Paul M. Sweezy

Monthly Review, Oct, 2004 by Michael A. Lebowitz

The Early Work

Yet The Theory of Capitalist Development was not Sweezy's first book or contribution. In a study undertaken in 1937 for the National Resources Committee (a New Deal agency), he demonstrated that, contrary to the Berle and Means classification of a substantial number of leading U.S. corporations as "management-controlled," it was possible to identify eight clearly definable "interest groups," industrial and financial alliances among the large corporations. (14) To understand the control of corporations, Sweezy stressed the importance of a "knowledge of the general policies of the companies and individuals involved"(162). Citing the policies of the investment banking firm of J. P. Morgan & Co. and its alliance with the First National Bank of New York (his father's bank) in the first and most important of the interest groups, he proposed that not only stock ownership but also banking and underwriting relations were critical in tracing industrial and financial alliances (163, 168).

Within a few years, however, Sweezy proceeded to explain that the dominant role that had been played by the investment banker in the consolidation of the large firms had now declined. This was, in part, the result of the sharp decline in economic expansion during the Depression, an important explanation was "the vast internal financial resources" at the disposal of existing large corporations, which significantly reduced their necessity to resort to the capital market. Thus, the dominance of financial over industrial capital could be seen as a "temporary stage" of capitalist development." (15) It was a point subsequently underlined in his criticism of Hilferding in The Theory of Capitalist Development, where Sweezy stressed the growing importance of internal corporate financing and his preference for Lenin's concept of "monopoly capital" over that of Hilferding's "finance capital." (16)

Monopoly was the theme as well in Sweezy's thesis, published in 1938 as Monopoly and Competition in the English Coal Trade, 1550-1850. Using the records of the coal owners, Sweezy drew upon current theoretical developments in the theory of imperfect competition and applied the microeconomist's tools (in a manner to be discovered many years later by the "New Economic History") to explain the behavior of the owners and, in particular, the reasons for the emergence of excess capacity in nineteenth century industry. A demand curve facing producers which was relatively elastic above the existing price and relatively inelastic below that price tended to generate, he argued, high profits and a relatively stable price. Under the existing cartel arrangements, his model also predicted "growing individual plants with a tendency towards more growth than is warranted by the increase in demand." (17)

What was particular to the early nineteenth century English coal combination, however, now had become general as the result of the growth of large-scale production which generated a tendency for "productive capacity to outrun the market." The threat of cutthroat competition (and its implications for profits) engendered combination--but the fostering of monopoly would itself "serve further to contract markets and outlets for investment." (18)