May 2009


Already published in this series: • •

The Varga Controversy and the Debate on the Coming Crisis of Western Capitalism (1947-1949), April 2008; Jenő Varga versus Stalin: The Debate on the Economic Textbook Revisited, June 2008; Jenő Varga: The Years of Hungarian Socialist Reconstruction (1945-1956),

September 2008; Jenő Varga and the Economic Policy of the Hungarian Soviet Republic, May 2009; Jenő Varga, the Krestintern and the Agrarian Question, May 2009; Jenő Varga: Economist of the Comintern (1920-1928), May 2009.

ISBN 978-90-79885-05-3

Introduction In March 1919, the Communist International (Comintern) held its first congress in Moscow on the assumption that the date of ‘the final battle’1 was near. This claim was justified by an economic analysis based on the immediate experience of the World War and its aftermath. Three crucial aspects were important. First of all, the living conditions of the masses had enormously deteriorated during and after the war. Secondly, state and economy had been further merged under the aegis of finance capital. Thirdly, capitalist rule had been reduced after the triumph of the October Revolution and because of the national liberation movements in the colonial world. In this period, Varga’s interpretation of the coming economic world crisis was based on the narrowing of the world market and the impoverishment of continental Europe. The world economic crisis of 1921 strengthened Varga’s belief in an imminent collapse of the capitalist world system. As a consequence of inter-imperialist rivalries, the two remaining imperialist world powers the United States and Great Britain would then be forced into a new world war announcing the inevitable socialist world revolution. At the Tenth Party Congress on 8-16 March 1921, Lenin announced the end of “war communism”.2 Within a few years, Varga would also become the Comintern’s most prominent economist and specialist in international economic affairs.3 Varga’s many talents were not contested and his knowledge of the international labor movement broad and thoroughgoing. At the Third (1921), Fourth (1922), Fifth (1924), Sixth (1928), and Seventh Congress (1935) his reports now growing in length and importance on the international state of economic affairs underpinned the prospects of the world revolution.4 Having been appointed director of the Institute of World Economics and World Politics5 in 1927, Varga acquired the status of a well-respected party academician. As the impact of Stalinism increased, Varga’s reports would nonetheless become subject of embittered debates in the preparatory commissions

Protokoll des III. Kongresses der Kommunistischen Internationale (Moskau, 22. Juni bis 12. Juli 1921), Hamburg: Verlag der Kommunistische Internationale/C. Hoym Verlag,1921, p. 171. 2 On “war communism”, see Jasny, 1972, pp. 9-15; Day, 1973, pp. 23-46.. 3 The foundation of a new international to replace the Second had been included in Lenin’s April 1917 ‘theses’ submitted to the CC of the Bolshevik Party, and the conference which followed resolved on 29 April 1917 that it was the task of the Party to take the initiative in a creating a third international. 4 Die Krise der kapitalistischen Weltwirtschaft, Hamburg: Verlag der Kommunistische Internationale, Carl Hoym Nachf. Louis Cahnbley, 1921, 64 pages; Die Krise der kapitalistischen Weltwirtschaft. Zweite, vermehrte und umgearbeitete Auflage, Hamburg: Verlag der Kommunistischen Internationale, Carl Hoym Nachf. Louis Cahnbley, 1922, 147 pages; The Process of Capitalist Decline. Report to the IV. Congress of the Communist International, Hamburg: Communist International, Carl Hoym Nachf. L. Cahnbley, 1922, 47 pages; The Decline of Capitalism, Published for the Communist International by the Communist Party of Great Britain, London, 1924, 69 pages; The Decline of Capitalism. The Economics of the Decline of Capitalism after Stabilisation, Communist Party of Gr. Britain, London, 1928, 96 pages, plus tables in annexes; The Great Crisis and its Political Consequences. Economics and Politics 1928-1934, London: Modern Books Limited, 175 pages. [French title: La crise: conomique - sociale - politique]. 5 Soviet Western research began in April 1925 with the foundation of the Institute of World Economics and World Politics. The new institute was meant to enhance the Soviet leadership's knowledge about the United States n1. Its first director was F. A. Rothstein. Born in 1871 in Kaunas, he spent 30 years in exile in Great Britain before returning to the USSR. However, Rothstein's expertise did not save him from replacement two years later as the price for allowing oppositional authors like Trotsky and Radek to write in the institute's magazine.


and, finally, lead to his semi-disgrace in 1929. In January 1934, just before the Seventeenth Party Congress met, Stalin called Varga back at to the Kremlin to give his comments on the international economic situation. Varga’s rewrote and expanded this report during the summer of 1934 when the Comintern was preparing the Seventh Congress.6 Table 1 Dates of key Comintern meetings First Congress Second Congress Third Congress 2–6 March 1919 (Moscow) 19 July – 7 August 1920 (Moscow and Petrograd) 22 June – 12 July 1921 (Moscow) First Enlarged Plenum of the 24 February – 4 March 1922 ECCI Second Enlarged Plenum of the ECCI Fourth Congress Third Enlarged Plenum of the ECCI Fifth Congress 7 – 11 June 1922

5 November – 5 December 1922 (Moscow and Petrograd) 12 – 23 June 1923 17 June – 8 July 1924 (Moscow) Fourth Enlarged Plenum of the ECCI Fifth Enlarged Plenum of the ECCI Sixth Enlarged Plenum of the ECCI 12 – 13 July 1924 21 March – 6 April 1925 17 February – 15 March 1926

Seventh Enlarged Plenum of 22 November – 16 December 1926 the ECCI Eighth Plenum of the ECCI Ninth Plenum of the ECCI Sixth Congress Tenth Plenum of the ECCI

18 – 30 May 1927 9 – 25 February 1928

17 July – 1 September 1928 (Moscow) 3 – 19 July 1929

Annie Kriegel and Stéphane Courtois, Eugen Fried. Le grand secret du PCF, Paris: Éditions du Seuil, 1997, pp. 232-252.


Eleventh Plenum of the ECCI

26 March – 11 April 1931

Twelfth Plenum of the ECCI 27 August – 15 September 1932 Thirteenth Plenum of the ECCI Seventh Congress Working for the Comintern When arriving in Moscow in the beginning of August 1920, Varga was immediately received by Lenin. Both men discussed the economic-political problems of the proletarian dictatorship in Hungary. Later on, Varga would recall that Lenin had ‘made sharp notes of criticism in the margins of some pages’ 7 in his book on the economic problems of the dictatorship of the proletariat. Especially the sentence on the hostility of the prosperous peasants towards the proletarian state, once a serious step was taken to build up socialist economy, Lenin had underlined. 8 According to Varga, Lenin had warned him also for Otto Bauer as the most talented socialdemocratic defender of the bourgeoisie!9 Varga was appointed a candidate member of ECCI.10 Being in Moscow now, he was asked to work for the nascent Comintern bureaucracy. In November 1920, he was appointed director the newly founded office of economic statistics11 where he was studying agrarian development, labor problems and the capitalist crisis cycle. Before its first congress met in 1921, he provided the Profintern with a report on the character of the economic crisis.12 Varga’s multiple activities suggest that he had been absorbed by many back-office tasks the Bolsheviks were unable to fulfill in this period. Though he had become Lenin’s confident, he did not immediately join the Russian Communist Party.13 It was nonetheless on demand of Lenin, Varga drafted a project for setting up a West Europe-based institute for actively collecting information on the international labor movement (Berlin, Vienna, Copenhagen, and Christiana-Oslo were mentioned as possible seats of the planned institute). E. Varga’s project for the
7 8

28 November – 12 December 1933 25 July – 21 August 1935 (Moscow)

E. Varga, ‘Democracy of a new type, II’, in Labour Monthly, 1947, Vol. 27, No. 9, p. 277. Lenin had read Varga’s book Economic Problems of the Proletarian Dictatorship (Die wirtschaftspolitischen Probleme der proletarischen Diktatur) after publication and before Varga arrived in Moscow at the moment of the Second Congress of the Comintern. 9 ‘In einem Privatgespräche äußere einmal Lenin, von allen sei Bauer der gefährlichste, weil der klügste und gebildeste’. E. Pawlowsky, ‘Otto Bauer, der klügste Verteidiger der Bourgeoisie’, in Internationale Presse-Korrespondenz, 1921, Vol. 1, No. 31 (3 December), p. 275. 10 According to Pravda of 10 August 1920. Vilém Kahan, ‘The Communist International, 1919-1943: The personnel of its highest bodies’, in International Review of Social History, 1976, Vol. 21, No. 21, p. 158. 11 He had to work with M. L. Pavlovich (Veltmann) and Avetis Sultan-Zade (Mikhaelian). Die Kommunistische Internationale, 1921, Vol. 2, No. 16, pp. 487-492. 12 At that time, the Profintern was led by Alexander Lozovsky (Salomon A. Dridgubernim). Varga, Mirovoi krizis, Moscow: Krasnyi International Profsyuza, 1921. 13 He and his wife only would become member in 1925 when staying in Berlin.


‘Organization of Information in the Comintern Executive’ 14 contained two appendixes: ‘Appendix A- Instructions on Compiling Socio-Economic Reports’ and ‘Appendix B.—Instructions on Compiling Reports on the Political Situation Within the Country’. The instructions under Appendix A covered: 1. The purpose of the reports, which was to give a dynamic picture of the development of the revolutionary movement in the country and its analysis. 2. Four factors conditioning revolutionary development: a) the Communist Party—the motive force of the revolutionary movement; b) the proletariat—the revolutionary masses; c) the ruling classes—the enemy; d) The petty-bourgeois middle strata. The report must show the alignment of forces. 3. The starting-point should be an account of the economic situation, the social position of the proletariat and the middle strata. 4. The report should consist of a brief review (5-10 pages) with a detailed appendix to it. The instructions under Appendix B contained the following, sections: 1) Communist Parties; II) non-communist proletarian parties; III) bourgeois parties; IV) organization of the armed forces. On 31 August and 1 September 1921, Lenin admonished Varga to avoid any contacts whatever with official Soviet agencies in the West. Lenin: ‘The Institute must not communicate at all with Russian embassies.’ Its link to the Comintern was to be kept secret.15 On 6 September 1921, at Lenin’s behest, the Executive Committee

V. I. Lenin, ‘To Varga’, in Collected Works, Moscow: Progress Publishers, 1965, Vol. 42, pages 337-339. 15 Lenin answered to Varga’s proposals. Lenin refers to § 3 and 4 of Section I (“Communist Parties”) of Varga’s instructions (Appendix B) which deal with legal and illegal Party cells, the promulgation of Party literature, appeals, pamphlets and books and the issue of illegal Party literature. Dear Comrade Varga, I enclose my remarks. If you think it necessary, we can talk things over on the telephone. Best regards, Lenin 31/8 Tentative Amendments or Theses To Comrade B. Varga’s Project for the Organization of an Information Institute 1. Absolute and strict legality of the Institute for Berlin or Vienna conditions and for the whole of Western Europe, Britain and America. 2. Headquarters of the Institute-Berlin or Vienna or Copenhagen or Christiania. 3. No more than 20% of the Institute’s working time and publications should be devoted to economic and social questions (both together 20%). 80% to political questions. 4. As far as political questions are concerned, the task of the Institute is only to collect objective data on questions that are legal and open to discussion. 5. The Institute must be completely independent of the respective Communist Parties. 6. The official name of the Institute should be, tentatively: Institute for the Study of Forms of Social Movement.


