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World Economy Defined

The struggle between national states, which is nothing but the struggle between the respective groups of' the bourgeoisie, is not suspended in the air. One cannot picture this gigantic conflict as the conflict of two bodies in a vacuum. On the contrary, the very conflict is conditioned by the special medium in which the national economic organisms live and grow. The latter, however, have long ceased being a secluded whole, an isolated economy à la Fichte or Thünen. On the contrary, they are only parts of a much larger sphere, namely, world economy just as every individual enterprise is part of the national economy, so every one of these national economies is included in the system of world economy. This is why the struggle between modern national economic bodies must be regarded first of all as the struggle of various competing parts of world economy-just as we consider the struggle of individual enterprises to be one of the phenomena of socio-economic life. Thus the problem of studying imperialism, its economic characteristics, and its future, reduces itself to the problem of analysing the tendencies in the development of world economy, and of the probable changes in its inner structure. Before we approach this problem, however, we must, first of all, agree as to what we understand by the expression world economy.

The basis of social life is the production of material goods. In modern society, which produces not products as such but commodities, i.e., products destined for exchange, the process of the exchange of various products expresses the division of labour between the economic units that produce those commodities. Such division of labour, in contradistinction to the division of labour within the framework of a single enterprise, is termed by Marx the social division of labour. Social division of labour can obviously assume various forms; there may be, for instance, division of labour between various enterprises within a country; or there may be division of labour between various branches of production; there may also be division of labour between such large subdivisions of the entire economic life as, for instance, industry and agriculture; and there may be division of labour between countries that represent separate economic systems inside of the general system, etc.

It is possible to propose various divisions, to advance more than one basis for the classification of economic forms, depending upon the aims pursued by the investigation. What is important for us in this connection is the fact that, alongside of other forms of social division of labour, there exists a division of labour between national economies, between various countries, a division of labour which oversteps the boundaries of the national economy, - an international division of labour.

There exist two kinds of prerequisites for an international division of labour: natural prerequisites conditioned by the differences of the natural medium in which the various production organisms live, and prerequisites of a social nature conditioned by the differences in the cultural level, the economic structure, and the development of productive forces in the various countries.

Let us start with the former.

Different communities discover in their natural environment different means for production and subsistence. Consequently their methods of production, modes of life, and products, are different. It is owing to the existence of these spontaneously developed differences that, when communities come into contact, there occurs an exchange of their several products one for another, so that these products gradually become transformed into commodities. Exchange does not create the difference between the spheres of production; it brings the differing spheres of production into relation one with another, and thus transforms them into more or less interdependent branches of a social collective production.

This difference in the spheres of production results here from the differences in the natural conditions of production. It is not difficult to find numerous illustrations for this assertion. Let us, for example, take the vegetable kingdom.

Coffee can be produced only under certain climatic conditions. It is grown mainly in Brazil, partly in Central America, to a much lesser degree in Africa (Abyssinia, British Central Africa, German East Africa), and in Asia (Dutch India, British India, Arabia, Malakka). Cocoa can be produced only in tropical countries. Rubber, a product playing a very large part in modern production, also requires certain climatic conditions, and its production is limited to a few countries (Brazil, Ecuador, Peru, Bolivia, Guiana, etc.). Cotton, a product occupying the first rank among all fibrous plants due to its importance in economic life is produced in the United States, India, Egypt, China, Asia Minor, and the Russian Central Asia territories. jute, which takes the second place, is exported from one country only, namely, from India. If we take the production of minerals, we find the same picture, since we deal here to a certain extent with what is known as the natural resources of a country. Coal, for instance, is exported from countries with large coal deposits (England, Germany, United States, Austria, etc.); kerosene is produced in countries having an abundance of oil (United States, the Caucasus, Holland, India, Roumania, Galicia); iron ore is extracted in Spain, Sweden, France, Algeria, Newfoundland, Cuba, etc.; manganese ore is to be found mainly in the Caucasus and Southern Russia, India, and Brazil; copper deposits are in abundance mostly in Spain, Japan, British South Africa, German Southwest Africa, Australia, Canada, United States, Mexico, Chile, and Bolivia.

Important as the natural differences in the conditions of production may be, they recede more and more into the background compared with differences that are the outcome of the uneven development of productive forces in the various countries.

