A REPENTANT STALINIST?

JENŐ VARGA ON
POST-WAR PROBLEMS OF MONOPOLY CAPITALISM

ANDRÉ MOMMEN

Research Memorandum

CEPS
Maarssen
June 2010
Having lost his Institute of World Economy and World Politics in 1947, Jenő Varga’s
scientific status had been completely destroyed. He was since then for many years working
on a book analyzing the basic economic and political problems of imperialism. In reality he
had become a prisoner of Stalinist dogmatism that was spreading over the Soviet academic
and cultural institutions. His new book on imperialism was only published after Stalin’s
burial in 1953. That book is disfigured by many Stalin quotations and by lengthy and
superfluous digressions on international politics. Any analysis is absent in this descriptive
bookwork meant for party workers and students of international relations. Later, Varga
would publish a lot of occasional articles on problems of inter-imperialist rivalries, the
business cycle, Keynesianism, state-monopoly capitalism, etc. As a watcher of the
international business cycle, a blind believe in an inevitable decay of the capitalist world
system was deforming his understanding of recent changes in imperialism.

Imperialist contradictions

When in 1953 his book Basic Economic and Political Problems of Imperialism (Varga 1953,
1954, 1955) was published, Varga was already living as an intellectually dishonored man. He
had worked on this manuscript since 1947. At the very end, he had been obliged to rewrite
the whole text to pay amende honorable to Stalin. Later, he would recall that this was ‘the
‘thickest and most stupid book’ he ever had published (Kuczynski 1992: 51). The book
would nonetheless earn him a Stalin Prize.
According to Varga, the general crisis of capitalism was spreading and developing along new
paths because of the decolonization process and the weakening of the European colonial
powers. Again, Varga stressed the fact that the realization problem in combination with the
uneven development were causing mass unemployment and, finally, would end in a
‘catastrophic’ class conflict. For the time being, capitalism’s decay had been postponed by
America’s Cold War policy. The US overproduction crisis in 1949 had not developed into a
long slump, but absorbed by the Korean War and subsequent military expenditures. Varga’s
underconsumptionist thesis helped him explaining how the average living standard of the
American working population was constantly deteriorating as a result of rising income taxes
and worsening working conditions. He argued that consumption of meat in Great Britain had
fallen below the average pre-war level. Meanwhile, American monopolies were solving their
own overproduction problem on the costs the population. On the international level, the
Marshall Plan created new markets or American monopolies looking for additional outlets
abroad. Meanwhile, the capitalist state was operating like of pump station siphoning taxes
out of the workers and transmitting these moneys to the accounts of the monopolies. The
capitalist state was thus nothing more than a ‘mighty instrument for the enrichment of the
financial oligarchy on the costs of other classes’ (Varga 1955: 83). Varga ended his rather
static analysis of imperialism with a digression on the inherent moral weakness of American
imperialism.
On the other hand, there were counter-tendencies favoring peaceful development in the
world. Notwithstanding the Cold War and the lasting Korean War, an International Economic
Conference had been held in Moscow on 3-12 April 1952 at the initiative of the World Peace
Council (Cairncross 1952; Fleischer 1952). Increased international trade should serve the
economic interests of all nations (Varga 1955). Decolonization had meanwhile undermined
the foundations of imperialism, but also give rise domestic problems in colonial countries
like France and Great Britain where the bourgeoisie was preparing for a further lowering of
wages and for an alliance against the US and the Soviet Union (Varga 1955: 240). But
imperialism had many faces. With Stalin, Varga detected on the one hand growing
contradictions between the main imperialist powers in their struggle for raw materials, and on
the other hand a military coalition building against the Soviet Union. New inter-imperialist
wars should not be excluded at beforehand (Varga 1955: 335-6). The formation of a socialist
world had reinforced the trend towards a narrowing of the capitalist world market. In the
mean time, the US tried to prohibit trade with the socialist countries, which amplified the
tendency to a deepening of the ongoing general crisis of capitalism in a time of an expanding
socialist world. As a matter of fact, no real prosperity phase in the cyclical process of
capitalist accumulation could be expected in the near future. For the time being, increased
arms production was solving the problem of capitalism’s acute realization problem. This
increased military spending would inevitably cause inflationary pressures and rising
unemployment rates. Both would sharpen the internal contradictions of capitalism, thus lead
to a deepening of the general crisis of capitalism and to a severe over-production crisis with
throwing back of total production under its pre-war level (Varga 1955: 728).
Varga repeated in this book his firm believe in capitalism’s fatal decay. Already in Pravda
(10 May, 22 October 1950) Varga had developed these ideas about capitalism’s parasitical
nature, decaying British imperialism (Pravda, 22 October 1951, 25 November 1952) or
rising mass unemployment (Pravda, 19 March 1950). As usual, Varga had based his
unemployment thesis on Marx’s inner motivated laws of the capitalist means of production
leading to the creation and expansion of an ever-expanding reserve army of unemployed
workers. Varga identified the sudden recession of 1953 a haven been caused by falling
demand on the American market, which had compelled monopolies to lower their prices and
contract their production (Pravda, 18 October 1953). That had incited the US monopolies to
a reactionary drive against all progressive forces (New Times 1954, no. 23). Meanwhile,
American capital was not only seizing the markets in the British colonies, but also intruding
in British industry. Dollar shortages had wrested from Britain many export markets and
dislodged the pound sterling as a world currency (Pravda, 25 November 1952).