Presidium formally did establish the institute, but the official minutes of the meeting made no mention of the matter. Belonging to the Hungarian immigration community Varga was known as a member of the Kun faction, but he remained nonetheless outside inner-party struggles. In addition, he helped solving problems concerning the Hungarian refugees and POWs16 residing in Russia. Occasionally, he assisted Pogány at the secretariat of the Hungarian Section of the Russian Bolshevik Party.17 In the mean time, Varga had to deal with Kun’s “offensive” strategy pushing Hungarian POW’s to go and organize an armed uprising in Hungary.18
7. Instructions of a principle nature are to be given to the head (or to three heads, not more) of the Institute. 8. On the basis of verbal instructions of a principle nature the head is to work out detailed and absolutely legal instructions and submit them here in Moscow for endorsement by the Comintern Executive. 9. Reports to be submitted weekly or twice a week. Socio-economic appendixes monthly or twicemonthly. 10. The Institute must have no contacts whatever with the Russian embassies. 11. The Institute must begin in a small way. For the German-speaking countries, Scandinavia and the Slav countries—only the German language. Activities may be extended to Anglo-Saxon and Romance countries only on the basis of a special agreement with a representative of each group of these countries. Agreement only here in Moscow. 12. The reports, or rather, publications, or correspondence of the Institute should be paid for by subscribers (newspapers libraries, etc.). The basic principle should be such an organisation of the Institute and such operation as would compel all labour newspapers of all trends to subscribe to the Institute’s publications and pay for them. If this does not happen, it will be proof that the Institute is worthless. 13. Comrade Varga’s project[1] should serve as initial draft instructions. In particular, two basic amendments to this project are needed: 1) § 3-up; 2) the political part should be considerably elaborated. Some remarks to this Point 2: (Appendix B.) § 3 and 4: Correspondence from factories? + money collected by the workers themselves? + questions of the trade union movement should be specially dealt with in detail from the political angle. Winning the trade unions is one of the most important political issues. + workers’ co-operatives: ditto (to Section II, b) + all transitional political formations (like the workers’ and farmers’ party in the United States) are especially important. + Leaflets? Distribution? Circulation? + attitude to the 1914-18 war? Extremely important. Section II, § a “revolutionary” (??) workers’ parties like the Communist Workers’ Party of Germany. Name is wrong. They are not revolutionary. They should be called: semi-anarchist, anarchist or nearanarchist. It is necessary to add: a split of anarchism all over the world in patriotic and internationalist questions; for the Soviet system; against the Soviet system. (b). Parties of the II and II 1/2 Internationals—much more detailed. + attitude to own colonies—and to imperialism in practical politics—much, much more detailed. + all pacifist and petty-bourgeois-democratic groups and trends—much more detailed. And so on. 31/8.1921 Lenin 16 In September 1920 the Second All-Russian Conference of Hungarian POWs was convened with Kun, Varga and Pogány reading reports on the causes of the fall of the Councils’ Republic, Varga on its economic policy, and Pogány on White Terror. 17 György Borsányi, The Life of a Communist Revolutionary, Béla Kun, Boulder, Colorado and High Lakes, New Jersey: Social Science Monographs and Atlantic Research and Publications, 1993, p. 245. 18 Kun’s interpretation of the Comintern’s “back to the masses” tactic meant for Kun ‘that the Communist International had no reason to revise any of its ideas concerning the period of social


A party school was set up in Moscow where Kun, Pogány and Varga could teach 19. Meanwhile Varga provided the Moscow press with articles on a wide range of subjects. The monthly Narodnoe Khozyaystvo20 published Varga’s country surveys, while the Moscow newspaper Ekonomicheskaya Zhizn21 published some of his witty comments on actual economic problems. Incidentally, he contributed to Pravda as well.22 Hungarian party papers like the Kassai Munkás in Košice or Előre in New York published his articles on agrarian reforms in Hungary. More important was Varga’s publishing in the Comintern’s theoretical journals on international economic problems.23 In the mean time, Varga sought to ‘remove all meditation’ between his individual consciousness and the ‘revolutionary goals of the state’24 by specializing in virulent attacks on leading Marxist Austrian and German theoreticians like Kautsky, Hilferding, Renner, Otto Bauer25 and Adler who all had betrayed the revolution. In order to defend the Soviet Union against the Social Democrats, Varga called to arms26. Apparently, the end of ‘war communism’ with peasants selling freely their produce on the market, were no problem now that ‘everywhere, taxes in kind are voluntarily and quickly delivered’.27 The return to the market was also welcomed by all sorts of Mensheviks, academic Marxists and other evolutionary socialists who were now praising this decision as being consistent with the Marxist ‘theory of stages’.28 When commenting on NEP at the end of ‘war communism’, Varga nonetheless described the Russian peasant as an independent economic subject ‘free to produce any what they want’.29 With its half a million villages and about 30
revolution we are living in’ In contrary!’ Bela Khun, ‘An die Massen heran!’, in Internationale PresseKorrespondenz, 1921,Vol. 1, No. 1, p. 9. 19 In Moscow, there were many cadre schools for functionaries of the different Communist Parties. A Communist University for Workers of the East started in April 1921 in Moscow in order to school activists for the Middle-East, the Caucasus and other regions. This university counted at the end of 1921 more than 600 students from 44 nations. At the end of November 1921, the Communist University for Minorities in the West was founded. There, many migrants from European Communist Parties taught at their compatriots. There were eleven national schools. Model for this University stood the Communist J. M. Sverdlov University founded in 1919. Leonid G. Babitschenko, ‘Die Kaderschulung der Komintern’, in Jahrbuch für historische Kommunismusforschung 1993, Berlin: Akademie-Verlag, 1993, pp. 42-43. 20 His first articles appeared in the November issue of 1920. 21 Varga’s first article was published on 13 September 1920. It contained an analysis of economic planning and raw materials. Varga would continue his regular collaboration until 1928. 22 His first article on the ‘week of the peasants’ was published on 17 August 1920 in Pravda. 23 Varga gave articles to Internationale Presse-Korrespondenz in Berlin, Kommunismus in Vienna, Russische Korrespondenz in Leipzig, Jahrbuch für Wirtschaft, Politik und Arbeiterbewegung and Die Kommunistische Internationale in Hamburg. 24 Jochen Hellbeck, ‘Working, struggling, becoming: Stalin-era autobiographical texts’, in Igal Halfin (ed.) Language and Revolution. Making modern political identities, London and Portland (OR.): Frank Cass, 2002, p. 136. 25 In a rare reminiscence to a private conversation he had with Lenin, Varga writes writes: ‘In einem Privatgespräche äußerte einmal Lenin, von allen sei Bauer der gefährlichste, weil der klügste und gebildetste.’ E. Pawlowsky, ‘Otto Bauer, der klügste Verteidiger der Bourgeoisie’, in Internationale Presse-Korrespondenz, 1921,Vol. 11, No. 31, p. 275. 26 ‘No fall back into barbarity, but a ascent to liberty. But, first of all, the battle has to be fought…’ E. Varga, ibidem, in Internationale Presse-Korrespondenz, 1921, Vol. 1, No. 16, p. 138. 27 E. Varga, ‘Die neue Wirtschaftspolitik Rußlands’, in Internationale Presse-Korrespondenz, 1921, Vol. 1, No. 17, pp. 149. 28 The Bolsheviks could only see it as ‘a tragic, humiliating retreat from the communist ideal of Marx and Engels.’ Andrzej Walicki, Marxism and the Leap to the Kingdom of Freedom. The Rise and Fall of the Communist Utopia, Stanford: Stanford University Press, 1995, p. 503. 29 Varga, ‘Die Neue Wirtschaftspolitik Rußlands’, in Internationale Presse-Korrespondenz, 1921, p. 149.


million of farms it was nearly impossible to rule Russia ‘against the will’ of the peasantry.30 In spring 1921, the peasantry had even protested against the grain monopoly of the Soviet state. ‘Because the peasantry constituted the great majority of the working population of Russia, the dictatorship of the proletariat could not be imposed on them against the latter’s will by using violence.’ 31 After the October Revolution the land, the banks and the greater part of Russian industry had been nationalized.32 Just like Hilferding and completely in accord with Lenin and Bukharin33, Varga attributed a decisive importance to the role of the banks in capitalism.34 Hence, Varga believed that when finance capital was highly developed, the amalgamation of all individual banks in one gigantic State Bank with branches in all cities could be useful to building socialism. An economic crisis with a special character? Well before the Third Congress of the Comintern met in June-July 1921, Varga defined the economic crisis as ‘a crisis of the capitalist world economy caused by a profound deformation of the whole world economy as a consequence of the war.’35 According to Varga, the world had fallen apart in to different areas, with on the one hand a pauperized European part, and on the other hand the United States and Japan having developed their production facilities beyond the absorbing capacities of the world market. The actual crisis was a crisis of overproduction in the rich part of the world and a crisis of underconsumption in the pauperized areas. Hence, the only way out of the crisis for the capitalist was cutting labor costs. However, working-class resistance combined with the emergence of strong communists parties would inevitably lead to the proletarian revolution.36 Varga’s interpretation that the slump of 1921 was by no means a “normal” crisis of overproduction, should be interpreted as a hopeful signal that capitalism was entering into a long phase of decay and that the periods of economic upswing ‘grow shorter and shorter, the crisis deepens; more and more countries are dragged into a process of general decay; the revolutionary movement of the working class pushes capitalism into ever more crises, until after long struggles the social revolution finally triumphs’.37 Despite its broad claim, Varga’s analysis remained, however, in this
30 31

Ibidem. Ibidem. 32 According to Włodzimierz Brus, Marxists should not be satisfied with the socially anonymous characterization of socialist ownership as public ownership. Ownership is a social relationship realized through the relationship of people to things, in particular to the material factors in the process of reproduction of the material conditions of life. Włodzimierz Brus, Socialist Ownership and Political Systems, London and Boston: Routledge & Kegan Paul, 1975, p. 17. 33 In 1920, Bukharin thought that ‘the reorganization of the relations of finance capitalism was a move towards a universal state-capitalist organization, with the abolition of the commodity market, the transformation of money into an accounting unit, production organized on a national scale and the subordination of the entire ‘national economic’ mechanism to the aim of world competition, i.e. primarily of war.’ Nikolai I. Bukharin, The Politics and Economics of the Transition Period, Kenneth J. Tarbuck (ed.), London, Boston and Henley: Routledge & Kegan Paul, 1979, p. 78. 34 Varga, Die Krise, o.c., 1921. 35 E. Varga, ‘Wirtschaftliche und soziale Revolution’, in Internationale Presse-Korrespondenz, 1921, Vol. 1, No. 17, pp. 137-136. 36 Varga, ibidem, in Internationale Presse-Korrespondenz, 1921, p. 138. 37 E. Varga, Die Krise der kapitalistischen Weltwirtschaft, Hamburg: Verlag der Kommunistischen Internationale – Carl Hoym Nachf. Louis Cahnbley, 1921, p. 60.


