protecting the monopoly’s ability to set its own prices from the pressure to drive prices down created by market competition.
This alters the nature of protectionism: “From being a means of defence against the conquest of the domestic market by foreign industries, it has become a means for the conquest of foreign markets by the domestic industry.”
Every developed capitalist state was locked into global competition for markets and resources that would allow its domestic economy to expand and compete with the monopolies associated with other states.
Despite these insights, the conclusions that Hilferding drew were deeply flawed.
He thought that the increasingly organised nature of domestic capitalism would make it easier for workers to take control of the state through the election of a socialist government that could take over finance capital.
Hilferding shared this viewpoint with many in the SPD. Rosa Luxemburg swam against this tide.
She believed, following Marx, that it was impossible for workers to seize the existing state and that they therefore had to smash it.
She wanted to prove that capitalism was bound to cause war, and disprove the ideas of those who proposed that capitalism could be peacefully reformed out of existence.
In The Accumulation of Capital, published in 1913, Luxemburg argued that imperialist conflict was a product of capitalism.
She wrote, “The explanation for the economic roots of imperialism must be deduced from the laws of capital accumulation.”
She was proven right with the outbreak of the First World War in 1914. However, Luxemburg did not integrate the rise of monopoly capitalism into her theory.
Marx, Hilferding and Luxemburg had provided the building blocks for understanding how large scale industrialisation, monopoly capitalism and war were linked.
In the furnace of revolution in Russia, two revolutionaries would forge these elements into the classical Marxist theory of imperialism.