People’s capitalism

Although Varga had obtained a Stalin Price for his book on the basic problems of
imperialism, young scholars would soon rebel against this kind of scientific sclerosis having
gained ground in the Academy of Sciences. In the aftermath of the Twentieth Congress of the
CPSU in February 1956, four leading scholars, E. Korovin, A. Gruber, N. Lyubimov and A.
Manfred signed a letter to the editor of the newly founded journal International Affairs in
which they opinioned that ‘new and original scholarly works of research into the most
important current international problems’ (International Affairs, no. 12: 98) were not
published. The editorial board of International Affairs reacted on 18-19 April 1957 with
discussion concerning ‘the whys and wherefores’ of ‘people’s capitalism’ (International
Affairs 1957, no. 5: 61-107).
At the conference, some important changes in the attitude of Soviet economists could be
noticed. I. I. Kuzminov introducing the subject asserted that American propaganda was, of
course, to confuse the masses, but he nonetheless admitted that wages were higher in the
United States than in other capitalist countries. He remarked that the US rate of growth was
lower than in Japan and Western Europe and that its share in world output had been falling
during the post-war years. I. G. Blyumin argued that the theory of “people’s capitalism” was
based on several illusions about the distribution of ownership, management, income
distribution that in bourgeois economic theory the dominion of monopoly capital was
minimized because of the existence of “countervailing powers”. Y. A. Shvedkov, quoting C.
Wright Mills, argued that the American state machine was directly dominated by monopoly
capital. M. N. Smit tried to deconstruct the myth of the welfare state by referring to the huge
numbers of workers living in poverty and official statistics – ‘though the latter are
deliberately falsified’ -attesting that the workings of the ‘law of mass unemployment’. V. P.
Glushkov saw in the theory of people’s capitalism and the welfare state an instrument of
imperialist reaction, but after having debunked “people’s capitalism” he focused on the role
played by technical progress under capitalism. However, Glushkov rejected apologies of
capitalism that were making ‘a fetish of technology and its role in the development of
society’. According to Y. Y. Kotkovsky the bourgeois state was unable to regulate and plan
the economy. Reforms ‘do not touch the foundations of capitalism’, he argued and under
capitalism ‘“adjustment” is designed to ensure increased profits for the big monopolies’
(International Affairs 1957, no. 5: 84). I. N. Dvorkin focused on Germany where the steel
and coal monopolists had to accept, under pressure of the masses, trade union representatives
in the boards.
Varga, who had not been listed as a speaker, thought that in the richest capitalist country on
earth the workers were living in poverty and that the legend of “people’s capitalism” had
become the official theory of the American imperialism. In reality, income differences
between workers and capitalists were widening (New Times 1957, no. 20). Against The Voice
of America’s assertion Varga argued that it was ridiculous that the annual income of an
American industrial worker had a purchasing power equivalent to that of 80,000 rubles. In
America, rent absorbed from 15 to 25 percent of the worker’s income (New Times 1956, no.
26). After the Second World War, when the ideas of socialism were blossoming, the
American public was again being submerged by panegyrics promoting “people’s capitalism”
(New Times 1957, no. 20). Varga argued that that only 3 percent of the skilled and semi-
skilled workers own any shares at all, and of these 1 percent hold shares to a value of less
than 500 dollars, and another 1 percent to a value ranging between 500 and 1,000 dollars and
65 percent of all the dividends flow into the pockets of 1 percent of the population.
Furthermore, indebtedness of the population was steadily increasing. Summing up, Varga
thought that under the “people’s capitalism” of the United States, the worker had remained
what he was – a slave of capitalism (New Times 1956, no. 26). In an article published in
Kommunist (1959, no. 17: 36-52), Varga stressed that the theory of “popular capitalism” had
gained a considerable extension in the United States, but at the end he remarked that some
categories of workers having saved a “capital” of not more than 10,000 à 15,000 dollars were
nonetheless obliged to sell their work force to the capitalists. Completely in line with
Kuzminov and his colleagues of the Academy, Varga rejected the slogan of “people’s
capitalism” as a pure swindle.

