The Export of Capital to Colonies and the Falling Rate of Profit in Economic Thought: 1776-1917

Classical political economists developed several different explanations for what they saw as an inherent tendency for the rate of profit to decline over time. In the second quarter of the nineteenth century, some British advocates of colonization developed a corollary to those theories, suggesting that exporting capital to colonies could help arrest and reverse the decline. That argument was championed by the English political economist and promoter of colonization projects Edward Gibbon Wakefield, and it was systematized by John Stuart Mill. Ironically, the view that capital export and colonization played crucial roles in sustaining the rate of profit in advanced economies was later adopted by some Marxist theorists. Parallels between Karl Marx and J.S. Mill may help explain the remarkable theoretical continuity on this topic between nineteenth-century British advocates of colonization and early-twentieth-century Marxist critics of colonialism.