period articulated in purely geographical terms and restricted to some immediate appearances of the political and economic situation. In the mean time, Varga was working on a theoretical framework revealing the dynamics of the process by which imperialism maintained its hegemony.38 This would be of crucial importance to revolutionary politics, Varga thought.39 Varga argued that capital export was the key concept for analyzing imperialism. Hence, imperialist wars were always the outcome of inter-imperialist rivalries. However, a correct application Lenin’s imperialism theory required a thoroughgoing analysis of all aspects and facets of capitalism in its ‘highest stage’. For the moment, this analysis Varga was unable to provide because of Russia’s isolation from the outside world. The claim that the end of capitalism was approaching was justified by a rapidly changing political situation in Asia where communist parties saw the daylight. A complicating factor was that the Russian Revolution of 1917 had split the world economy into two competing economic systems, but the slump of 1921 confirmed nonetheless the imminent and inexorable collapse of the capitalist system. Meanwhile, Varga tried to combine now Marx’s economic analysis in the three volumes of Capital with Lenin’s imperialism theory without falling into the traps of Rosa Luxemburg’s imperialism theory or Hilferding’s theory of financial stabilization. Another problem was the periodicity of crisis in intervals of roughly ten years. They stemmed, according to Marx, simply from capitalism’s ability to overcome the overproduction of capital through changes in conditions of production that increase the mass of surplus value relative to the existing capital.40 Third Congress of 1921: Trotsky and Varga on the Crisis of the Capitalist World Economy The Third Congress of the Comintern meeting in Moscow from 22 June 1921 to 12 July 1921 reunited more delegates than the previous two congresses: 605 delegates representing 103 organizations and 52 different countries. The ultra-radicals formed still an influential faction threatening to split the Comintern. Lenin and Trotsky opposing them spoke about them as ‘empty-headed emotionalists’ and ‘unprincipled opportunists’.41 During the debates, Varga sided with Lenin and Trotsky against the ultra-left led by Kun. In the preface42 to his report to the Third Congress, Varga mentions that the preparatory commission had decided to publish a preliminary

Varga’s most important contributions were published as Comintern congress reports and, more important, as Quarterly Surveys in Internationale Presse-Korrespondenz. Apparently, Varga had become Lenin’s ‘energetic, capable and committed scholar’. 39 James W. Roberts, ‘Lenin’s theory of imperialism in Soviet usage’, in Soviet Studies, 1977, Vol. 29, No. 3, p. 357. 40 As Paul Mattick later would remark that the crisis cycle is an empirical fact which is not directly related to Marx’s economic theory. Marx tried to connect the definite periodicity of the crises with the turnover of capital. This does not mean that his theory depends on any periodicity of crises for it only maintains that the crises are bound to arise as an expression of a temporary overproduction of capital and as the medium for the resumption of the accumulation process. Paul Mattick, Marx and Keynes. The Limits of the Mixed Economy, London: The Merlin Press, 1971, pp. 57-82. 41 Isaac Deutscher, The Prophet Unarmed. Trotsky: 1921-1929, London, New York, Toronto: Oxford University Press, 1959, pp. 64-65. 42 Dated on the 10th of May, 1921, in Moscow. E. Varga, Die Krise der kapitalistischen Weltwirtschaft, o.c., 1921.


report dealing with the economic situation in the world. Varga’s starting point was the thesis that the ‘present’ crisis was not a ‘normal overproduction crisis’ characteristic for the capitalist system, but the consequence of structural deformations caused by the war economy. Hence, not all countries were equally hit by the crisis, but all were suffering from the fact that the world market was broken up because of protectionism, currency crises and the rise of competing industries in the colonies.43 According to Varga, the end of the capitalist system was near now that the masses did not believe anymore in its inevitability.44 Theoretically, Varga’s analysis fell back on the underconsumption thesis that the markets could absorb all produced goods and that the overproduction crisis was spreading from the defeated Central European countries to other nations.45 Hence, objectively spoken there was no way out of the crisis.46 The task of the proletariat consisted in seizing power. Varga warned for the outbreak of a new war and a complete annihilation of the world.47 Though Varga’s analysis was nearing Lenin’s imperialism theory, the difference was that Varga reduced imperialist rivalries to the competing interests of the United States, England and Japan, the three big powers having acquired advantages from the outcome of the past world war. Varga concentrated on Europe, where the Russian Revolution in combination with upheavals in Central Europe had created a business cycle of a special kind. In Central Europe underproduction had created a state of permanent crisis with only temporary and very short cyclical recoveries that would end up in a new struggle for a new repartition of the world.48 In this context, Varga identified the United States as the most aggressive imperialist power wanting to acquire British oil reserves in Mesopotamia. Crucially in Varga’s analysis was the rejection of any chance on economic recovery now that chronic underproduction in Central Europe was meeting chronic overproduction in other parts of the world. In the past, overproduction caused falling prices on the world market and gave birth to technological innovations stimulating higher productivity and lower production costs. In the age of monopoly capital, big firms were regulating production, upholding prices and cutting wages in order to finance technological innovations. However, everywhere in Europe the proletariat had learnt to resist these wage cuts. Though Varga’s analysis carries the imprint of many theoretical influences (Lenin, Hilferding and Luxemburg), his main thesis was that the revolutionary tasks of the proletariat had to be derived from a concrete analysis of the economic situation in the different capitalist countries, where capitalism had stabilized with the help of the social-democratic parties and their trade unions. Though Varga argued that the situation of the European proletariat could be qualified as completely hopeless, he nonetheless added that only a revolution could give a valuable response to the fatal process of falling living standards, rising prices and increasing mass unemployment49. Varga kept, however, silence on the concrete role and tasks of the
43 44

E. Varga, Die Krise, o. c., pp. 34-35. E. Varga, Die Krise, o. c., p. 54. 45 Varga: ‘without Central Europe is the world market to small for the most developed countries.’ E. Varga, Die Krise, o.c., p. 60. 46 Varga: ’Es gibt keinen Ausweg’. E. Varga, Die Krise, o. c., 1921, p. 55. 47 E. Varga, Die Krise, o. c., 1921, pp. 63-64. 48 E. Varga, Die Krise, o. c., 1921, p. 61. 49 All facts Varga took from capitalist sources and bourgeois newspapers. The Economist, The Times, The Manchester Guardian, Weltwirtschaftliches Archiv and the Oesterreichischer Volkswirt are quoted several times, which proves that Varga when staying in Moscow had access to some foreign press


communist parties. In this manifesto, Varga’s sources of inspiration are rather heterodox, its composition is weak and uneven, and Lenin is not quoted. Varga mentions Alfred Weber’s Standort theory,50 the analysis carries still the marks of Kautsky’s and Hilferding’s economism, while his belief in a coming revolutionary upswing is clearly inspired by Luxemburg’s Spartakism. One may presume that Lenin had not been fully charmed by Varga’s piece of work. But at the Third Congress of the Comintern, Lenin, who was doubting about the prospects of an imminent world revolution, asked nonetheless for a thoroughgoing inquiry into the nature of the capitalist world economy and this period of ‘relative stabilization’.51 The Third Congress of the Comintern started with the debate on a report submitted by Trotsky and Varga on the international economic situation.52 Varga was its coauthor. The Third Congress marked also the defeat of the extreme left tendency.53 In the Trotsky-Varga report,54 three desequilibria existing at the international level received a broad attention: (1) The international economic equilibrium; the ruralurban equilibrium in each country; (3) the equilibrium between Sector I (heavy industry) and Sector II (light industry), or between investment and consumption. The authors of the report noted that the equilibrium between agriculture and industry was disturbed by grain and meat shortages because of a depletion of labor, herds, fertilizers, high prices of manufactures and peasants’ resistance to wartime requisitioning. The resulting desequilibrium was hindering Europe’s economic recovery and stability. The report mentioned that the prevailing desequilibrium between production and consumption was much more deteriorated and dangerous to the capitalist world order than the rural-urban equilibrium, because, during the war, “fictitious” capital (treasury bonds and currency issues) had replaced “real” capital when financing war expenditures.55 Capitalism was no longer compatible with artificially split up national markets flooded by unsalable manufactures and distorted by large-scale destructions. Though various countries forming the core region of the world economy were economically interdependent, the imperialist war had led to an explosive contradiction by an upsurge of isolationism and a widening contradiction between the United States and continental Europe. Europe’s purchasing power had shrunk and had nothing to offer at the United States now suffering from an overproduction crisis. International balance of payments crises were proliferating in combination with increasing tariff barriers in a Balkanized Europe. As a consequence, capitalisT decline was a reality. Varga’s ideas were not yet entirely ‘developed’, nor ‘original’56 His concepts covered the same phenomena as Bukharin’s: the discrepancy between real and financial
sources. He also quotes a recently published book of R. Kuczynski, Das Existenzminimum und verwandte Fragen, Berlin: Verlag Hans Robert Engelmann, (Jahrbuch der “Finanzpolitischen Korrespondenz”1920) 1921. W. Federn, Editor of the Oesterreischer Volkswirt, received a special mention in a note. 50 Varga, Die Krise, o. c., pp. 4, 11, 17. 51 V. I. Lenin, ‘Theses for a report on the tactics of the R.C.P, Third Congress of the Communist International June 22-July 12, 1921’, in Collected Works, Moscow: Progress Publishers, 1965, Vol. 32, pp. 453-461 52 Léon Trotski and Eugène Varga, Thèses sur la situation mondiale et nos tâches, Moscow: Section de la Presse de l’Internationale communiste, 1921. 53 Pierre Broué, Histoire de l’Internationale Communiste 1919-1943, Paris: Fayard, 1997, pp. 231-232. 54 Many parts of this text were visibly Varga’s. 55 Varga’s influence on this analysis is obvious; it goes back to his Hungarian book A Pénz (1918).


values, the obstacles to renewed capital accumulation, and the crippling effects of shortages of commodities. Varga pointed to Great Britain and the United States as belonging to an entirely different group of imperialist powers.57 He argued that unstable world markets were causing economic and financial distortions and, as an adept of Hilferding, he believed that finance capital was shifting the burden of adjustment onto the back of the proletariat.58 However, in the report an immediate disintegration of the capitalist system was predicted. Recalling the Parvus-Bernstein debate of the Second International, Trotsky proclaimed in his speech ‘that capitalism lived by cycles of booms and crises’.59 Hence, cyclical fluctuations would continue and a limited recovery could be expected as a result of endogenous factors within the cycle itself. For the Soviet Union, the situation was not so dramatic at all. ‘Things are not yet terrible as to cause European or American imperialism to throw itself at Soviet Russia in seeking salvation from the plight into which capitalism has fallen.’60 The capitalist countries being not indifferent to economic reconstruction of Russia, were waiting for investing in Russia’s industry and railroad system, as the country was preparing for appearing on the world market. On the other hand, Russia was in need of large-scale foreign investments where European surpluses of manufactures could find a ‘natural’ outlet as a result of the NEP retreat. Pauperized Russia was not able to pay for large imports. Therefore, Trotsky and Varga concluded that ‘the reappearance of Russia on the world market cannot produce any appreciable changes in it in the period immediately ahead.’61 Neither exports nor imports were therefore likely to be of any consequence and Russia’s collaboration with the West would not have a positive impact on capitalism’s recovery. In his speech to the Third Congress of the Communist International on 23 June 1921, Trotsky addressed the question of whether capitalism had achieved a new phase of equilibrium in order to find out the most adequate response to the international situation in the world.62 In his speech Trotsky wisely stated that, ‘of course, capitalism is not dead, and because it is alive, it will have to breathe, i. e. that fluctuations will occur.’63 The war had not only provoked ‘an acute crisis, but also had caused a long crisis and even ruined the European economy’.64 Capitalism was nonetheless developing notwithstanding ‘its complete social decay.’65 Meanwhile, Social Democrats like Cunow and Hilferding in Germany were playing with the idea of a possible ‘automatic equilibrium’66 as a new social base for their reformist policy