A constantly impoverishing proletariat

The question of the constantly impoverishing proletariat had opposed Varga to a number of
Stalinist economists having attack him on this point. Among them were I. I. Kuzminov
(1960) and A. I. Katz (1962). Marx proceeded from the theoretical assumption that labor
power was sold at value. A decrease in labor time as a result of growing labor productivity
would lead to a decrease in labor time per consumer goods unit. Hence, a decrease in labor
time per consumer goods unit would decrease the total share of the national income going to
the working class and increase the part being appropriated by the bourgeoisie. Marx’s
analysis could not be corroborated by statistical evidences, because prices of consumer goods
were constantly rising due to inflation and currency devaluations, high prices fixed by the
monopolies, taxes and duties. Katz and Kuzminov nonetheless calculated the decrease of the
factory and office workers’ share in the US national income. Katz could even “prove” that
the share of the proletariat in the national income over 1900-56 had constantly decreased.
According to Varga, Katz had failed to demonstrate a considerable impoverishment of the
working class in the post-war years. Since 1940 the share of workers’ income had stabilized
(Varga 1968: 105-6). Varga found the solution in the simple statistical method for pricing the
relative impoverishment of the proletariat by calculating the growth in the rate of its
exploitation. ‘Basically the two processes are identical: the appropriation of the surplus value
forms the basis for the distribution of the national income among the classes’ (Varga 1968:
107). Varga’s own calculations for the period 1899-1931 proved that the rate of exploitation
drops I crisis years and rises in the boom years. When the business climate improves, the
profits and the rate of exploitation rise to a peak, which is in keeping with the true nature of
capitalism. Hence, Varga concluded that the degree of exploitation was increasing
substantially after the Second World War and that the relative impoverishment of the
working class continued.
This exercise allowed Varga to compare his own approximations with Katz’s ‘extremely
complicated calculations’ and to refute criticism he had received on the part of a number of
Soviet economists (V. Motylev, M. Smit-Falkner, Katz) declaring that his calculations
minimized the rate of exploitation. Katz’s mistake was that he regarded not only the profits
of trading capital but also the wages of commercial workers as deductions from the wages of
the workers in the manufacturing industry and added the resulting sum to the surplus value.
Varga found that entirely unjustified: ‘They are not deductions from wages, but a payment
made by the buyer out of his income from trade services rendered’ (Varga 1968: 110).
The problem of absolute impoverishment was, however, much more complicated than that of
relative impoverishment. Among Marxists existed a wide divergence of views on this
problem. Varga believed that the per capita income per head of the population was falling in
the developed countries. But he was also interested in the question of whether absolute
impoverishment was a constant, irreversible process similar to that of relative
impoverishment, or whether it was neither constant nor irreversible. Varga noticed that in the
program of the CPSU was said that crises and stagnation led to a ‘relative, and sometimes an
absolute, deterioration of the condition of the working class’ (The Road to Communism 1961:
452-3). He castigated the “dogmatists”, especially Kuzminov, for having defended the point
of view that the position of the working class worsened all times and not at times. Varga
attacked the “dogmatists” as well. They had ignored the warnings of Marx against the
dogmatic, mechanical reiteration of the law on the polarization of capitalist society and the
growth of poverty as a result of the accumulation of capital. The Soviet dogmatists at the
Economics Institute had adopted the view ‘that the absolute impoverishment of the working
class was constant throughout the capitalist world’.1 According to Varga, Marx and Engels
had pointed out the root factors modifying the operation of the law of the impoverishment of
the proletariat and they had adopted a very ‘flexible approach’ to the problem
1
‘At that time I wrote that even a very small progressive impoverishment, i. e., of a progressive decrease in real
wages. At that time I wrote that even a very small progressive decrease in real wages would in a comparatively
short historical period reduce wages to zero (as can be seen from a very simple mathematical calculation), but
my objection went unnoticed’. (Varga 1968: 114).
Varga reconsidered the influence technological progress had on a worker’s family
consumption. On the one hand, many American workers were purchasing cars, radios,
television sets, etc. and they spent their money on ready-to-cook foods. They ate more beef
and chicken and less potatoes. On the other hand, many American and British workers were
living in slums and were undernourished. But this did not mean that the bulk of the workers
were worse off than in the nineteenth century or that working conditions in capitalist
factories had not improved. According to Varga ‘our dogmatists’ had divorced ‘economics
from politics’ by stressing the constant and inevitable absolute impoverishment of the
working class. They had forgotten Lenin’s definition of politics as ‘a concentrated expression
of the economy’ and ignored ‘the new political conditions in the fight between labor and
capital’ (Varga 1968: 120). Then, Varga attacked the “dogmatists” for having discredited
Soviet economic science abroad. He remarked that many Marxist scholars there had made a
thoroughgoing study of the working class’s position by combining statistical methods of
research that contradicted the views of the Soviet dogmatists. In addition, a growth in real
wages was not the same as a growth in the welfare of the workers. In all highly developed
capitalist countries workers were striving ‘to obtain jobs in large enterprises’ and that wages
in highly monopolized branches were also higher than those of workers in the non-
monopolized branches. In spite of all management techniques, American monopolies paid
often twice as much as non-monopolized enterprises. Varga’s conclusion was conclusion was
that in a pure capitalist society monopoly superprofits could evolve only as a ‘result of an
irregular distribution of the aggregate surplus value or aggregate profit, i.e., a distribution
according to which profit does not correspond to the amount of capital invested’ (Varga
1968: 157). Thus, the redistribution of the aggregate profit in favor of the monopolies was
effected through the mechanism of prices. Unequal exchange existed. Millions of small
producers were playing a part in the formation of monopoly profits. About 90 per cent of
industrial production was concentrated in Western Europe, North America and Japan. The
unequal exchange was a means by which the rich capitalist countries extracted superprofits
from the less developed countries where nobody was protecting the small commodity
producers against the high monopoly prices charged by the monopoly capitalists. ‘The tribute
exacted by the monopolies from small commodity producers through unequivalent exchange
flows first and foremost from the less developed countries to monopoly capitalist countries’
(Varga 1968: 58). Though the price of labor power fluctuated around its value. In countries
in which the agrarian overpopulation was creating an enormous surplus for the supply of
labor power and where no trade unions to fight the capitalists, the price of labor power was
squeezed to a level below its value. Here Varga returned to his debate in the early 1930s with
Henryk Grossman on the fact that in capitalism the rates of different branches tend to
equalize and form an average profit. The monopolies were nonetheless making additional
profits. Hence, it was difficult to draw a line between the monopoly and average rates of
profit.

