labour however is rising as a consequence of capital-using technical progress. The output of Department I, and its productive capacity, is growing through time. Capital invested in Department I is accumulating faster than the saving of the capitalists in Department I, and capitalists of Department II, who have no profitable outlet in their own industries for their savings, acquire titles to part of the capital in Department I by supplying the difference between investment in Department I and its own saving.[46] For any increase in the stock of capital of both departments taken together, required by technical progress and demand conditions, there is an appropriate amount of saving, and so long as the total accumulation required and total saving fit, there is no breakdown.

But here we find the clue to the real contradiction. These quantities might conceivably fit, but there is no guarantee that they will. If the ratio of saving which the capitalists (taken together) choose to make exceeds the rate of accumulation dictated by technical progress, the excess savings can only be ‘capitalised’ if there is an outlet for investment outside the system. (The opposite case of deficient savings is also possible. Progress would then be slowed down below the technically possible maximum; but this case is not contemplated by our author, and it would be irrelevant to elaborate upon it.)

Once more we can substitute for a supposed logical necessity a plausible hypothesis about the nature of the real case, and so rescue the succeeding argument. If in reality the distribution of income between workers and capitalists, and the propensity to save of capitalists, are such as to require a rate of accumulation which exceeds the rate of increase in the stock of capital appropriate to technical conditions, then there is a chronic excess of the potential supply of real capital over the demand for it and the system must fall into chronic depression. (This is the ‘stagnation thesis’ thrown out by Keynes and elaborated by modern American economists, notably Alvin Hansen). How then is it that capitalist expansion had not yet (in 1912) shown any sign of slackening?

In chapter xxvi Rosa Luxemburg advances her central thesis—that it is the invasion of primitive economies by capitalism which keeps the system alive. There follows a scorching account of the manner in which the capitalist system, by trade, conquest and theft, swallowed up the pre-capitalist economies,—some reduced to colonies of capitalist nations, some remaining nominally independent—and fed itself upon their ruins. The thread of analysis running through the historical illustrations is not easy to pick up, but the main argument seems to be as follows: As soon as a primitive closed economy has been broken into, by force or guile, cheap mass-produced consumption goods displace the old hand production of the family or village communities, so that a market is provided for ever-increasing outputs from the industries of Department II in the old centres of capitalism, without the standard of life of the workers who consume these commodities being raised.[47] The ever-growing capacity of the export industries requires the products of Department I, thus maintaining investment at home. At the same time great capital works, such as railways, are undertaken in the new territories.[48] This investment is matched partly by savings from surplus extracted on the spot, but mainly by loans from the old capitalist countries. There is no difficulty here in accounting for the inducement to invest, for the new territories yield commodities unobtainable at home.[49] We might set out the essence of the argument as follows: Cloth from Lancashire pays for labour in America, which is used to produce wheat and cotton. These provide wages and raw materials to the Lancashire mills, while the profits acquired both on the plantations and in the mills are invested in steel rails and rolling stock, which open up fresh territories, so that the whole process is continuously expanding. Moreover, apart from profits earned on capital actually invested in the new territories, great capital gains are made simply by acquiring possession of land and other natural resources.[50] Labour to work the resources may be provided by the local dispossessed peasantry or by immigration from the centres of capitalism.[51] Investment in equipment for it to use is more profitable than in that operated by home labour, partly because the wretched condition of the colonial workers makes the rate of exploitation higher,[52] but mainly just because they are on the spot, and can turn the natural resources seized by the capitalists into means of production. No amount of investment in equipment for British labour would produce soil bearing cotton, rubber or copper. Thus investment is deflected abroad[53] and the promise of profit represented by the natural resources calls into existence, by fair means or foul, the labour and capital to make it come true. The process of building up this capital provides an outlet for the old industries and rescues them from the contradictions inherent in deficiency of demand.

The analysis of militarism in the last chapter over-reaches itself by trying to prove too much. The argument is that armaments are built up out of taxes which fall entirely on wages.[54] This can be regarded as a kind of ‘forced saving’ imposed on the workers. These savings are extra to the saving out of surplus. They are invested in armaments, and that ends the story. On this basis the armaments, in themselves, cannot be held to provide an outlet for the investment of surplus (though the use of the armaments, as in the Opium War,[55] to break up primitive economies is a necessary condition for the colonial investment already described) and capital equipment to produce armaments is merely substituted for capital formerly producing consumers’ goods. The analysis which best fits Rosa Luxemburg’s own argument, and the facts, is that armaments provide an outlet for the investment of