‘Less imaginative than Trotsky or Kondratiev, Varga avoided theoretical innovations and strove to fit recent developments into the established Marxist categories’. Richard Day, The ‘Crisis’ and the ‘Crash’. Soviet Studies of the West (1917-1939), London: NLB, 1981, pp. 57-58. 57 Day, o.c., 1981, p. 58. 58 Day, o.c., 1981, p. 58. 59 Richard Day, Leon Trotsky and the Politics of Economic Isolation, Cambridge: Cambridge Univeristy Press, 1973, p. 57; Protokoll des III. Kongresses, o.c., 1921, p. 71. 60 Quoted in Day, o.c., 1973, p. 57. 61 Quoted in Day, o.c., 1973, pp. 57-58. 62 See also Ernesto Galli dell Loggia, ‘La III Internationale e il destino del capitalismo: l’analisi di Evghenij Varga’, in Storia del marxismo contemporano. Annali 1973, Milan: Feltrinelli Editore, 1974, pp. 985-990; Protokoll des III. Kongresses, Thesen und Resolutionen des III. Kongresses der Kommunistischen Internationale, Hamburg: C. Hoym Verlag,1922. pp. 47-91; 63 Protokoll des III. Kongresses, o.c., 1921, p. 73. 64 Protokoll des III. Kongresses, o.c., 1921, p. 76. 65 Protokoll des III. Kongresses, o.c., 1921, p. 77. 66 Protokoll des III. Kongresses, o.c., 1921, p. 77.


based on a new phase in the accumulation process of capital with an increased exploitation of the working class and stabile exchange rates. Trotsky predicted that this stabilization policy would engender a resurging class struggle, as the working class would refuse wage reductions. The Communists’ task was the organization of the economic struggle of the workers in order to widen their class conscience. The changing international economic situation would prevent an automatic economic recovery. The United States were unable to find an outlet for their produce on the world market because of the impoverishment European economy and China’s and Latin America’s resistance. ‘Thus we are in a period of depression; this cannot be denied’, Trotsky exulted.67 However, Trotsky did not identify this economic downturn with revolutionary upheavals. Trotsky: ‘Here there is no automatic connection, there is only a dialectical interaction.’68 He warned nonetheless for a new war for militarism was the most direct boost to a new economic boom. Trotsky discovered a growing antagonism between French and British imperialism on the one hand and between the United States and England on the other hand. ‘England has been removed from its leading position on the world market. The English industry is decaying. Two American workers are producing as much as five English workers.’69 Trotsky remained rather vague about the coming proletarian world revolution. In the years 1918-1919, general disorganization had created a revolutionary rising tide, but the bourgeoisie had not yet capitulated. Though the situation was complex and not comparable with the pre-war period, Trotsky argued that ‘seen from a revolutionary perspective’ the situation was favorable. ‘Maybe we can now say with certainty that in essence the situation be completely revolutionary.’70 Was the situation as revolutionary as Trotsky had depicted in this speech? Much depended on the objective and subjective factors of that moment. Much depended on a hypothetical deepening of the European crisis and on the growing strength of the communist movement. However, the Communists had not yet gained the support of the majority of the proletariat. This remained the first and foremost task of all communist parties in Europe. Neutralizing the impoverished petty bourgeoisie was important in the struggle of the proletariat against the ‘trustified bourgeoisie’. 71 According to Trotsky and Varga, the revolutionary period was over and the Communists had to prepare themselves for applying a defensive strategy to get working-class support in the factories. This strategy was heavily criticized. The spokesmen of the radical and sectarian currents in the Comintern, especially Hungarian Pogány, pleaded for a more offensive attitude. Two German Communists (Brand and Seemann) wanted to “make” the revolution. August Thalheimer thought that Trotsky’s theses were not ‘sharp enough’.72 Finally, after a hectic discussion, the theses were sent to a special committee for revising. But the radicals did not succeed in having the majority at their side, while the Bolsheviks were yarning for a revolutionary pause in order to stabilize their political power in a period of famine and social and economic disintegration. At the plenary session, Varga rejected any proposal in favor of a more radical strategy by referring to the fact that the bourgeoisie had succeeded in gaining the
67 68

Protokoll des III. Kongresses, o.c., 1921, p. 83. Protokoll des III. Kongresses, o.c., 1921, p. 82. 69 Protokoll des III. Kongresses, o.c., 1921, p. 85. 70 Protokoll des III. Kongresses, o.c., 1921, p. 88. 71 Protokoll des III. Kongresses, o.c,, 1921, p. 89. 72 Protokoll des III. Kongresses, o.c., 1921, pp. 113-114.


support of the majority of the peasantry against the proletariat. He ended with the optimistic note that in their time Marx and Engels had already pointed to the fact that the revolutionary activity of the proletariat increased, the longer the economic crisis was lasting.73 Apparently, negative comments had obliged Varga to revise his preliminary report tot the Third Congress.74 In a second, but considerably enlarged75 edition published in February 1922,76 Varga wrote in his preface that he had worked out the concept ‘tendencies furthering the restoration of a new balance in the world economy’ he slightly had mentioned in the previous edition.77 In this revised edition, Varga worked out this concept enabling him to explain why postwar capitalism could recover during the second half of 1921. He wisely noted that recovery had been volatile and that the postwar crisis had not been fully overcome. The problem was that the economic crisis was interwoven with foreign policy and with the revolutionary struggle of the proletariat. Hence, the central question was: Can capitalism recover from the severe postwar crisis or not? Varga added also a chapter on the Russian economy in which he noticed that Russia was suffering from the economic world crisis. This explained why the New Economic Policy (NEP) had been introduced.78 Meanwhile, the ebb tide of the revolution in Europe and the necessity of saveguarding the survival of the Bolshevik regime inspired some theses adopted at the First Plenary Meeting of the ECCI in March 1922 concerning the dangers of war. These theses were clearly reflecting Varga’s way of analyzing international politics. Though the Genoa Conference of April 1922 marked the beginning of Russia’s reintegration into Europe, Varga did not share the current enthusiasm about the ability of foreign capitalists to restore the equilibrium of the world market by floating the Russian economy by means of credits.79 But Rapallo also signified that the Soviet Union could get a diplomatic foothold in Germany and establish trade relations with German industry. Lenin immediately sent Varga to Berlin in order to fulfill the function of trade expert at the Soviet legation. Varga’s revised report to the Third Congress of the Comintern was mainly based on dispersed sources and statistics from British origins, but a thoroughgoing conceptualized analysis of postwar imperialism was missing. Lenin must have been disappointed by this working method and therefore he wanted Varga to found a
73 74

Protokoll des III. Kongresses, o.c., 1921, pp. 708-716. Varga later would refer to a ‘rather strong opposition’ coming form the German delegation and the Italian and Hungarian “Left” which took exception to Trotsky’s and his prediction made in the theses they had defended that there was a possibility that the boom period might enter upon a new phase. Pogány had criticized them because the phase of prosperity had received too much emphasis and Thalheimer had declared that the revolutionary character of the period of crises was not expressed sharply enough. E. Varga, The Decline of Capitalism, London: Communist International, 1924, p. 5. 75 Parts of another pamphlet were included in this publication. E. Varga, Die Lage der Weltwirtschaft und der Gang der Wirtschaftspolitik in den letzten drei Jahren, Hamburg: C. Hoym Verlag, Verlag der Kommunistischen Internationale, 1922. 76 His foreword was dated on 28th February of 1922. 77 “…jene Tendenzen zur Wiederherstellung eines neuen Gleichgewichtes der Weltwirtschaft, welche in der ersten Ausgabe nur ganz flüchtig angedeutet wurden…’ E. Varga, Die Krise der kapitalistischen Weltwirtschaft. Zweite, vermehrte und umgearbeitete Auflage, Hamburg: Verlag der Kommunistischen Internationale, Carl Hoym Verlag Nachf. Louis Cahnbley , 1922, p. 4 78 Varga, Die Krise, o. c., 1922, pp.122-131. 79 E. Varga in Narodno Khoyzaistvo, No. 3, March 1922, quoted in Richard B. Day, The ‘Crisis’ and the ‘Crash’. Soviet Studies of the West (1917-1939), London: NLB, 1981, p. 64.


“statistical bureau” specializing in analyzing international economic problems and collecting trustworthy statistical data on the major capitalist countries. When arriving in Berlin in spring 1922 as a member of the Russian legation to the German government, Varga would set up such a kind of economic information center and publish high-quality reports and articles on current international economic problems. As the editor-in-chief of the Jahrbuch für Wirtschaft, Politik und Arbeiterbewegung (Yearbook for Economics, Politics and Labor Movement) tried to meet international standards.80 In a unsigned preface to the first volume of his yearbook, Varga announced that his aim was providing country studies based on statistics in order to fight the ‘statistical falsifications’ of ‘bourgeois’ publications, but this time without uttering the usual communist-inspired commentaries. This initiative still carried the marks of ‘improvisation’, but his ultimate aim was to meet the standards of prestigious ‘bourgeois’ publications, such as Statesman’s Yearbook, Labour Yearbook and International Labour Yearbook. Varga’s project would collapse after three years. Meanwhile, Varga had to solve unsurmountable editorial problems, which made that after three issues the publication of his yearbook had to be stopped. The publication of a Russian edition occupying an editing staff in Moscow had to be halted as well.81 The Fourth Congress of 1922: Varga and Capitalist Decline At the Fourth Congress of the Comintern convening from 5 November to 5 December 1922, Varga made a distinction between “normal” pre-war liberal capitalism and post-war declining monopoly capitalism. He stressed the importance of the general decline of capitalism caused by the falling apart of the world capitalist system. Economic cycles had been disturbed by the uneven development of capitalism and the persisting agrarian crisis in Europe. In his report The Process of Capitalist Decline,82 he agreed with Rosa Luxemburg on the point that the capitalist mode of production was still expanding now that more new countries were entering into the orbit of capitalist influence. Taking his distances from Luxemburg’s capitalist accumulation theory he admitted that the origins of the imperialist wars were not to be found in the impossibility of peaceful inclusion of the non-capitalist world into capitalism, but in the profitseeking activities of the capitalist class. Varga raised the fundamental question: ‘Is the present industrial crisis of the world a transitory and usual one within capitalism, which, after having run its course, will be followed by a period of prosperity and