State-monopoly capitalism and Keynesianism

Varga’s views on capitalist development did not change that much in the period after the
Second World War. He repeatedly argued that the alliance of the monopolies and the state
was effected primarily in the form of a merger between the monopolies and the state
machinery. The alliance also takes the form of joint decisions on important economic issues.
In various ways the state helps the monopolies fix high monopoly prices on the home market.
State-monopoly capitalism is extremely reactionary, he asserted, because it defends a social
system doomed to collapse. He proudly mentioned that his former colleagues and friends S.
A. Dalin (1961), Y. A. Pevzner (1961), and E. L. Khmelnitskaya (1959) had recently
contributed to the analysis of state-monopoly capitalism in a number of writings.
After Stalin’s death Varga returned to the old problem of the role of the state in capitalism. In
conformity with Marxist-Leninist theory he regarded monopoly capital as ‘single force’ and
the whole monopoly bourgeoisie as a class or as the layer of the capitalist class ‘with
common class interest’. Thus, the coalescence of these two forces, the monopolies and the
state, are forming the basis of state-monopoly capitalism. Varga stressed nonetheless the fact
that monopoly capital and the state were forming ‘independent forces’. There could not be no
unilateral subordination of the state to monopoly capital, ‘as asserted by Stalin’ and some
Soviet economists (Varga 1968: 51-2).
Varga argued that one could encounter in Soviet writings the erroneous tenet declaring that in
every monopoly capitalist country there exists a center representing the interests of the
monopoly bourgeoisie and giving directives to the state apparatus. But Lenin had emphasized
that competition remained under monopoly capitalism, which excluded a complete
community of interests among the bourgeoisie. Marx had pointed out that the bourgeoisie
was united in its attempts to squeeze out the working class surplus value as much as possible,
but that the bourgeoisie’s unanimity disappeared when it came to the distribution of the
surplus value. Varga singled out that there were constant contradictions among the different
factions of the various monopolies in a single branch. However, the monopoly bourgeoisie as
a whole had several interests in common such as the safeguard of the capitalist system or
keeping wages at a low level. Or in obtaining government orders or tax breaks. These
conflicts, explained the fact, that under state-monopoly capitalism the state represents the
common interests of monopoly capital sometimes contradicting the particular interests of the
monopoly bourgeoisie. ’This shows that the definition that the definition of state-monopoly
capitalism based on Stalin’s conception (”state-monopoly capitalism implies the
subordination of the state apparatus to the capitalist monopolies”) is wrong’, Varga (1968:
55) concluded. Hence, there was ‘no “one-sided subordination” but a joining of forces,
which, in spite of this merger, still maintain a certain autonomy’ (Varga 1968: 55). He
rejected any one-sided “subordination” in name of Marxist philosophy. His dogmatist
opponents had forgotten that all capitalist laws were no more than ‘tendencies always
opposed by counter-tendencies’ (Varga 1968: 55). Varga admitted that the parliamentary
system complicated the problem. The contradictions between the monopolies created
conditions for the formation ‘of a broad anti-monopoly-capital front embracing the working
people and those layers of the bourgeoisie whose interests have been harmed by the
monopoly bourgeoisie’ (Varga 1968: 57). The fusion of state power and monopoly capital
proceeded ‘dialectically’ and could not be reduced according to Stalin’s formula of a
“subordination” of the state to monopoly capital.
Varga’s strong believe in a growing opposition to the monopolies and in a final collapse of
capitalism was albeit nonetheless in full accord with the new program of the CPSU of 1961
stating that in the interests of the financial oligarchy the bourgeois state had instituted various
types of regulation and accelerated the development of monopoly capitalism into state-
monopoly capitalism (The Road to Communism 1961: 471). Nationalizations could
nevertheless weaken monopoly capital and attract the support of the factory, the office
workers, the peasantry and the urban petty bourgeoisie. Though Varga’s status of state-
monopoly capitalism theoretician was mainly due to his pre-war writings on monopoly
profits (Gansauge 1989), his later rejection of Stalin’s formula of the “subordination” of the
state to the monopolies would also make of him a “dissident”.
Apart from the problems of state-monopoly capitalism, Varga remained fundamentally
interested in the capitalist cycle, which was now showing a tendency to become shorter
because of investment in rapid technological changes. However, the general crisis of
capitalism had not yet emerged. Was all this due to the competition between the two systems
and the changing power balance in favor of socialism? Varga thought, however, that on the
fate of capitalism was already decided because of a superior socialist system.
Though Varga saw in Keynes a ‘false prophet’, he later would recognize that the ‘reformist
leaders value Keynes’ because the latter had not attempted ‘to refute Marx or argue with
him’ (Varga 1968: 319). Varga would never link the Marshall Plan to Keynesianism or any
other form of macro-economic management, but he nonetheless would recognize that the
Marshall aid had enabled countries to rebuild their industries and to boost production (New
Times 1964, no. 8). Varga commented extensively on Keynes’s The General Theory (1936)
when I. A. Trakhtenberg (1947, 1954ab, 1956ab) published and debated on Keynes’ theory
of full employment and the role of credit in capitalism. He saw Keynes as a ‘typical eclectic’
only dealing ‘with the superficial phenomena of capitalist economy’ and his theory was a
‘confused rag-tag’ for not having created an economic theory of his own or having refuted
the teachings of the ‘founders of bourgeois political economy’ (Varga 1968: 305-6). Varga’s
main charge against Keynes’s ‘muddled thinking’ (Varga 1968: 320) was that any class
analysis or historical approach was absent in it. He had forgotten in his ‘pseudo-psychology’
that competition forced ‘the individual capitalist to make a profit or perish’. Keynes’s
abstract economic man and psychological laws had no validity in the ‘real capitalist world’ in
which there were at least ‘a thousand million people whose incomes are so low that they are
forced to live in perpetual hunger’ or people whose incomes ‘are so large that it would be
simply impossible to spend them on consumer goods’. Hence, Keynes’s policy of
overcoming the narrowness of the market by increasing unproductive consumption among
the non-working classes was ‘not as absurd as it would seem at first glance’ (Varga 1968:
307-9). Deficit spending was also intended to justify the expenditure on arms. According to
Keynes unemployment emerged because the more workers an employer hires, the less profit
he could expect as a consequence of the working of the law of diminishing returns. Secondly,
not all people wanted to spend their whole income on consumption or on investment. Varga
remarked that the principal cause of unemployment was the capitalist system itself.
Varga’s criticism of Keynes’s General Theory was intimately related to the fact that in the
1960s neo-Keynesian thinking on economic growth had acquired some influence in Soviet
economic thought. Keynes’s popularity was mainly due to his recommendation that state
intervention in the economy could avoid crises of overproduction and mass unemployment.
That was albeit in ‘complete harmony with the interests of the monopolies’ (Varga 1968:
316). The union between reformism and Keynesian theories suited the requirements of the
reformist leaders as well.