It must be emphasised that natural conditions are only of relative importance as regards production relations, as well as commerce and transport, i.e., their negative or positive significance depends to a high degree upon the cultural level of man. While natural conditions ... (measured by the human yardstick of time and space) may be regarded a-, constant entities, the cultural level of man is a changing entity, and no matter how important the differences in the natural conditions of a country may be for production and transport, the cultural differences are certainly as important, and only the combined action of both forces produces the phenomena of economic life. 2)

Coal deposits, for instance, may be dead capital in the absence of technical and economic prerequisites for their extraction. On the other hand, mountains formerly obstructing communication, swamps making production difficult, and the like, lose their negative significance in a country with a highly developed technique (tunnels, irrigation works, etc.). Still more important for us is the circumstance that the unequal development of productive forces creates different economic types and different production spheres, thus increasing the scope of international social division of labour. We have in mind the difference between industrial countries importing agricultural products and exporting manufactured goods, and agrarian countries exporting the products of agricultural production and importing the products of industry.

The foundation of all highly developed divisions of labour that are brought about by the exchange of commodities is the cleavage between town and country. We may say that the whole economic history of society is summarised in the development of this cleavage. 3)

The cleavage between town and country, as well as the development of this cleavage, formerly confined to one country only, are now being reproduced on a tremendously enlarged basis. Viewed from this standpoint, entire countries appear to-day as towns, namely, the industrial countries, whereas entire agrarian territories appear to be country. International division of labour coincides here with the division of labour between the two largest branches of social production as a whole, between industry and agriculture, thus appearing as the so-called general division of labour. 4) This can be clearly realised by comparing the localities where the products of industry and agriculture are produced. Wheat is mainly produced in Canada, in the agrarian sections of the United States, in Argentina, Australia, and Western India, in Russia, Roumania, Bulgaria, Serbia, Hungary. Rye is produced mainly in Russia. Meat is delivered by Australia and New Zealand, the United States (agrarian sections), Canada (which specialises in large-scale production of meat Argentina, Denmark, Holland, etc. Live stock is exported mainly from the agrarian countries of Europe into the industrial countries. The centres of European production of live stock are Hungary, Holland, Denmark, Spain, Portugal, Russia, and the Balkan countries. Timber is furnished by Sweden, Finland, Norway, Northern Russia, partly by some sections of former Austria-Hungary; the export of timber from Canada has also begun to increase.

If, then, we were to single out the countries that export manufactured goods, they would prove to be the most developed industrial countries of the world. Cotton fabrics are primarily placed upon the market by Great Britain; then follow Germany, France, Italy, Belgium, and in the Western Hemisphere, the United States. Woolen goods are produced for the world market by Great Britain, France, Germany, Austria, Belgium, etc. Iron and steel products are manufactured mainly by Great Britain, Germany, and the United States, the three countries that have attained the highest level of industrialism; the second place in this respect is occupied by a group consisting of Belgium, France, and Austria-Hungary. Chemicals are produced by Germany, which in this respect occupies the first place, then by England, the United States, France, Belgium, and Switzerland. 5)

We thus observe a peculiar distribution of the productive forces of world capitalism. The main subdivisions of social labour are separated by the line that divides two types of countries; social labour proves to be divided on an international scale.

International division of labour finds its expression in international exchange.

Inasmuch as the producers do not come into social contact until they exchange their labour products, the specifically social character of their individual labour does not manifest itself until exchange takes place. In other words, the labour of individuals becomes an effective part of the aggregate of social labour solely in virtue of the relations which the process of exchange establishes between the labour products and consequently between the producers. 6)

The social labour of the world as a whole is divided among the various countries; the labour of every individual country becomes part of that world social labour through the exchange that takes place on an international scale. This interdependence of countries brought about by the process of exchange is by no means an accident; it is a necessary condition for continued social growth. International exchange thereby turns into a process of socio-economic life governed by definite laws. The socio-economic life of the world would be entirely disorganised if America or Australia ceased exporting their wheat and live stock; England and Belgium, their coal; Russia, grain and raw materials; Germany, its machines and the products of the chemical industry; India, Egypt, and the United States, cotton etc. On the other hand, the countries that export the products of agriculture would be doomed to destruction were the markets for those products suddenly closed. This is particularly evident as regards the so-called mono-cultural countries, i.e., such as produce one single product (coffee in Brazil cotton in Egypt, etc.). How indispensable international exchange is at present for the normal process of economic life may be seen from the following examples. During the first third of the nineteenth century England imported only 2.5 per cent of foodstuffs needed for its population. Now it imports about 50 per cent of its grain (of wheat even as much as 80 per cent), 50 per cent of its meat, 70 per cent of its butter, 50 per cent of its cheese, etc. 7)