Among its collaborators were Trotsky, Kamenev, Krassin, Lenin Bronski, Pyatakov, Losovsky, Rakovsky, Zonoviev, Deborin, Krylenko, Rukov, Dzerzhinsky, Kritzmann, Stalin, Tomsky, etc. Also Leder, Rákosi, Barbusse, Brandler, Münzenberg, Pepper, Ernst Reinhard (Alexander Abusch), Dombal, Fritz Glaubauf, Loaf, etc. were collaborating. 81 The German edition was published in Hamburg by Carl Hoym. The three issues covered the years 1922-23, 19323-24 and 1925-26. 82 Eugen Varga, Eugène Varga, Le déclin du capitalisme. Rapport pour le 4ième Congrès mondial de la Troisième Internationale Communiste, Paris: Bureau d’Édition de l’Internationale communiste, 1922; Eugen Varga, Die Niedergangsperiode des Kapitalismus, Hamburg: Carl Hoym Verlag Nachf., 1922; Eugen Varga, The Process of Capitalist Decline. Report to the IV. Congress of the Communist International, Hamburg : Communist International in commission: Carl Hoym Nachf. L. Cahnbley, 1922.


social consolidation of class domination, in order to give way, some time later, to a less severe and usual crisis. Or have we to do with a permanent crisis, which, while it may be broken by spells of prosperity, can no more be topped?’ 83 He warned against the mistake into which Social Democracy had fallen – ‘the mistake of scientific fatalism, of merely theorizing, in Marxist terms, on the collapse of capitalism and then passively waiting for its tumbling down.’ His answer sounds rather voluntaristic: without a protracted and embittered struggle, ‘without the selfsacrificing spirit of the proletariat’, capitalism will not fall to pieces. Capital, he argued, will strive to surmount all difficulties at the expense of the proletariat; it will pauperize the working class; it will drive down society to the pre-capitalist level rather than relinquish one particle of its class domination.84 According to Varga, the difference between the former crisis and the present period of crisis was that the former crises of capitalism were periodically recurring phases in the ascending line of evolution of capitalism.85 Capitalism had, up to the outbreak of the world war, exhibited an upward tendency, while the capitalist form of production expanded geographically. New countries were increasingly opened up to capitalism. Capitalism extended its sphere of operation in the capitalist countries themselves by drawing the pre-capitalist strata of society into its vortex. The falling rate of profit in the highly developed capitalist countries was compensated for by the export of capital to less developed capitalist countries, with higher rates of surplus value and profit. The centralization of capital into monopolist forms of production, covering the whole economic field of a country, reduced the cost of capitalist management. The proletariat of the imperialist countries received a small share of the extra profits which it got out of colonial exploitation and the aristocracy of labor got separated from the mass of the working classes. The landowners turned into capitalists. The tendency of financial capital was to amalgamate all possessing sections of the nation with one another. Mixing Luxemburg, Hilferding and Lenin, Varga defined the crises as a transitory phase ‘within an upward development, - the effects of the anarchy of the capitalist form of production,’ causing ‘but superficial disturbances in the structure of capitalism.’ The system ‘as a whole’, however, would lose nothing of its equilibrium.

83 84

Varga, The Process, o. c., 1922, p. 5. Varga, The Process, o. c., 1922, p. 5. 85 In a footnote Varga refers to his companion Trotsky at the Third Congress of the Comintern. Varga, The Process, o. c., 1922, p. 6.


Varga’s ten characteristics for the era of decaying capitalism86 The geographic expansion of the capitalist form of production is slackening; in addition to capitalist countries there are countries in growing numbers where the proletariat is preparing for dictatorship. Within various capitalist countries there is a growing tendency towards a reversion to pre-capitalist forms of industry. The international division of labor is getting narrowed; foreign trade is shrinking, the economic life of the world, which used to range itself organically round the highly developed industrial nucleus of Western Europe, loses its center of gravity and disintegrates into elements with very diverse economic structures. The gold standard of the various countries, which, while it differed in the number of its gold units, was on the whole a uniform and stable currency, is being replaced by an unstable, violently fluctuating paper currency; and there is even a tendency to revert to barter. The former accumulation of capital is being replaced by a progressive impoverishment, - disaccumulation. The volume of production is decreasing. The whole credit system is crumbling. The standard of life of the proletariat is getting lower, either through the normal wage not keeping pace with the rise of prices or through wage cuts, or though unemployment. Among the various strata of the possessing class a severe struggle is blazing up for the division of the diminishing social product. This manifests itself, politically, in the disruption of the governing Coalition Parties, in the failure to form new political bodies, or to formulate new programs, etc., etc. The faith in the unity and solidity of the capitalist order of society is being shaken. The governing class, losing its moral authority, has recourse to force and arms itself for the protection of its dominance Varga called this post-war period the ‘decaying stage of capitalism or the period of permanent crisis, or the crisis-period, for short’87 or a ‘period of permanent crisis, or crisis-period, owing to its world dimensions must be of long duration.’ 88 He clearly distinguished three types of crisis: (1) Acute crises in the period of ascending capitalism; (2) The crisis-period, or the period of the decline of capitalism; (3) Acute crises within the crisis-period itself. Finally, Varga concluded, however, that one was no more in a phase of crisis, ‘as we were at the time of the Third Congress’ and that

But with paying a fair tribute to Bukharin. Nikolaï I. Bukharin, The Economics of the Transformation Period, New York: Bergman, 1971. 87 Varga, The Process, o. c., 1922, p. 7. 88 Varga, The Process, o. c., 1922, p. 8.


‘we are in a phase of improving trade, but still within the crisis-period of capitalism.’ He warned his readers that his conception would meet with opposition from the Social Democrats and generally from all those who were interested in the continued existence of the capitalist order, but also from certain adherents of the “Left” of the communist movement ‘who deny that we have entered any phase of improving trade’. Against his opponents of both sides he tried to demonstrate that one had actually entered ‘a period of permanent crisis; that the war which gave rise to this crisis-period was no “accident”, but the necessary consequence of the imperialism which is the present evolutionary stage of capitalism; that an improvement of the economic situation is drawing near.’89 In the different chapters he thoroughly studies the essential features of his theory of declining capitalism. Especially the disturbed accumulation cycle and the disappearance of the equilibrium had retained his attention. In the time of Marx the capitalist mode of production only touched a small part of the civilized world. However, Marx comprised in his model of analysis the capitalist world as a whole. Therefore, Varga approached the equilibrium of the economic life of the capitalist world from the point of view of the balance of exchange values. Until the outbreak of the war the center of the capitalist economic life, Western and Central Europe, received annually, without equivalent, from the whole world large masses of values and profits from investments abroad and from the political exploitation of the colonies. The center exported other and new accumulated masses of values as new investments to the less developed capitalist countries. That a kind of equilibrium established it self, was proved by the fact that the rates of the foreign bills fluctuated little. The war, however, destroyed – at least temporarily – the bases of the former equilibrium of the capitalist world. During the war the European belligerent powers consumed not only the profits of their foreign investments, but the capital sums themselves; the accumulation of capital stopped, and, partly, even a disaccumulation took place. This destruction of the exchange-value-equilibrium of the economic life of the capitalist world manifested itself by the chaos of the currencies. The regions that used to supply foodstuffs and raw materials, were establishing their own manufactures. The goods of manufacturing center could find therefore no markets. Hence the glut of manufactured commodities in the highly developed industrial countries, and a glut of foodstuffs and raw materials in the agricultural countries. And this led to a deliberate limitation of production. Instead of reproduction on an extending scale there took place a reproduction on a shrinking scale. This was, in Varga’s view, the theoretical outline of the present grave disturbances of the equilibrium of the capitalist system. And this was the essence and meaning of the present crisis-period. The result of it was that the whole economic life of the capitalist world doid no more move on the ascending, but on the descending line.90 Some remarks can be made on Varga’s pamphlet. First, Varga’s analytical framework had already reached a high degree of maturity. Later in his life, he would use this framework for most of his academic studies of ‘twentieth century capitalism.’91 Second, Varga remained far from embracing Rosa Luxemburg’s
89 90

Varga, The Process, o. c., 1922, p. 8. Varga, The Process, o. c., 1922, pp. 10-11. 91 ‘The functioning of the economic laws of capitalism under the new historical conditions, shows that the system has outlived itself and must make way for a new and more progressive system of society’. E. Varga, Twentieth Century Capitalism, Moscow: Foreign Languages Publishing House [1962], p. 5.


imperialism theory, but he accepted the idea that imperialism leads necessarily to war.92 Third, Varga classified the various countries into categories in order to create some order into the international chaos of his period and grouped them according to their position in the economic life of the world, and brought into prominence certain types. In comparison to his pamphlet of 1921, this meant a real progress in his analysis of world politics. The first group embraces countries on very diverse stages of economic and public development. At the lowest level he situates the oppressed colonial regions in Africa inhabited by an uncivilized native population. A second subgroup is formed by colonial countries having reached a higher level of civilization. A third subcategory is constituted by nominally independent countries. Finally, there is the subgroup of British settlement colonies. These countries will probably have recourse to protective duties moving along the direction of establishing a self-sufficient economic life.93 The second group comprises fully developed and essentially intact capitalist countries. Japan, the USA, Great Britain and the neutral European countries belong to this select club of highly developed capitalist countries. Here too he makes a difference between their stage of development or their position in the post-war world. In some of these countries capitalist decay is not evident. Great Britain’s capitalism is fully developed, but the proletariat, however, is still on the way to a revolutionary conception of the situation, and is all but completely in the hands of trade-union leaders who are co-operating with the capitalists.94 More hopeful for the revolutionary movement is that in a group of countries decay of capitalism is evident. These countries of continental Europe took part in the war and their common feature is ‘a large decrease of production as compared with the pre-war period.’ 95 Varga mentions here aspects such as instability and nascent fascism. Another subgroup is formed out of the victorious countries, France Italy, and Belgium. The case of France is interesting because Varga identifies this country with its large agrarian sector as quasi independent from the world market. France’s influence in Central Europe and its reparation demands are dangerous for Germany’s economic stability. The manufacturing countries of Central Europe in which the decline is most advanced, are Germany, Austria, Poland and Czechoslovakia. Except for the latter, production has considerably diminished and accumulation of capital has come to a standstill.96 Their currencies are being rapidly depreciated, the credit system has broken down, the rates of interest are reaching fantastic heights and the whole region is sinking, economically and politically, to the level of a colony of the Allied Powers. Finally, the smaller countries and border states in Eastern Europe, among them Bulgaria and Hungary, are in a relatively better economic condition, but they are, nonetheless, nearer to a proletarian revolution than those of Central Europe, because the dominant classes are not united in their resistance.97

‘We are thus in agreement with Rosa Luxemburg as to the fact, that highly developed capitalism in its political form as imperialism leads necessarily to universal conflicts. But we differ as to its motivation. We do not believe that an accumulation or the continued existence of capital is impossible without an extension of capitalist mode of production in hitherto non-capitalist strata.’ Varga, The Process, o. c., 1922, p. 23. 93 Varga, The Process, o.c., 1922, p. 26. 94 Varga, The Process, o.c., 1922, p. 30. 95 Varga, The Process, o.c., 1922, p. 30. 96 Varga, The Process, o.c., 1922, pp. 31-32. 97 Varga, The Process, o.c., 1922. p. 34.


