Capitalism Is NOT Imperialism

Release Date
June 3, 2013


Free Markets and Capitalism

Many people believe capitalism and imperialism are the same thing, or at least closely related. Professor Stephen Davies explains that this is not the case. While capitalism is based on voluntary exchange that benefits all parties involved, imperialism is based on exploitation and the exercise of political power, generally backed by a military force.
We can see that capitalism and imperialism differ by looking at the history of empires in the world and examining trade patterns. Empires have existed for the whole of human history, long before the development of capitalism. Imperialism has led to the impoverishment of people and bears the blame for terrible famines, especially during the Victorian period in India. Under capitalism, we would expect to see global free trade between many countries, not just from world powers to less-developed countries, but also between less-developed countries. This does not happen under imperialism.
While capitalism and imperialism have been closely linked in the minds of many, the truth is that the two systems are at odds with one another. Where one system flourishes, the other cannot. Many negative things, such as political corruption, the exploitation of the poor, and mass famines, have been blamed on capitalism, but that blame is misplaced. Real capitalism should work to improve circumstances for the poor by voluntary exchange, but imperialism hurts the poor by political or military domination that enables countries or government-backed businesses to profit at others’ expense.

Imperialism as a Special Stage of Capitalism [article]: A chapter from Vladimir Lenin’s pamphlet Imperialism, the Highest Stage of Capitalism, critiquing imperialism as a direct outgrowth of the capitalist system
State Imperialism and Capitalism [article]: Economist Joseph Schumpeter’s response to Lenin on the relationship between capitalism and imperialism, arguing that imperialism has feudal, pre-capitalist roots
Imperialism: Crash Course World History (video): A rapid-fire, hilarious crash course on European imperialism
The Case for Free Trade, Not Imperialism (video): Economist Walter Block makes the Austrian/Anarcho-Capitalist case for free trade and against imperialism
Desert Island Game (game, beginner): Can you learn something about trade and cooperation by being marooned on a desert island?
Trade Ruler (game, advanced): As the Supreme Ruler of an island, you want the country to prosper. By engaging in international trade, you can achieve this goal.

Capitalism Is NOT Imperialism
Many people think that capitalism and imperialism are the same thing, or at the very least that they’re very closely connected. In fact, they’re contradictory and opposed systems of economic and political organization. Because of this confusion, many people blame capitalism and the world trading system for bad things that have happened in the past or in the present—the exploitation of poor people, mass famines. and like—when in fact it’s imperialism and empire that should get the blame. So what are these two different systems?
Capitalism is a system of the free exchange of goods and services between individuals on a voluntary basis under the rule of law and in a system of private property rights. In other words, it is a system of voluntary exchange in which all parties to the exchange are better off. Now imperialism, by contrast, is a system of relations based upon power. Essentially, it’s a system in which certain groups of privileged people in one part of the world are able to extract unearned income from people in other parts of the world through the use of exploitative power relations, usually with the help of local collaborators.
The key to this is the use of political power, ultimately military power, to establish economic relations which are involuntary and exploitative. Empires have existed throughout the whole of human history. In fact, there are so many examples of empires that it’s hard to know where to start. So, for example, in the early 17th century the Dutch Republic created the Dutch East India Company. This was a way in which privileged merchants in the province of Holland in particular were able to gain monopoly rights to trade with the people of what is now Indonesia and were able to use that and the military power of the Dutch Republic to establish exploitative and politically domineering relations over the populations of that part of the world.
Later on the English got in on the act and created their own East India Company, which for over 150 years ruthlessly exploited many of the people of the Indian subcontinent, most notably in Bengal, but elsewhere as well. Once again you had a politically privileged group of people backed by the military power of the state establishing trade relations with people in another part of the world that were not voluntary and which were highly exploitative. More recently, in the Caribbean, the United Fruit Company, backed by the U.S. federal government, was able to establish similarly exploitative relations with people in parts of Central America, such as Honduras and Guatemala.
The important thing to realize is that while these were profit-making enterprises, they were not true commercial capitalist businesses in the real sense of the term. The profits that they gained were due not to free competition or voluntary cooperation with willing buyers and sellers but the use of political power. Had we had a true capitalist system operating here, we would’ve had lots of free trade between the people in the other parts of the world, not only with people from the U.S. or the UK, but also other people from other parts of the world. And there would have been a much more voluntary and mutually beneficial relationship.
The results of imperialism are generally not very good. Not only does it lead to political corruption and the exploitation of any poor people, but it often has quite catastrophic results, such as the enormous famines which occurred in the late Victorian period in many parts of the world. in the 1890s in particular, most notably in India but also elsewhere, which are often blamed on capitalism, which in fact were clearly the result of the policies of the British Empire and other colonial powers at that time. So the thing to take away is this: imperialism is not and never has been the highest stage of capitalism. For one thing, empires have existed long before capitalism came into existence. Capitalism and imperialism are not complementary but contradictory and hostile systems of political, economic, and social organization. Where one of them flourishes, the other has to decline.