Varga on cyclical crises

Varga (New Times 1954, no. 23: 8-12) was waiting for a new economic slump in the United
States. Output of consumer goods had begun to decline, while stocks were growing. Varga’s
analysis of the coming crisis was that a vast surplus of loanable money was causing inflation.
In addition, there were big surpluses of basic production facilities in the war industries. High
monopoly profits had kept the purchasing power of the population low. The claim that there
was no crisis, but only a slight recession stemmed from the fact that the monopolies had not
as yet felt the impact of the crisis as long as they can maintain high prices. But the lesser
monopolies had been forced to cut down investments. As a result of mass unemployment the
purchasing power of the working class had declined and farmers and office workers had seen
their income declining.
Varga identified the 1958 cyclical slump in the United States not as a short-term transient
crisis similar to those of 1949 and 1954, but only as a cyclical crisis of overproduction.
Because there were no signs of improvement, he thought, judging by all the available
evidence, the crisis to be long. US monopolies, he argued, knew only two methods of
combating the crisis: more spending and less taxes. This policy could only prolong the crisis,
render it more severe and impair the interests of the country and business community. He
identified General Motors as the leader of an anti-labor offensive wanted by monopoly
capitalists in order to undermine, or, at least, weaken the American labor movement. But
already in 1959, Varga admitted that the monopolies had only lost some of their profits, but
there had been practically no decline in prices and only a temporary drop in share prices,
followed by a pickup. Manufactures were selling at 10 percent above 1955 price levels.
Varga concluded that intensive re-equipment had caused higher productivity, so that the
labor costs had dropped. Steel prices were 15 percent higher than before the crisis. Even
automobiles, notwithstanding cutthroat competition, were higher priced than before the
crisis. The population of the economically backward areas had been hard hit along with the
proletariat of the industrial countries. There, in the former colonies and semi-colonies, the
crisis began earlier than in the developed industrial nations, because the latter reduced raw
material imports. The drop in primary goods prices meant extra revenues for the capitalist
economies. However, less export revenues means smaller purchases of industrial goods,
which accentuated the economic crisis in Western Europe. The biggest sufferers were the old
industries (coal, steel, cotton textiles and leather), while the new industries had suffered only
slight damage (New Times 1959, no. 5: 10-2).
How could one otherwise explain that any economic crisis of some importance had been
postponed? Was it because of Keynesian demand management? Varga’s explanation of this
rather new phenomenon contradicting Marx’s accumulation schemes, was not at all
convincing because it was mainly built up out of ad hoc factors. For instance, Varga argued
that the export of all capital to the former colonial and semi-colonial countries had stopped
because the latter had now embarked on the socialist road. Thus capital export was now
limited to a few numbers of politically and economically stabile countries. However, this
tendency was not at all hastening the process of imperialist breakdown as long as large-scale
export of capital could continue in the form of economico-military aid (Varga, New Times
1964, no. 8). Meanwhile, this new tendency had only brought ‘a temporary expansion of the
market and, all other conditions being equal, a lenthening of the trade cycle’ (Varga 1968:
220). For the time being, no predictable breakdown of imperialism could be expected as
modern technology was helping the capitalist countries to open up many new deposits or
develop sources of raw materials.
For Varga saw the long post-war boom in the US as a result of ‘postponed consumer demand
for durables’ and ‘a tremendous unsatisfied demand for means of production for the
“peaceful” branches and for consumer goods’ (Varga 1968: 222).The well-to-do and even
some categories of industrial workers had to wait for spending their savings because of the
shortage of consumer goods. The three factors were responsible for the lengthening of the
post-war cycle were (1) an expansion of fixed capital until 1957; (2) large commodity stocks
accumulated during; (3) an artificial expansion of comsumer credits. That increased
additional demand (or ‘future purchasing power’) had been used ‘to save the present
situation’ (Varga 1968: 226). Unfortunately, Varga could not not explain why in 1957-58 the
overproduction crisis in the US had not spread to the other countries.
In his research notes, Varga preferred focussing on the distinguishing features of the post-
1945 cycle. US economic supremacy over all other capitalist countries had meanwhile
decreased. American goods did not dominate the world market. A constant drain of gold
reserves undermined its monetary system.. In spite of high labour productivity based on up-
to-date equipment, the US economy could not play the role of the sole defender of world
capitalism. Even complaints about American dumping practices were heard. Structural
unemployment was growing in a period that economic growth rates were slacking down. It
would be illogical that two different cycles would exist in the future. ‘Sooner or later a cycle
of a single type will be established throughout the capitalist world. In our opinion this cycle
will resemble the post-war development of the USA’ (Varga 1968: 232). During the post-war
boom this renewal and expansion of capital was characterized by new factors, such as the
speedy methods of factory construction, the rapid technological progress making equipment
sooner than beofre obsolte, the rapid replacement of equipment, capital investment in the
modernization of operating factories, etc. All these factors would accelerate the break-out of
an overproduction crisis and shorten the cycle in all developed capitalist countries.
Varga foresaw a period of economic stagnation in the near future in the US with available
equipment constantly underemployed and also a general intensification of the class struggle.
A general aggravation of the contradictions of capitalism would follow as the laws of
competition operating under monopoly capitalism were forcing capitalists to renew and
expand their fixed capital. The ‘reproduction cycle is’, Varga argued, ‘determined by the
fixed capital, or (…) every crisis is the starting point for a mass renewal and expansion of
fixed capital undertaken for the purpose of lowering production costs’. Obviously, some
extra-economic factors could be invoked in order to explain the long post-war cycle with
growing prosperity. Varga noticed that the capitalists ‘now have a far deeper knowledge of
the overproduction following a boom and also of world market conditions than they had in
Marx’s time or even 30 years ago’. He noticed that efficient ‘projected statistics’ existed in
combination with market-research reports enabling capitalists ‘to pre-gauge consumer
demand and thus avoid an overproduction of commodities’. In addition, Varga noticed that
the state could increase ‘effective social demand’. But on the other hand Varga refused to
believe in demand management under capitalism. ‘Under capitalism there can be no state
planning, no crisis-free capitalist reproduction’, he asserted. Hence, he predicted that in the
future the long and powerful growth in output would come to a standstill. ‘The deepening of
the general crisis of the capitalist system is expressed by the growth in the number of
industries which are in a state of perpetual crisis, such as coal, textile and ship-building
industries, and those being gradually drawn into this state – the iron and steel and motor
industries’ (Varga 1968: 238-9).
Varga now admitted that the reproduction cycle after the Second World War differed
substantially from that of the interwar period because of the (1) contraction of the capitalist
world as a result of the appearance of new socialist states; (2) sharpening of the
contradictions in some of the capitalist countries; strengthening of the Communist parties and
weakening of the Social-Democratic parties of these countries; (3) disintegration of the
colonial system of imperialism. As a result, striking differences existed between the business
cycle in Britain and the continental European countries, where no crises of overproduction
had occurred. Fortunately, the laws of the reproduction cycle, ‘like all laws’, were no more
than ‘scientific abstractions’, and they were determined by ‘the different tendencies and
counter-tendencies at work in capitalist economy’ (Varga 1968: 207). However, the capitalist
system was unable to develop the productive forces.
In 1962, Varga noticed that cyclical economic upsurges had not led to a full-fledged boom
and that US production was still stagnating. The dialectic of the general crisis of capitalism
was such that its effect was ‘greater in the richest capitalist country (New Times 1962, no.
32). The American economy was caught in a ‘vicious circle’ of undercapacity operation
resulting from low purchasing power, low invest and competition compelling the
entrepreneurs ot modernize and autromate their factories. The framework of Varga’s analysis
was still the same: underconsumption could not be solved under capitalism because of the
low purchasing power of workers and office workers. Hence, US capitalism could not make
use of its complete productive capacity. Because productivity in American enterprises was
rising, mass unemployment, also among white-collar workers after the introduction of
computing machinery had increased.
According to Varga, the year 1947 should be regarded as the beginning of a post-war cycles
lasting from 10 to 11 years. The cyclical movement of world capitalist production was feeble.
Its main function was the creation of ‘the conditions for a crisis of overproduction’ (Varga
1968: 212). The disintegration of the colonial system also had a telling influence on the
course of the cycle. ‘The war weakened all the imperialist powers with the exception of the
United States. They could no longer hold all the colonial nations in subjection by armed
force’ (Varga in New Times, no. 45). The crisis of 1958 had not been the beginning of a
depressing either as in 1959 the 1959 output level was considerable above the preceding
peak. Post-war production growth was almost entirely due to economic growth in the
developed capitalist world. How should one explain the fast recovery of the Japanese,
German, Italian and French economies and slow economic growth in the US and Great
Britain? Varga explained Japan’s and West Germany’s economic recovery because of their
comparatively low war expenditures and to an expansion of their fixed capital. Mainly due to
the Cold War, the US could take up large-scale arms production soon after the end of the
Second World War. Thus, even in peacetime the US monopolies could get new and highly
profitable orders. At the same time there were no idle production reserves and the final result
was ‘an overstrained and unbalanced economy similar to that in times of war’ (Varga 1968:
218). Hence, Varga concluded that ‘war production’ was able to ‘lengthen the upward and
overstrain phases, and hence the whole cycle, but cannot avert a crisis of overproduction, as
has been conclusively proved by the 1957-58 crisis’ (Varga 1968: 219). Meanwhile, the
Soviet Union could grant credits on favorable terms to the developing countries and supply
arms them with arms. Thus the imperialist monopoly had become a thing of the past. Hence,
the decline of capitalism was now obvious. However, Varga also referred to inter-imperialist
American, French and British rivalries caused by conflicting interests ‘despite their military
alliance’ (New Times 1956).
Summing up, Varga’s views were the following: 1) the period of the Second World War
should be excluded from the cycle; 2) 1947 should be considered the beginning of the post-
war cycle; 3) the first post-war cycle continued to the 1957-58 crisis of overproduction; 4)
the second post-war cycle began after that crisis. In addition, Varga believed that sooner or
later a single cycle would establish itself for capitalism as a whole and that it would be
similar to the post-war cycle in the US and Britain, i.e., would be sharter than it was before
the Second World War. Not everybody could agree with Varga’s analysis of the the capitalist
cycle. Writing an introductory comment on Varga’s analysis of the cyclical course of
reproduction in Politico-Economic Problems of Capitalism, V. A. Cheprakov (1968: 3-10)
concluded that there existed ‘many views among Marxists’ on the post-war cycle. He also
accepted Varga’s warning against ‘an overestimation of the “anti-crisis” measures taken by
the capitalist state’. But then he added that ‘it is undeniable that state activities can influence
the factors determining the intensity and duration of the upward phase and the depth and
duration of the crisis phase in future cycles’. Cheprakov articulated the already
predominating Soviet view that the role of the capitalist state had to be reconsidered in the
light of recent developments. With respect to the capitalist reproduction cycle Varga’s
analysis was one-sided or not sophisticated enough to grasp the role of demand management
in modern capitalism.