Finally, there is the ‘group’ of Soviet countries constituting a vanguard force against ‘the capitalist class’, which is ‘still stronger than the proletariat’, and this fact compells isolated proletarian Russia to make ‘serious concessions to capitalism’ in order to accelerate the ‘economic reconstruction of Russia.’98 Nonetheless, while the ‘decline of capitalism’ is proceeding apace, ‘the new governmental type, the Soviet power, so full of promise for the future, is growing in strength.’99 Of course, this analysis of the international situation reproduces the headlines of the Kremlin’s foreign policy mixed up with some of revolutionary optimism meeting Stalin liked to use in his speeches.100 When making prospects for the near future, Varga prefers making overviews of possible development. Leaving room to different interpretations, he concludes that capitalism had acquired ‘a certain firmness’ and this through ‘its inherent tendencies towards a restoration of the equilibrium.’ As there was no possibility for the goods of the ‘overproduction region’ to be sold at profitable prices on the world market, many capitalists prefer to shut their factories, which hampers economic recovery and results in a diminution of production. As in consequence of the depreciation of the money prices of the foreign goods in the ‘underproduction regions were increasing sharply, their consumption diminished, and stimulated import-substitution production. Increased production at home meant at last diminishing international exchanges. Total result: tendency towards ‘a restoration of the distributed equilibrian (sic) between the rich and the impoverished countries.’101 In the last chapter of his book, Varga argued that the capitalist great powers were willing to overcome the crisis of capitalism by passing the bill the proletariat. Although remnants of Kautsky’s theory of super-imperialism were still present in his analysis, his revolutionary optimism did not leave him in this period of capitalist restoration. Varga thought that the great powers were wanting ‘to transform the whole world into a colonial region and to create in this manner a new worldeconomic equilibrium on capitalist lines,’ even if in this process many millions of proletarians should perish from starvation and ‘the whole civilization of Europe be wrecked.’102 Nevertheless, Varga held on his thesis of capitalist decline, which provided him with an additional argument in favor of his sacrosanct revolutionary optimism. ‘To be sure, the crisis of capitalism has not been overcome. We are, no doubt, in the midst of the decline of capitalism, and this offers the objective possibility of a victorious proletarian revolution.’ In the mean time, he also warned his readers that the objective possibility is still far from being a reality! Varga: ‘The proletarian control must be fought for. The material development does not automatically result in the collapse of capitalism.’103 Bukharin’s mocking undertone in his reaction on Varga’s report must have highly displeased its author. Bukharin called Varga ‘a courageous guy, who is believing that we all are cowards who do not agree with his position on a workers’ government. (…) His courage is an opportunistic courage and his cowardice is the cowardice of not being an opportunist. That is our cowardice. We are afraid to be transformed into
98 99

Varga, The Process, o.c., 1922, p. 35. Varga also points to the successful stabilization of the ruble. Varga, The Process, o.c., 1922. 100 In 1922, Varga still holds on the Gold Standard as a guaranty for currency stability, which was in line with Russia’s monetary policy. Varga: ‘Apart from U.S.A. and Switzerland there is no country with a real gold standard.’ 101 Varga, The Process, o.c., 1922, p. 44. 102 Varga, The Process, o.c., 1922, p. 47. 103 Varga, The Process, o.c., 1922, p. 48.


opportunists and Varga is not such a coward to fear it. That is the difference between him and us.’104 Varga did not officially react to this inopportune offence. However, in his quarterly analyses made for International Press Correspondence,105 Varga kept on hoping for an imminent collapse of the capitalist world system. As a result of the built up production capacity during the world war, the overproduction issue was on the agenda of all European countries. Because of overcapacity, the world market was unable to absorb the whole industrial output.106 In the European steel alone, about 100 blast furnaces were in excess. Even the exchange rates of the neutral European countries were now depreciating against the dollar. The unsolved reparation question and the hopeless situation of Germany’s finances contributed meanwhile seriously to the deepening of the actual crisis. The point was that the American boom of 1923 had been incapable of raising the European economy to a higher level and had caused ‘a trade revival for the whole capitalist world.’107 The collapse of the capitalist world market was still proceeding, and this even in a more acute form, making that there was ‘no uniform capitalist world economy, with a uniform conjuncture and with the alternation of boom and depression which is so characteristic of the capitalist system’.108 During the year 1923 European economic life had remained, with minor fluctuations in the individual countries, ‘constantly in a state of crisis and depression’.109 He noticed that the boom in the US was entirely based upon increased domestic demands and, moreover, that the US continued to draw not only goods, but also gold in large amounts in return for its surplus exports. Varga: ‘The fact of the piling up of the half of the gold supply of the world in the United States is symbolical of the transfer of the center of gravity of the world capitalist system to the United States, which has already come about.’110 In contrast to American prosperity, the economic situation in Europe had become worse because of the occupation of the Ruhr by the Franco-Belgian army. Varga concluded that the occupation of the Ruhr had ended in ‘a temporary political victory, but not with an economic strengthening of France.’111 The victorious powers, of course, had committed the error of assuming that the vanquished states would be economically capable of delivering gratuitously to the victors, without intermission, such large portions of their production that, as a result, the very generously estimated war damages of the belligerent countries could be covered.112 They had not reckoned with the fact that receiving gratuitously such large masses of values would destroy their own economies. In addition, Varga thought that the crisis of European capitalism was accentuated by currency crises and necessitated an international

Protokoll des Vierten Kongresses der Kommunistische Internationale. Petrograd – Moskau vom 5. November bis 5. Dezember 1922, Hamburg: Verlag der Kommunistischen Internationale, 1923, pp. 422-423 105 On the history of Internationale Presse-Korrespondenz, see Irén Komját, Die Geschichte der Inprekorr. Zeitung der Kommunistischen Internationale (1921-1939), Frankfurt am Main: Verlag Marxistische Blätter, 1982; Sabine Kebir, ‘Aladár Komját (1891-1936) – ein unbekantes Mitglied des BPRS’, in UTOPIE kreativ, 1999, No. 102, pp. 72-75. 106 International Press Correspondence, 1924, Vol. 4, No. 8, p. 48. 107 Varga predicted the origins of the Marshall Plan the US drafted in 1947. Varga: ‘… could only have succeeded in stimulating Western Europe if the adverse balance of trade for the United States were a permanent thing, that is if the United States, for a long period, had bought more from the world market than sold.’ International Press Correspondence, 1924, Vol. 4, No. 8, p. 48. 108 International Press Correspondence, 1924, Vol. 4, No. 8, p. 47. 109 International Press Correspondence, 1924, Vol. 4, No. 8, p. 47. 110 International Press Correspondence, 1924, Vol. 4, No. 8, p. 48. 111 International Press Correspondence, 1924, Vol. 4, No. 8, p. 49. 112 International Press Correspondence, 1924, Vol. 4, No. 22, p. 198.


action by the world bourgeoisie for regulating German reparations, which would mean the hegemony of the Anglo-Saxon powers over the capitalist world. Therefore, Varga believed that the reparation negotiations would be without result, and that the chaotic dissolution of European capitalism would continue.113 Varga: ‘The possible international regulation failed (…) owing to the fact that the antagonisms between the bourgeoisie of the imperialist countries are too acute to render any international regulation possible.’114 Furthermore, Germany was unable to pay in gold and, therefore, she had to pay in goods while the world market was not capable of absorbing such quantities of goods. As a result of the depreciation of the Mark, Germany could get rid of her interior debts, and as a result of the depreciation of the currency German industry could be freed from debts. As a consequence, German production costs could be lowered. France had reached a complete political victory with the occupation of the Ruhr in so far as the supply of coal and coke from the Ruhr area to the French steel industry could be guaranteed. But protectionist French heavy industry was not interested in bringing the Ruhr district within the French customs area. Therefore, the German and Franco-Belgian bourgeoisie was seeking for the solution of the reparations problem by transferring the burden on to the German working class.115 Inter-imperialist rivalries, nonetheless, had remained. Varga even pointed to the danger of a possible economic cooperation of the French, Belgian and German coal and steel producers in a community of interests which would endanger the position of England’s heavy industry.116 His overall conclusion was that ‘the chaos in Europe will become still greater and will drift with all speed towards a solution through war. The prospects of the restoration of “normal” capitalism in Europe in the year 1924 are the remotest.’117 Finally, Varga came to the conclusion that Germany had become the Entente’s ‘international colony’.118 . The Fifth Congress of 1924: Varga and the Decline of Capitalism By far the most important event between the Comintern’s Fourth and Fifth Congress was the failure of the attempted German revolution of October 1923. The diagnosis of the German failure as the product of a ‘Brandlerite’ deviation to the Right had been spontaneously adopted and was followed by the eviction of the existing leadership in favor of leaders of the German Left. The other major event was the advent to power of the British Labour Party which was considered as a symptom of the growing revolt of the British workers against the existing order. At the Fifth Plenum in March 1925, the Comintern agreed that the capitalist system had gained a more extended lease on life, which was called a partial and temporary stabilization. This term recognized the recovery of Western capitalism, but qualified it as a mere postponement of the inevitable final breakdown. Even Germany, with the help of the Dawes Plan, had made strides toward recovery, but the Fifth Congress refused to recognize the signs.
International Press Correspondence, 1924, Vol. 4, No. 21, pp. 188-189. International Press Correspondence, 1924, Vol. 4, No. 22, p. 198. 115 International Press Correspondence, 1924, Vol. 4, No. 22, p. 202. 116 International Press Correspondence, 1924, Vol. 4, No. 22, p. 199. 117 International Press Correspondence, 1924, Vol. 4, No. 8, p. 49. 118 International Press Correspondence, 1924, Vol. 4, No. 28, p. 270.
113 114


At the Comintern’s Sixth Plenum in the spring of 1925, Varga repeated the formula that American capitalism was on the upgrade. But John Pepper (Pogány), then at the height of his influence in the Comintern, scoffed at the idea that the American working class was then undergoing a process of radicalization or that its real wages were moving downward. The Plenum’s thesis referred to the upswing of American capitalism, but softened the blow by conceding that it was not proceeding smoothly and that a general economic crisis should not be ruled out.119 Before the Fifth Congress of the Comintern met on June 17, 1924, Zinoviev thought that for the first time in the history of the British labor movement favorable conditions were now being created for the establishment of a mass communist party. He described the Comintern as standing at the moment between two waves of the proletarian revolution.120 Kamenev confirmed that capitalism was ‘incurably sick’.121 Trotsky qualified the situation as revolutionary: ‘there is not a single healthy spot in Europe’.122 Stalin spoke about the inability of the imperialist powers to bring about a durable peace and the growing attraction of the masses in capitalist countries towards the Soviet Union. However, at the Fifth Congress everybody agreed that the cause of the world revolution had suffered a major setback from its early hopes. In his opening speech, Zinoviev repeated in almost the same words what Trotsky had already said to the Third Congress: ‘We misjudged the tempo: we counted in months when we had to count in years’.123 Zinoviev set forth its basic assumption that a stabilization of the world economic situation was out of question. In turn, Varga predicted a severe American crisis and European economic deterioration, while Zinoviev insisted that the German situation was still revolutionary. He put the problem of power on the agenda of most European countries. On the basis of this analysis, he attacked the Right as the main enemy and took the sting out of Trotsky’s demands for an even more aggressive revolutionary policy. If the Bolsheviks had believed, the world revolution was necessary to build socialism in Russia, did the postponement of the world revolution mean the postponement of socialism in Russia? In Varga’s eyes, the date of the collapse of capitalism was coming nearer and nearer. Meanwhile, the Dawes Plan was a halter round the neck of the German working class. The longer the British Labour Party remained in power, the fewer illusions it would inspire to the workers. With the French ‘Left Boc’ in power the socialdemocratic masses were in a process of succumbing to the illusions of democratic pacifism. Therefore, Zinoviev attacked in his speech to the Fifth Congress social democracy as a third party of the world bourgeoisie and he described the German SPD as a wing of Fascism. This seemed an indication of a shift to the left and constituted an embarrassing commentary on the united front policy which had been a bone of contention between Zinoviev and Radek ever since it had been first proclaimed by ECCI in December 1921. Zinoviev now buried the united front in the guise of the “united front from below”, meaning a policy of splitting other left parties against their leaders. Past defeats were attributed to a false interpretation by the

Theodore Draper, American Communism and Soviet Russia. The Formative Period, New York: Vintage Books, 1986, pp. 269-271. 120 E. H. Carr, Socialism in One Country, 1924-1926. Volume 3, A History of Soviet Russia, Harmondsworth: Penguin, 1972, p. 73. 121 E. H. Carr, o .c., Vol. 3, 1972, p. 74. 122 E. H. Carr, o .c., Vol. 3, 1972, p. 75. 123 Protokoll: Fünfter Kongress der Kommunistischen Internationale, Hamburg: Verlag Carl Hoym Nachf., 1924, p. 5.