According to Lexis' calculations, the foreign market has for the Belgian manufacturers a significance equal to that of the home market in England, the home market hardly absorbs double the amount of manufactured goods, metals, and coal that is to be exported; in Germany the home market exceeds the foreign market 4 to 4.5 times. 8)

According to Ballod, England imports between three-fourths and four-fifths of all the necessary wheat, and between 40 and 50 per cent of its meat; Germany imports 24 to 30 per cent of its breadstuffs, about 60 per cent of its fodder, and 5 to 10 per cent of its meat. 9)

The number of examples could be increased indefinitely. One thing is clear from the above. There is a regular market connection, through the process of exchange, between numberless individual economies scattered over the most diverse geographical areas. Thus, world division of labour and international exchange presuppose the existence of a world market and world prices. The level of prices is, generally speaking, not determined by production costs as is the case in local or national production. To a very large extent national and local differences are levelled out in the general resultant of world prices which, in their turn, exert pressure on individual producers, individual countries, individual territories. This is particularly manifest in the case of such commodities as coal and iron, wheat and cotton, coffee and wool, meat and sugar. The production of grains may serve as an example. Conditions of grain production differ widely in the various countries, whereas the price deviations are by no means as great.

Price Per Thousand Kilogrammes (In Marks)
Between 1901 and 1908 10):Markets Rye Wheat Oats
Vienna 146 168 149
Paris 132 183 
London 139 138
New York 141 
Germany 155 183 163

The conditions of wheat production in England and America are widely different. Yet wheat prices are almost the same at the London and New York markets (139 and 141 marks per kilogramme respectively). This is due to the fact that an immense stream of American wheat is continually pouring over the Atlantic Ocean into England and Western Europe in general.

The formation and the movement of these world prices may be seen most clearly in the commodity exchanges of the largest cities of the world: London, New York, Berlin, where world prices are registered daily, information comes in from every corner of the world and thus world demand and world supply are being taken into account.

International exchange of commodities is based on the international division of labour. We must not think, however, that it takes place only within the limits set by the latter. Countries mutually exchange not only different products, but even products of the same kind. A, for instance, may export into B not only such products as are not produced in B, or produced in a very small quantity; it may export its commodities into B to compete with local production. In such cases, international exchange has its basis, not in division of labour which presupposes the production of different use-values, but solely in different levels of production-costs, in values having various scales in the various countries, but reduced, through international exchange, to socially indispensable labour on a world scale. 11)

How closely the various countries have become knitted by the process of the exchange of commodities may be seen from the economy in means of payment, i.e., economy in the transportation of gold bullion.

If, on the one hand, we were to add the export of bullion of a certain country to its import, on the other hand the export of commodities of a country to its import, it would be seen that the value of bullion shipments was never more than 5 per cent of the value of commodity shipments. Besides, we must not forget that the trade balance of a country is only a portion of its balance of payments. 12)

Just as there is formed a world commodity market in the sphere of commodity exchange, so there is formed a world market of money capital. This is expressed in an international equalisation of the interest and discount rates. Thus the element of finance also shows a tendency to aid in substituting for the market conditions of an individual country, the world market conditions (Weltkonjunktur). 13)

The example of the commodity market shows that behind the market relations there are hidden production relations. Any connection between producers who meet in the process of exchange presupposes the individual labours of the producers having already become elements of the combined labour of a social whole. Thus production is hidden behind exchange, production relations are hidden behind exchange relations, the interrelation of producers is hidden behind the interrelation of commodities. Where connections established through the process of exchange are not of an accidental nature, we have a stable system of production relations which forms the economic structure of society. Thus we may define world economy as a system of production relations and, correspondingly, of exchange relations on a world scale. One must not assume, however, that production relations are established solely in the process of commodity exchange. Whenever human beings work for one another in any way, their labour acquires a social form 14) in other words, whatever the form of connections established between producers, whether directly or indirectly, once a connection has been established and has acquired a stable character, we may speak of a system of production relations, i.e., of the growth (or formation) of a social economy. It thus appears that commodity exchange is one of the most primitive forms of expressing production relations. Present-day highly complicated economic life knows a great variety of forms behind which production relations are hidden. When, for instance, the shares of an American enterprise are bought at the Berlin stock exchange, production relations are thereby established between the German capitalist and the American worker. When a Russian city obtains a loan from London capitalists and pays interest on the loan, then this is what happens: part of the surplus value expressing the relation that exists between the English worker and the English capitalist is transferred to the municipal government of a Russian city; the latter, in paying interest, gives away part of the surplus value received by the bourgeoisie of that city and expressing the production relations existing between the Russian worker and the Russian capitalist. Thus connections are established both between the workers and the capitalists of two countries. Of particular significance is the rôle of the ever growing movement of money capital, which we have noted above. A number of other forms of economic relations may be observed, like emigration and immigration; migration of the labour power; partial transfer of the wages of immigrant labour ("Sending money home ); establishment of enterprises abroad, and the movement of the surplus value obtained; profits of steamship companies, etc. We shall still return to this. At present we only wish to note that world economy includes all these economic phenomena which, all in all, are based on the relations between human beings engaged in the process of production. By and large, the whole process of world economic life in modern times reduces itself to the production of surplus value and its distribution among the various groups and sub-groups of the bourgeoisie on the basis of an ever widening reproduction of the relations between two classes - the class of the world proletariat on the one band and the world bourgeoisie on the other.