The European Common Market

The European Common Market had been received in the Moscow Kremlin as a sign that
monopoly capitalism attempted to overcome the dividedness of the world market. However,
accord to the program of the CPSU, inter-imperialist contradictions could not be solved by
monopoly capital, but only postponed (The Road to Communism, 1961: 473). On 15 April
1957, the Department of Political Economy of the Academy of Social Sciences of the Central
Committee of the CPSU organized a debate on the recently established European Common
Market. The meeting, which was attended by economists, representatives of publishing
houses, journalists, post-graduates and lecturers on international problems, discussed the
present situation in the capitalist world. Varga’s name was missing on the speakers list.2
Varga had nonetheless already published an article on the Common Market Plan as early as
in March 1957 in New Times in which he had expressed his doubts about this project for a
common European market. ‘If the ruling element in these six countries wanted to establish a
real common market, and were in the position to do so, it would be enough to set out in a few
pages the basic provisions for abolition of customs tariffs and other trade impediments,
unification of taxes, repeal of export subsidies, etc.’ (New Times, 1957, no. 10: 11).
Increasing military, financial and economic dependence on the part of France and Britain vis-
à-vis America had been the result of their foreign policy. The costs of the presence of
American troops amounted to nearly US$2,000 million a year. A Common Market might
help to increase trade between the six founding states, Varga argued, but it would change
nothing in their economic relations with the rest of the world. A radical change in their
foreign and economic policy was thus necessary, but that would require a genuine peaceful
coexistence, an expansion of foreign trade with the socialist countries and an all-European
collective security system embracing both capitalist and socialist countries (New Times,
1957, no. 10: 12). Varga saw the Common Market as a ‘return to the conditions existing
before the First World War’, thus as ‘an attempt to overcome the dividedness of the world
market by uniting the markets of six countries’ (Varga 1968: 71). Equal conditions for
competition, however, served ‘primarily the interests of the big monopolies’ and the
Common Market was also ‘an attempt on the part of the West European imperialist powers to
consolidate their position following the political liberation of the colonial countries, to enable
them to conduct a vigorous policy of neocolonialism and to compete with the United States’.
Thus the Common Market was nothing else than a politically ‘desperate attempt to resolve
imperialism’s inevitable internal contradictions and to oppose the socialist world system by a
single imperialist front’ (Varga 1968: 71-2).
Meanwhile the CPSU decided to debate on this phenomenon of regional economic
integration and supra-nationalism. An international conference of Soviet and foreign
communist economists convened between 27 August and 3 September 1962 in Moscow at
the invitation of the Institute of World Economy and International Affairs and the Prague-
based World Marxist Review. Varga’s contribution consisted in a digression on some
‘theoretical problems’ of the Common Market economy (Varga 1964a: 325-7; 1962; 1968).