“Right” of the slogans of the united front and the workers’ government. In addition, the German fiasco of October 1923 was subtly associated with the Trotskyist opposition in the Russian party who had rejected the idea of a united front.124 Zinoviev’s political report was immediately followed by Varga’s economic report. Tt indicated the importance of this subject. The Third Congress in 1921 had already diagnosed an offensive against the working masses both on the economic and on the political level, while the Fourth Congress in November 1922 had admitted that the bourgeoisie had strengthened its political and economic domination, and begun a new offensive against the proletariat. In May 1924 Varga published a pamphlet under the ominous title The Decline of Capitalism125 in which he concluded that the ‘acute social crisis of capitalism’ after the war had been ‘by and large overcome’. Hence, he appeared to admit the likelihood of ‘a long delay in its ultimate downfall’. A close reading of this pamphlet reveals, however, that Varga was not at all very clear in his statements. At any rate, in his preface he combines vagueness with revolutionary optimism, one reads that several ‘factors that are important for gauging developments cannot be determined at this time’126. According to Varga, the American boom had come to an end, but it was impossible at that time to say whether the sharp decline of the boom during the month of April 1924 was only a passing phenomenon or the beginning of a crisis. Varga paid much attention to the agrarian crisis as a key factor in world economics, because the outcome of the harvest was of great importance ‘for shaping the course of the market during the ensuing business year.’127 A decidedly poor harvest would put an end to ‘the sparse beginnings of a recovery of business in Middle Europe’.128 Therefore, it was not really clear what the relation of Russia toward the capitalist states would be in the immediate future.129 Then, Varga sketches what the period of decline capitalism really is. He admitted that three years after the Third Congress the proletariat had suffered defeats in several countries and that the bourgeoisie had succeeded throughout the world in establishing its hegemony anew. Varga wanted to know whether after the postwar boom a normal crisis had followed or not and whether one could speak about the beginning of a period of crises for capitalism? Placing an ‘estimate upon the whole period, and not upon the phases of which it is made up’130, was the principal challenge. In a footnote Varga admitted that during the Third Congress there was a rather strong opposition, supported by the German delegation, which at that time was very “Left”, and by the Italian and Hungarian delegations, ‘which took exception to Comrade Trotsky’s and my prediction, made in the theses, to the effect that there was a possibility that the boom-period might enter upon a new phase.’131 But, according to
124 125

Protokoll: FünfterKongress, o. c., 1924, pp. 42-107. Varga, Aufstieg oder Niedergang des Kapitalismus, Hamburg: Verlag Carl Hoym Nachf. Louis Cahnbley, 1924. Varga’s preface was dated on 5 May 1924 in Berlin; English translation: The Decline of Capitalism, Published for the Communist International by the Communist Party of Great Britain, 16 King Street, Covent Garden, London, W.C. 2. [s.d.] 126 Varga, The Decline, o. c., [s.d.] p. 3. 127 Varga, The Decline, o. c., [s.d.] p. 3. 128 Varga, The Decline, o. c., [s.d.]p.3. 129 ‘The only stable thing in this period of crises is the uncertainty, the chaos!’. Varga, The Decline, o.c., [s.d.] p. 3. 130 Varga, The Decline, o. c., [s.d.] p. 5 131 Thalheimer declared: ‘The revolutionary character of the period of crises’ in the midst of which we find ourselves… is not expressed sharply enough… in the theses”. Pogány’s criticism went even


Varga, actual economic developments had, however, proven the correctness of the theses at the Third Congress. In this pamphlet, Varga used some paragraphs of his report to the Fourth Congress of 1922. This suggests continuity in his analysis and confirms the fact that he had grown out to an authority not afraid of pronouncing controversial statements. This time, he could agree with Rosa Luxemburg’s thesis that capital employs different means for combating the falling tendency in the rate of profit. ‘The principal means, however, is the exportation of capital to countries where the time involved in labor is shorter and the rate of profit and for overtime is a higher one.’ 132 Capital in every highly developed, capitalistic country is compelled, in order to retard the decrease in the rate of profit, to subjugate larger colonial areas. ‘We therefore find ourselves in agreement with Rosa Luxemburg with reference to the fact that highly developed capitalism in the form of imperialism leads to warlike conflicts of world dimension. The reason for this, however, is not the impossibility of accumulation without the existence of non-capitalistic elements, but the simple desire for higher rates of profit.’133 The direct economic consequences of the war were the separation of the world into spheres of relative over-production and absolute under-production.134 Varga stuck to the opinion that the period of decline of capitalism continued. This did not mean that single sections of the earth, which were only recently encompassed within capitalism, would not pass through a strong economic ascendancy on a capitalistic basis. Nor did it mean that there could be no more business booms for Europe. It did mean, however, that capitalism, as a whole, was proceeding along a downward curve. Considered over a longer period of time, the total of production was decreasing, crises were lasting long and intensive, while periods of boom were of a short duration and not big. Unity of capitalistic world economy was not achieved: industrial cycles crossed each other’s paths, the interlocking of world-economic interests became less and less.135 In addition, Varga criticized Hilferding’s optimism vis-à-vis capitalism’s future. According to Varga, the Social Democrats looked too optimistically upon the future of capitalism, which explains their treaty with the bourgeoisie and their enmity toward a proletarian revolution. For the time being, they could temporarily keep the workers away from the revolutionary movement only if they promise them a betterment of their condition for the future within the capitalist system.136 At the Fifth Congress Varga was less pessimistic about the economic situation and the chances of the world revolution. Varga hastened to change his mind about American capitalism. Varga: ‘American capitalism is still healthy. As opposed to
farther: ‘Within the great economic crisis… the theses… give too much emphasis to the phase of prosperity and too little to the period of crises within the crisis which obtains to-day… We cannot and must not make prosperity and the future second world war out Leitmotiv, but, quite the reverse, we must talk about the crisis and the new civil wars.’ Pogány was anxious to have the reference to a coming boom-phase eliminated entirely. Protokoll des III. Kongresses der Kommunistischen Internationale, o.c., 1921, p. 113, and p. 116. 132 Varga, The Decline, o. c., [s.d.] p. 8. 133 Varga, The Decline, o. c., p. 8. 134 Varga, The Decline, o. c., p. 8. 135 Varga, The Decline, o. c., [s.d.] pp. 51-52. 136 Varga, The Decline, o.c., [s.d.] pp. 52-53. The whole trend of Hilferding’s thought is: ascending capitalism, agreement with the bourgeoisie, democracy, world peace. Varga, The Decline, o .c., [s.d.] p. 53. He quotes Hilferding in Die Gesellschaft, in No.1, p. 9 and No. 2, p. 118.


European capitalism, it is certainly on the upgrade.’ But he still held out hope that the American upswing would come to a quick end. Varga reiterated this view in his speech. He simply argued that the capitalist world remained in crisis, and that a further deterioration could be expected.137 Stagnation and production decline in combination with declining living standards would create the objective possibility of successful struggle for power.138 The Comintern’s 1925 resolution declared that American finance capital was now more powerful than ever, but would get ever more deeply entangled in the contradictions and crises of European capitalism. Nothing could alter the final downfall of capitalism which had already entered its last stage.139 But within the general crisis of capitalism, many variations could occur, in the form both of partial recovery and of incongruities between different countries: capitalism was no longer a uniform world system. According to Varga, the present phase, though it offered no objective proof140 of the collapse of capitalism, did, however, offer ‘objective possibilities for successful struggles of the proletariat.’141 During the debates different positions emerged. Albert Treint, the French delegate, supported Zinoviev with the argument that the principal danger came from the right wing.142 But the Polish German delegate Gustaw Reicher (ps. Gutek Rwal)143 declared that in October 1923 the German party had been in a position to seize power.144 Murphy, the British delegate, pointed out that the united front was the essential basis of the tactics of the British party.145 Roy, the Indian delegate, castigated the British proletariat as a class penetrated through and through by the unconscious and conscious spirit of imperialism.146 Only Radek attacked Zinoviev and challenged him to say whether he really rejected all coalitions with the Social Democrats. Turning on Varga, he read extracts from Varga’s pamphlet of the previous month, contrasting them with the more bellicose passages of his report. But on the Congress Radek was answered by Ruth Fischer who rejected the united front slogan as “obsolete”. She declared that Radek and his followers did not believe in the German, in the European revolution. She predicted the imminence of an acute revolutionary crisis. Varga’s theses on the economic situation, which had been referred to an economic drafting commission, were adopted unanimously, though it was reported that, presumably as the result of pressure from the “Left”, they had been further modified in the commission in order to make them more favorable to the prospects of revolutionary action.147 In their final form the theses dwelt on the exceptional