World economy is one of the species of social economy in general By social economy the science of political economy understands first of all, a system of individual economies interlinked by exchange. From this point of view it is perfectly obvious that social economy by no means presupposes an economic subject guiding the totality of economic relations. What political economy has in mind here, is not economy as a planned teleological entity conducting economic activities, but, first of all, an unorganised system of economies devoid of a conscious collective management where, on the contrary, the economic laws are the elemental laws of the market and of production subordinated to the market. This is why the term social economy in general, as well as the term world economy in particular, by no means requires regulation as an indispensable defining characteristic.

Up to the present time the national economic organisms have proved unable to exercise a general regulating influence on the international market where anarchy continues to prevail, since this is the battle-ground of the national interests (i.e., the interests of the national commanding classes. - N.B. 15). Notwithstanding this fact, world economy remains world economy. 16)

1) Karl Marx: Capital Vol. I (English translation by Eden and Cedar Paul), P. 371. In the following examples we do not cite the countries where a given article is merely produced, we cite only those countries from which it is exported.

2) Ernst Friedrich: Geographie des Welthandels und Weltverkehrs, Jena, 1911, p. 7.

3) Karl Marx, l.c., PP. 371-372.

4) If we keep labour alone in view, we can describe the division of social Production into its main departments, such as agriculture, industry, etc. as the division of labour in general; and we can describe the splitting, up of these departments of production into varieties and subvarieties as the division of labour in particular; -while, last of all, we can describe the division of labour within the workshop as the division of labour in detail. (Karl Marx, l.c. p. 3,10.)

5) E. Friedrich, l.c.

6) Karl Marx: Capital, Vol. I , p. 46..

7) Bernhard Harms: Volkswrtschaft und Weltwirtschaft, Jena, 1912, p. 176.

8) H. Sieveking: Auswärtige Handelspolitik, Leipzig, 1910, p. 127.

9) Karl Ballod: Grundriss der Statistik, Berlin, 1913, P, 118 ff.

10) J. Conrad: in Handwörterbuch der Staatswissenschaften.

11) It is true that in the first case the difference in production costs is also Of importance. However, it expresses the fact that different goods are produced, whereas in the second case no such fact is expressed.

12) Julius Wolf: Das internationale Zahlungswesen, Leipzig, 1913, p. 62, (in Veröffentlichungen des mitteleuropäischen Wirtschaftsvereins in Deutschland, Heft XIV).

13) Weill: Die Solidarität der Geldmärkte, Frankfurt a.M., 1903, p. 115.

14) Karl Marx, l.c. p. 44.

15) Paul Stähler: Der Giroverkehr, seine Entwickelung und internationale Ausgestaltung Leipzig, 1909, p. 127.

16) These remarks are directed against the faulty understanding of the term world economy which is widespread in literature. Thus Kalwer proposes the term economy of the world market ( Weltmarktwirtschaft ). According to Harms, only international treaties make the term world economy appicable to the modern epoch, According to Kobatsch (vide his La politique écomique internationale, Paris, 1913), world economy necessarily presupposes a world state. We may note in passing that when we speak of world economy we presuppose classification according to the scope of economic connections not according to the difference in methods of production. This is why it is absurd to blame the 'Marxists (as Harms does) for allegedly seeing Socialist economy behind the capitalist economy, while not seeing world economy. Harms simply confuses classifications belonging to entirely different levels.

Growth of World Economy
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