Published by EH.Net (June 2017)

Utsa Patnaik and Prabhat Patnaik (with a response by David Harvey), A Theory of Imperialism.  New York: Columbia University Press, 2016. xxiii + 223 pp.  $26 (paperback), ISBN: 978-0-231-17979-9.

Reviewed for EH.Net by Susan Wolcott, Department of Economics, Binghamton University (SUNY).

This book presents a new theory of imperialism, and data to support the theory.  Utsa and Prabhat Patnaik are, respectively, Emerita Professor and Emeritus Professor at Jawaharlal Nehru University, a premier Indian university.  The book also includes a critique of the Patnaiks’ argument by David Harvey, a Distinguished Professor at CUNY’s Graduate Center.

Though the book is short, that is largely because it presents many decades of the work of the Patnaiks’ distinguished and prolific careers in a condensed format.  The new theory appears to be original to this manuscript, but many of the ancillary arguments have been made before by one or the other Patnaiks.

The Patnaiks purport to show that “Capitalism without imperialism is an impossibility” (p. 85).  Though this finding has echoes of Kenneth Pomeranz’s thesis in The Great Divergence, the Patnaiks’ argument proceeds along completely different lines.  They claim Ricardo’s theory of comparative advantage is fundamentally flawed, and that the periphery has gained nothing and suffered much from its contact with the developed regions, while the West would never have developed at all without the contributions of the tropics.  Though the Patnaiks are respected scholars, the arguments are put forth so baldly, there is little scope for a meaningful dialogue with those who would not take the Patnaiks’ position as self-evident.

The new theory has two parts.  The first part sketches a model which purports to show that the stability of capitalism requires a steady, low price for the products of tropical countries.  The second part of the theory outlines how the capitalist sector meets this threat by depressing the incomes of the populations of the tropical sector so that the price of tropical goods does not rise too much.  According to the Patnaiks, it is the methods taken to depress the prices of tropical goods which are the “essence of imperialism.”  In the colonial period, imperialism constituted the tax systems which allowed the colonizers to obtain tropical goods “gratis,” and thus deflate the incomes of the colonized and keep the prices of tropical goods low.  In the modern period, it is the demand of “global financial capital” for “sound finance” which performs the same function.  To put it another way, depressing tropical incomes to obtain tropical goods at a low price, however accomplished, is imperialism.  Though this definition of imperialism is novel, the arguments associated with how the center deflates the income of the periphery are fairly conventional.

The first part of the theory, on the other hand, is completely original.  The Patnaiks postulate that the tropics produce goods which are essential to the developed world.  As production in the tropics expands — necessary for the expansion of the economies of the temperate world — there would be a natural tendency for the price of tropical goods to rise.  The Patnaiks further postulate that individuals can hold wealth in the form of currency, gold or commodities. The Patnaiks believe the equilibrium which has individuals holding money is quite unstable.  If the price of any important commodity were to rise, the value of currency would decline.  Individuals would shift to holding gold, which would raise the price of gold, which would encourage others to shift to holding gold, and this would continue until — given the fixed supply of gold — the demand for, and therefore the value of, money would collapse.  Thus if the price of any important commodity were to have a substantial relative price increase, capitalism would collapse.

Harvey is very critical of this theory.  In the Patnaiks’ reply to Harvey’s comments, they claim “it is a caricature of our theory of imperialism to read into it a ‘capitalism-would-collapse-if-spices-are-not-imported view’” (p. 174).  Unfortunately, the theory does have that flavor.  The Patnaiks acknowledge that the relatively low weight of tropical goods in the market basket of developed countries is a problem for their argument.  They counter that this is irrelevant as the products of tropical countries are important in the market basket of tropical countries, and if the price of tropical goods prices were to rise, tropical countries’ wealthholders would shift to holding gold (or the currency of the metropolitan centers), and “the collapse of the periphery’s currency that would follow would make the system as a whole nonfunctional” (p. 146).  But the majority of the products of tropical countries overlaps with the products of temperate countries, and prices for these goods are set on world markets.  It is not obvious that goods that are only produced in the tropics, such as spices, have a large weight in any country’s market basket.  So the Patnaiks’ response to that which they call the “immediate objection to this argument” is not satisfactory.  Further, they never acknowledge what I believe to be a more fundamental problem.  There is no interest rate in the Patnaiks’ model.  The ability of currency to earn interest protects its value in the presence of inflation generated by supply shocks.  It is not necessary for capitalism’s stability that the price of tropical goods not rise.  Capitalism is more robust than the Patnaiks portray it.

The Patnaiks want to argue that colonialism and the current period of “sound finance” have been bad for most citizens in the periphery.  Their model supports that view, as does their interpretation of the data they present.  The Patnaiks argue these data show that available nutrients declined in both periods.  But at least for India, demographic evidence are hard to reconcile with the view that imperialism starved tropical populations.  Data on Indian population in the colonial period are unusually good.  Population grew substantially between the first census in 1871 and the last British Indian census of 1941, which in a Malthusian regime is prima facie evidence of economic growth.  And since the Indian reforms were instituted in the 1990s, infant and child mortality have dropped by about half.  This evidence alone does not show that India’s poor could not have been even better off in other possible regimes.  But it does suggest the need for a more nuanced view of East-West interaction than is portrayed in this book.

Susan Wolcott is the author of articles on the historical growth of India.  Her research at present focuses on understanding the transition of rural credit systems from informal moneylending to formal banking, and includes the manuscript “Indian Rural Credit Decline: 1951-71:  A Cautionary Tale of Financial Formalization.”

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