Nicholas N. Kozlov and Eric D. Weitz, ‘Reflections on the origin of the ‘Third Period’: Bukharin, the Comintern, and the political economy of Weimar Germany’, in Journal of Contemporary History, Vol. 24, 1989, p. 392. 138 Protokoll: Fünfter Kongress, o. c., 1924, Vol. 1, pp. 109-121. 139 E. H. Carr, Socialism in One Country, 1972, Vol. 3, o.c., p. 76. 140 This inspired E. H. Carr to the remark that Varga’s ‘cryptic utterance sounded like a compromise between Varga’s professional and the need for a revolutionary platform which would satisfy the Left.’ E. H. Carr, Socialism in One Country, Vol. 3, o.c., 1972, p. 77. 141 Protokoll: Fünfter Kongress, o.c., 1924, Vol 1, pp. 108-131. 142 Protokoll: Fünfter Kongress, o.c., 1924, Vol. 1, pp. 134-139. 143 Gustaw Reicher (1900-1938). 144 Protokoll: Fünfter Kongress, o.c., 1924, Vol. 1, pp. 139-141. 145 Protokoll: Fünfter Kongress, o.c., 1924, Vol. 1, pp. 141-144. 146 Protokoll: Fünfter Kongress, o.c., 1924, Vol. 1, pp. 149-153. 147 Protokoll: Fünfter Kongress, o.c., 1924, Vol. 2, pp. 415-26. Already at the Second Congress of the Comintern in the summer of 1920, a debate arose over the ‘Theses on the National and Colonial


character of capitalist prosperity in America, which contrasted with the misery and chaos of capitalism in Europe, and on the worldwide agrarian chaos.148 Well before the Fifth Congress of the Comintern met in 1924, Varga had become the Comintern’s leading expert in matters of international economic relations and affairs. In this role, he would become involved in the Comintern’s internal disputes engendered by the factional struggles between the Trotskyite Left and the ruling coalition led by Bukharin and Stalin in the Russian Communist Party. At the Fifth Congress of the Comintern, Varga sketched all recent economic improvements in a few nations, such as France or the United States, as ‘isolated’ and not representative for the general trend of a ‘decaying capitalist world economy’. At this Congress Zinoviev and Varga had presented a profoundly sceptical interpretation of the prospects for capitalist recovery. But in 1925 Varga had his views somehow revised. He now argued that European economies had expanded their productive potential as a result of technological change and reorganization. There existed a gaping contradiction between the production and realization possibilities of European industries, because there was no demand for the increased output capacity. In 1921, low wages were still the result of economic chaos, but by 1925 they had become the cause of an idle productive apparatus.149 Even during the most prosperous years of the 1920s, Varga never abandoned this underconsumptionist view on capitalist realization problems. At the Enlarged Plenum of the ECCI meeting from 17 February until 15 March 1926 in Moscow, Varga acted as a referee on the world’s economic situation.150 He diagnosed a temporary and fragile economic stabilization of capitalism at the expense of the European proletariat. Because of a sinking living standard of the working class a revolutionary tendency would develop at the end of the stabilization period. In America, the economic boom would end up in a slow down initiating a worldwide economic crisis putting an end to the period of economic recovery in Europe. Meanwhile, Europe had lost its predominant position in the capitalist world economy, colonial super-profits had disappeared, while revolutions were shaking the Asian continent. Varga was talking this time about a ‘structural change in world capitalism’.151 At the end of his speech, Varga attacked Werner Scholem152 for having criticized him as rightist deviations having taken over Hilferding’s stabilization
Questions’. Indian communist M. N. Roy interpreted Lenin’s imperialism theory in his own way. Roy said that world’s capitalism dependent on the spoils of imperialism and that it drew its chief resources from the colonies and corrupted by this way its workers. Dissatisfied with Lenin’s Theses, Roy submitted his own thesis that European capitalism drew its strength chiefly from the colonial possessions. Lenin remarked that Roy’s thesis went too far in asserting that the fate of the western capitalism was depending solely on the degree of development and strength of the revolutionary movement in the colonies. Finally, Roy’s thesis was watered down. Obviously, Lenin’s main concern was about the strategy the Comintern should follow towards the national bourgeoisie as a potential ally in the colonies. 148 Bela Kun (ed.), Kommunisticheskii internatsional v dokumentakh: resheniia, tezisy i vozzvaniia kongressov Kominterna i Plenumov IKKI 1919-1932, Moscow: Partiinoe izd-vo, 1933, pp. 415-426. 149 Kozlov and Weitz, o. c., 1989, p. 392; Eugen Varga, ‘Ways and obstacles to the world revolution’, in Communist International, 1925, Vol. 2, No. 18-19, p. 86. 150 Laszlo Tikos, E. Vargas Tätigkeit als Wirtschaftsanalytiker und Publizist in der ungarischen Sozialdemokratie, in der Komintern, in der Akademie der Wissenschaften der UdSSR, Tübingen and Cologne: Böhlau-Verlag, 1965, p. 50. 151 Protokoll Erweiterte Exekutive der Kommunistischen Internationale, Moskau, 17. Febr. Bis 15. März 1926, Hamburg and Berlin: Verlag Carl Hoym Nachf., 1926, p. 109. 152 Werner Scholem (1895-1940) was a member of the KPD Politburo and close to Zinoviev. He belonged to the Fischer-Maslov Group or the Ultra-Left in the KPD.


theory. Varga forcefully repeated that there was no perspective on a period of further peaceful development of European capitalism. Conquering political power would require a long process of revolutionary upheavals of which the result would be uncertain.153 In order to reassure his audience, Varga said that the vanguard of the proletariat had nonetheless prepared this bid for power. Though Varga was ‘believing in and hoping for a fast final victory of the proletariat’154, he did not believe in an automatic collapse of capitalism. ‘Without risking a revolutionary struggle against the bourgeoisie no revolution could succeed.’155 Varga’s views were in line with the theses Stalin had defended at the Fourteenth Congress of the VKP (CPSUb) in December 1925156 and the latter’s claim at the Seventh Enlarged Plenum of the ECCI (November 22 - December 16, 1926)157 that ‘the starting point for the position of our Party is the recognition of the fact that present-day capitalism, imperialist capitalism, is moribund capitalism.’158 Of course, Stalin admitted that capitalism had yet gone completely bankrupt, but the good news was nonetheless that it was ‘on its road to extinction’. Stalin added that the ‘law of uneven development in the period of imperialism means the spasmodic development of some countries relative to others, the rapid ousting from the world market of some countries by others, periodic re-divisions of the already divided world through military conflicts and catastrophic wars, the increasing profundity and acuteness of the conflicts in the imperialist camp, the weakening of the capitalist world front, the possibility of this front being breached by the proletariat of individual countries, and the possibility of the victory of socialism in individual countries.’159 In his polemic with Trotsky, Stalin had used Lenin’s words that the uneven economic and political development was an absolute law of capitalism, and that the victory of socialism was possible in ‘several or even in one capitalist country taken separately’.160 Furthermore, he also gave a brief outline of the basic elements of the law of uneven development under imperialism. Its is noteworthy to quote them: ‘Firstly, the fact that the world is already divided up among imperialist groups, that there are no more “vacant”, unoccupied territories in the world, and that in order to occupy new markets and sources of raw materials, in order to expand, it is necessary to seize territory from others by force. Secondly, the fact that the unprecedented development of technology and the increasing leveling of development of the capitalist countries have made possible and facilitated the spasmodic outstripping of some countries by others, the ousting of more powerful countries by less powerful but rapidly developing countries. Thirdly, the fact that the old distribution of spheres of influence among the various imperialist groups is forever coming into conflict with the new correlation of forces in the world market, and that, in order to establish
153 154

Protokoll Erweiterte, o.c., 1926, pp. 112-113. Protokoll. Erweiterte Exekutive der Kommunistische Internationale Moskau, 17. Febr. Bis 15. März 1926, Hamburg and Berlin, Verlag Carl Hoym Nachf, p. 112. 155 Ibidem, p. 113. 156 J. V. Stalin, Speech Delivered at the French Commission of the Sixth Enlarged Plenum of the E.C.C.I. March 6, 1926, Works, Vol. 8, January-November, 1926, Moscow: Foreign Languages Publishing House, 1954, pp. 106-113. 157 J. V. Stalin ‘The Seventh Enlarged Plenum of the E.C.C.I.’, November 22-December 16, 1926, Pravda, Nos. 285, 286. 294, 295 and 296, December 9. 10, 19, 21 and 22, 1926; J. V. Stalin, Works, Moscow: Foreign Languages Publishing House, 1954, Vol. 9, pp. 1-155; J. V. Stalin, On the Opposition, Peking: Foreign Languages Press, 1974, pp. 517-656. 158 J. V. Stalin, On the Opposition, Peking: Foreign Languages Press, 1975, p. 612. 159 J. V. Stalin, o. c., 1975, p. 615. 160 J. V. Stalin, o. c., 1975, p. 617.


equilibrium” between” the old distribution of spheres of influence and the new correlation of forces, periodic redivisions of the world by means of imperialist wars are necessary.’161According to Stalin, the implications of these ‘facts’ were unequivocally clear: they show a growing intensity and acuteness of the uneven development, an impossibility of resolving the conflicts in the imperialist camp by peaceful means, an untenability of Kautsky’s theory of ultra-imperialism preaching a peaceful settlement of these conflicts.162 However, Stalin’s analysis was not followed by precise guidelines for action. From the very beginning on, Stalin had stressed that the revolution would have a violent character, a position he had explained in his pamphlet Concerning Questions of Leninism of January 1926 that was ‘dedicated to the Leningrad Organization of the VKP(b)’163: ‘To think that such a revolution can be carried out peacefully, within the framework of bourgeois democracy, which is adapted to the rule of the bourgeoisie, means that one has either gone out of one’s mind and lost normal human understanding, or has grossly and openly repudiated the proletarian revolution.’ 164 That did not, however, mean that the proletariat could not share power with another class, especially the ‘laboring masses of the peasants’ for the achievement of its aims.165 Nobody, however, could think that it would be quite impossible that without a world revolution the Bolsheviks could hold power in Russia. Lenin’s call for the revolution was primary a call for support a maintenance of his regime. Lenin’s coming out for the right of self-determination of all oppressed peoples, sprang likewise from the urgent need to hold on to power. Finally, even the Comintern meant a respite for the Bolsheviks. Hence, to an increasing group of Bolsheviks conducted by Stalin the restriction of the revolution to Russia would make of the Soviet Union a fortress against the reactionary forces in the world. Therefore, the demand for the world revolution was converted into the slogan of building socialism in one country. Of course, there were Communists in Russia who had grown tired of waiting for the European revolution and who wished to make the best of their national isolation. Conclusions When in the spring of 1927, Varga left Berlin for Moscow, he had become the Comintern’s leading but nut necessarily uncontested economist. Varga’s analysis of the current capitalist crisis was based on an underconsumptionist understanding of the breakdown of capitalism. Varga admitted the role played by technological change in the west, but, aside from some developments in chemical and electrical branches, no fundamental changes had occurred. The great changes had taken place in the organization of the production process with the introduction of Taylorism, not by the introduction of new machinery. He went so far as to argue that the intensification of labor had led to an aggravation of the contradiction between possibilities of production and sale stemming from the reduced number of productive workers. Varga explained the specific features of capitalism’s decline through the fundamental
161 162

J. V. Stalin, o. c., 1975, p. 615. J. V. Stalin, o. c., 1975, p. 616. 163 J. V. Stalin, o. c., 1975, pp. 268-346. 164 J. V. Stalin, o..c., 1975, p. 279. 165 J. V. Stalin, o. c., 1975, pp. 281-282


contradiction between production and realization. This soon became known as the “Law of Varga”, i. e. the notion that under conditions of advanced capitalist accumulation an absolute decline in the number of productive workers would occur, thereby exacerbating the realization problem of capitalism. Along with Zinoviev and Trotsky, Varga admitted capitalism’s limited possibilities for economic revival. No capitalist advancement would be possible. Varga held to a catastrophic view on the future of capitalism that identified the prospects for a proletarian revolution with the general decline in production and in the proletariat’s living standard.


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