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Sweezy and Baran relied upon the notion of underconsumption to help explain what they saw as the chronic lack of demand and stagnation that was endemic to

monopoly capitalism. Brewer considers that their use of this concept is remarkably similar to Hobson’s usage (Brewer 1990: 137). Underconsumption first appears in Sweezy’s The Theory of Capitalist Development (162-89, 216-36),then Baran’s The Political Economy of Growth (209-14), before forming part of their joint work (Brewer 1990: 138). In their collaborative work it was assumed that production revolves around the production of consumer goods:

The flaw in the argument (which is exactly the same as Hobson’s) is obvious; Sweezy [and by extension Baran] assumed that means of production are only used to produce consumer goods, but investment also goes into the industries that produce means of production… The prospect of profit drives capitalism, not the expansion of consumption (Brewer 1990: 138).

The underconsumption hypothesis, in its simplest form, is the contention that by boosting the share of wages and thus increasing consumption, demand will bring about increased investment in home markets. This, in turn, will force the pace of growth and curtail the export of capital. As Brewer points out, the prospect of profit drives capitalism and if greater profits can be had from the export of capital, then investment in the home market will be passed up. Implicit in the underconsumption

hypothesis is the notion that the worst aspects of capitalist crises or stagnation could be overcome by more enlightened social policy, for example, wage increases. Increases in wages that were significant, however, would automatically impinge on the rate of profit.

The orthodox Marxist position regarding the contradictions of capitalism that originate in the production sphere cannot be overcome by policies of reform centred in the sphere of circulation. Additionally, the caveat that Engels applied to

underconsumptionist theses is just as pertinent for Baran and Sweezy as it was for Hobson. Engels claimed that underconsumption was apparent throughout history and still was to be found in capitalism, but with the advent of the latter came the

historically specific phenomenon of overproduction (Engels 1976: 371-72).

Brewer identified another aspect of Baran’s and Sweezy’s argument about monopoly capitalism that he thought was dubious, which was the notion first advanced by Baran of the stifling of competition by monopolies. Brewer suggested that:

There is a noticeable shift here from the classical Marxist position. The classical Marxists regarded the tendency towards monopoly as a factor intensifying competition, not suppressing it, although it is true that they were not wholly consistent in this. Baran and Sweezy by contrast, argued that the competitive struggle virtually vanishes when there are only a few large firms operating in each market, since they will generally adopt a ‘live and let live’ policy towards each other (Brewer 1990: 139).

This proposition is troublesome because the ‘main weight of the argument … falls on the claim that monopolies restrict the expansion of output to protect monopoly profits [which is]… a static argument applied to an essentially dynamic problem’ (Brewer 1990: 141). The dynamism alluded to concerns the disturbances, the competitive ebbs and flows of capitalism that occur even in its monopoly stage. Humphrey McQueen has observed that a ‘company is never too famous to be merged or acquired’ (McQueen 2001: 115). Pressures felt by monopolistic corporations compel them to try to undermine their rivals in order to improve market share and maximise profits. Competition was not necessarily stifled by monopolies.

The concept of economic surplus was first used by Baran in The Political Economy of Growth where it was divided into the actual and potential economic surplus. The

actual economic surplus is ‘the difference between society’s actual current output and its actual current consumption’ (Baran 1976: 132 emphasis in original). The

actual surplus is thus ‘identical with current saving or accumulation, and finds its embodiment in assets of various kinds added to society’s wealth during the period in question’. He then lists the assets as ‘productive facilities and equipment,

inventories, foreign balances, and gold hoards’ (Baran 1976: 132). Importantly for the argument that is to follow, Baran claimed that actual economic surpluses had been the by-product of all socio-economic formations, with differences in the structure and size of the surplus, depending on the level of development of the formation in question. Also noteworthy is that surplus, ‘a central idea in Baran’s treatment of imperialism’, is more a classical economics concept rather than a Marxian one (Howard and King 1992: 169).

The potential economic surplus was ‘the difference between the output that could be produced in a given natural and technological environment with the help of

employable productive resources, and what might be regarded as essential consumption’ (Baran 1976: 133 emphasis in original). It would appear that the concept of the potential economic surplus was used by Baran to highlight the possibility of the transcendence of the capitalist social order, via the rational

planning and control of the potential economic surplus. Under monopoly capitalism there existed a ‘discrepancy between [the] technical potential and the actual realised benefits, limited by the restricted purchasing powers of workers, wasteful

consumption by the idle rich, unproductive activities, and the inefficiencies wrought by monopoly’ (Freeman 1996).

According to Alan Freeman, it is possible to discern two main problems from an economic theory standpoint, with the combined work of Baran and Sweezy in

Monopoly Capital. The first problem is:

the shifting of attention from the profit rate to the magnitude of profit and reformulating this magnitude as an ill-defined ‘physical surplus’ instead of surplus labour, [which] quietly set aside the prospect of an endogenous process through which a decline in the profit rate provoked by a rise in the organic composition of capital, could provoke an internal crisis (Freeman 1996).

The reason for dropping or ignoring the tendency of the rate of profit to fall as one of the possible causes of crisis within capitalism perhaps can be found in the historical context within which both Baran and Sweezy wrote. When they wrote there was a post-war boom in capitalism, which seemed to preclude declining profit rates, even crises; what seemingly remained to be theorised by Marxists in this ‘golden age of capitalism’, suggested Freeman, were problems of realisation and the rational use of resources (Freeman 1996).

The second problem with Monopoly Capital was that, by establishing monopoly as the primary focus, it bypasses the question of whether the capitalist market system could sustain indefinite growth (Freeman 1996). Both shortcomings identified by Freeman had as their basis a predilection shared by Baran and Sweezy for reforming or sidestepping vital components of Marxist political economy, such as the tendency of the rate of profit to fall and the inevitability of capitalist crises. When they wrote during the ‘Long Boom’ of post-war capitalism, it is plausible that rather than argue about capitalist crises, which appeared to have been overcome, the case for socialism was best argued for on the basis of the potentially more rational direction of the economy.

Having established that these three economic concepts employed by Sweezy and Baran were indeed problematic, there remains the question of how one of these particular concepts influenced our two writers’ views on imperialism. According to their claims about the economic surpluses of advanced capitalist countries, Baran and Sweezy suggest that the economic surplus only could be absorbed in general in three ways: ‘(1) it can be consumed, (2) it can be invested, and (3) it can be wasted’ (Baran and Sweezy 1968: 87). A large part of Monopoly Capital looks at how the economic surplus of the US was absorbed. One of the favoured means of surplus absorption was through the associated phenomena of militarism and imperialism.