2
I. I. Kuzminov, S. L. Vygodsky, B. M. Pichugin, A. M. Sharkov, M. N. Smit, V. V. Rymalov, A. I. Shneerson,
Y. Y. Kotkovsky and A. M. Alekseyev had given a lecture (International Affairs, 1958, no. 5, pp. 76-102).
He argued that the Common Market was nothing else than a plan of capitalist integration, an
attempt to perpetuate the economic exploitation of the former African colonies and to unite
the forces of West European monopoly capital against the economic supremacy of the US.
Not the market, but only an increase in demand would expand production in the future.
However, the laws of capitalism and imperialism would lead to increased centralization of
capital in combination with a lowering of the wage level, thus to a shrinking market of
consumer products. Finally, regional integration was would not provide a solution to the
realization problems of capitalism (Varga 1964a 332). Italian Communist E. Sereni
repudiated Varga’s thesis as ‘abstract’ and ‘wrong’. Varga had omitted the fact that
integration of markets would also mean a change in the international division of labor and a
lowering of production costs. The accumulation process of capital would not only create a
larger market, but also growing production in other sectors of the economy.
Later, Varga reformulated the question as follows: ‘can such an association lead to a
constant, or enduring non-cycle expansion of the population’s consumption capacity?’
(Varga 1968: 290). Again, his answer was negative. An expansion of the market for
Department I goods would not ensure ‘an enduring upswing of production as a whole. If the
demand for goods produced by Department II is not high enough, the production of
Department I goods is bound to decrease. Only adherents of Tugan-Baranovsky’s theory can
believe that a constant expansion of fixed capital can ensure a steady crisis-free upswing of
capitalist production’ (Varga 1968: 290). Hence, the economic consequences of a Common
Market would be insignificant as long as were no changes in the operation of the objective
laws of capitalism. No constant or even ‘protracted expansion of the market for consumer
goods’ (Varga 1968: 291) could be expected for a more or less enduring period. He predicted
a contradictory development with the largest monopolies attempting to corner the newly
acquired markets. In the mean time, capitalism’s realization problem would not be solved.
Social labor productivity would grow and the socially necessary labor time embodied in a
commodity unit would decrease, but, all other conditions being equal, less workers would
also mean a decrease of the total wage sum. Even if the size of real wages of every individual
worker would remain unchanged, the market for commodities produced by Department II
would shrink. Increase in the demand for consumer goods would thus be essential, which
ultimately would depend on a redistribution of the national income in favor of the working
class. However, the outcome of the predicted intensified competitive struggle would be the
ousting of all weaker competitors combined with a rapid centralization of capital and a
concentration of industrial production. This reorganization process would tend to a decrease
of real wages, with a resulting drop in the demand for consumer goods, and hence an
aggravation of the market problem.
Meanwhile, the EEC with its ‘mercantilist ideology’ was harping on prospects for increased
exports. As the key to a stable economy, exports were favored with credits and subsidies. If
the EEC would be able to increase its exports by 50 per cent, its general market capacity
would only be expanded by even less than 7.5 per cent. According to Varga, a country
exporting commodities receives reimbursements for their value from abroad, but these
reimbursements would take the form of other commodities, since no country was able to pay
for all its imports in gold. These imports often consisted of commodities also produced in the
country in question. ‘This naturally results in a narrowing of the market for domestic goods.’
Finally, Varga warned that his analysis was ‘abstract and theoretical’, because it did not
touch on the concrete historical conditions, but referred to the theoretical assumption that if
full economic integration could be realized, the problems capitalism was facing would not be
solved. According to Varga, a complete economic union would mean ‘a single currency, a
single budget, a single state, i.e., complete political integration, the rejection of all individual
sovereignty by the countries in question’ (Varga 1968: 302). He prophesized that the chances
of this happening were so slight as to be neglible.

Capitalism’s decay

Varga’s pessimistic views on the economic integration process in Western Europe were
visibly fed by his believe in a soon collapse of the capitalist system as a result of its
insuperable realization problem. In 1961, Varga published in Russian a ‘little book’ entitled
Twentieth Century Capitalism (Varga 1962) that was an expanded version of an address to a
meeting of the Academy of Sciences in 1959 at the occasion of his eightieth birthday. 3 From
a theoretical point of view, no new ideas were revealed. The functioning of the economic
laws of capitalism under imperialism showed that the capitalist system had outlived itself.
Because of the existence of the socialist system, imperialism did not determine anymore the
course of society’s historical development. During the Second World War, the struggle
between the socialist and capitalist systems had not ceased. That explained ‘the development
of the cold war in the post-war period’ (Varga 1962: 49). A radical change in the relation of
forces of socialism and capitalism had albeit occurred at the disadvantage of the latter.
Western Europe’s economic recovery during the post-war period should be explained by the
influx of American capital in the form of direct investment, loans, the purchasing of shares,
state aid, etc. That period of extraordinary but temporarily expansion ended, however, in the
economic downturn of 1957-58 when the dominant trade position of the US on the world
market had deteriorated. Although the US dominated all other capitalist countries due to the
law of uneven development, ‘the difference in the level of economic development may
become smaller’ (Varga 1962: 64). Varga enumerated several relevant phenomena having
contributed to the slowdown, such as the ever-growing organic composition of capital and
the concentration of wealth and income in the hands of the propertied classes. As a result of
these changes an increasing number of people had become employed in unproductive jobs in
the services sector.
Varga criticized the dogmatist always reiterating that inter-imperialist wars were unavoidable
because Stalin, the ‘chief arbiter’, had said that those ‘who were denying the inevitability of
wars between imperialist countries saw only the external phenomena and failed to see the
abysmal forces which, operating almost unnoticeably, would decide the course of future
events’ (Varga 1968: 75). Unfortunately, Stalin had completely forgotten Lenin’s law of
uneven development under imperialism when arguing the US would always conserve its
economic supremacy over the other imperialist countries. Meanwhile, more than 50 colonial
and semi-colonial countries had won political independence. Only four of them, China, North
Vietnam, North Korea and Cuba, had yet become socialist countries.

3
The meeting was scheduled on 26 November 1959 at the conference hall of the Department of Economics,
Philosophy and Law of the USSR Academy of Sciences Academy of Sciences, Volkhonka, 14, in Moscow.
Some 1,500 invitations had been distributed. There K. V. Ostrovityanov delivered the usual keynote address in
which he praised Varga’s contribution to the development of economic science and his selfless devotion to the
cause of the working class. Varga, ‘Kapitalizm dvadtsatogo veka’, in Mirovaya ekonomika i mezhdunarodnye
otnoshenya. 1960, no. 1, pp. 34-59. E. Varga, ‘Kapitalizm XX veka’, in Kommunist, 1959, no. 17, pp. 36-52.
New Times, 1959, vol. 17, no. 49, pp. 7-12 (Moscow); Cahiers d’Histoire mondiale, vol. 7, no. 1, 1961
(Canada); New Age, 1960, no. 1, pp. 9-24 (India); Nemzetközi Szemle, 1960, no. 2, pp. 58-72 (Hungary);
Közgazdasági Szemle, 1960, no. 3, pp. 261-76, no. 4, pp. 405-9 (Hungary); Sowjetwissenschaft.
Gesellschatswissenschaftliche Beiträge, 1960, vol. 13, no. 3, pp. 262-81 (German Democratic Republic).
The laws of capitalist development were nevertheless leading to a growing exploitation of the
underdeveloped world. For the time being, monopoly capital was exploiting the ex-colonies
by neo-colonialist methods while promising them economic aid. However, with the
appearance of the socialist world, the countries in the underdeveloped world had yet an
opportunity to decide on ‘the choice of two paths of development – the capitalist and the
socialist paths’ (Varga 1962: 10). Varga pointed also to the role of unequal exchange
mechanisms and trade monopolies disadvantaging the developing countries. ‘The relation of
prices of the goods sold by the imperialist countries to the underdeveloped countries and of
those purchased from the underdeveloped countries has considerably changed during the past
decade in favor of the imperialist countries. This is one of the reasons why the economy of
the imperialist countries has suffered so little from the loss of political power over the
colonies’ (Varga 1962: 102-3). Meanwhile, no real changes in the price levels in favor of the
underdeveloped world could be expected. In the developed capitalist world, technical
progress had led to the production of substitution industrial materials such as synthetic
rubber, plastics or artificial diamonds, while mechanization had transformed agriculture into
an agrarian industry. The only way out for the underdeveloped countries was getting rid
themselves of imperialist controls with the help of the socialist countries.
Varga’s analysis of recent economic changes was limited to a long enumeration of
phenomena and facts such as increased state regulation, state-owned enterprises or the
appropriation and redistribution of the greater part of the national income by the state. He
combined this with remarks on the opportunistic behavior of the monopolies. State-monopoly
capitalism in the developed capitalist world was based on an alliance between the
monopolies and the bourgeois state to redistribute the national income in favor of monopoly
capital and to preserve the capitalist system in its struggle against the revolutionary
movements in the Third World and against the socialist world system. As a matter of fact, the
top members of the financial oligarchy were occupying the posts of command of the state.
The monopolists, still enjoying the support of the non-monopoly bourgeoisie, the landlords
and the rentiers, were nonetheless confronted with a widening gulf between them and the
other layers of the other classes.
Of course, the activities of the state for the benefit of monopoly capital reached their peak in
a war economy. In normal circumstances, the big monopolies could not go bankrupt as long
as they were not obliged to reduce their prices and in case of necessity the state would always
come to their rescue. Finally, the entire burden in a period of economic crisis was borne
almost exclusively by the working classes, the population of the underdeveloped countries
and the weaker sections of the national bourgeoisie. All state spending was to the advantage
of monopoly capital, Varga argued. Even the schools training the work force or the medical
services keeping the workers healthy were working at the service of monopoly capital
exploiting their workforce. Therefore, state-monopoly capitalism appeared as ‘extremely
reactionary because it exists in order to defend a capitalist system that is doomed to collapse’
(Varga 1962: 116). Varga’s analysis of the financial oligarchy employing much more
complicated ways and means to make use of capital of society as a whole, including the
savings of the people, for their own enrichment, was nevertheless largely derived from
Hilferding, but without naming the latter. The relations between banks and industrialists had
nevertheless changed because ‘the burden of the crises of overproduction was now
distributed in society in a different way’ (Varga 1962: 109).
Again, Varga pointed to the sharpening of the chief contradiction of capitalism, i.e. between
the social character of production and the private character of appropriation, creating a
chronically narrow market and compelling the capitalist to sell their consumer goods on
credit. Inflation and unstable currencies were the effect of monopoly power, while armament
spending had become a technique to overcome the effects of the narrowness of the domestic
market. Superfluous capital was exported. The volume of state loans had meanwhile
increased in importance as a weapon in the struggle against the socialist system. The
independent entrepreneurial class had disappeared, while hired managers were leading the
enterprises and a growing section of the bourgeoisie had become ‘parasitic’ (Varga 1962:
129). The monopolies were in the mean time taking advantage of the inflation and high
monopoly prices in order to meet the demands of the workers in part without detriment to
their profits. Varga completed his analysis with the thesis that a growing number of unskilled
workers were replacing skilled personnel, at the same time leveling out workers’ wages.
Productivity growth was five times greater than the reduction of the working week, which, in
turn, meant that the bourgeoisie was receiving constantly growing profits while at the same
time buying over a growing section of the working class. Technical progress had brought
about a rapid increase in labor productivity allowing also a reduction of the working week in
combination with the creation of more office jobs.

Conclusions

At the end of his life, Varga’s analysis of capitalism was still characterized by a profound
believe in an inevitable decay of capitalism. In his post-war writings, he used to refer to the
existence of monopoly capitalism and imperialism engendering economic stagnation, poverty
and wars. The ‘capitalist cycle’ was showing a tendency ‘to become shorter’ as rapid
technological changes were making machinery and equipment earlier obsolete. As a
consequence, the economic crises would become more profound than they were in the first
fifteen years after the Second World War. Meanwhile, the Soviet Union was forging ahead in
all branches of science and technology, overtaking the US economically. Soon, China would
become economically one of the world’s greatest powers. The further development of
competition between the two systems only would lead to a still greater superiority of the
socialist over the capitalist world and a triumph of socialism elsewhere. The twentieth
century would be the last century of capitalism, Varga believed.
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