1. Britain's emergence
The Second World War was a fully industrialised war, where factories were re-tooled to produce armaments. The industrial system was more than a century old in 1939. Since 1815 British mill owners had learned to make money by setting men to work at industrial production. It was a profitable business that led quickly to British domination of the world market in manufactured goods, putting rivals out of business, reducing the developing world to the role of a supplier of raw materials.
The social basis of the factory system was capital accumulation. The representation of labour in the value of the product allowed capitalists to commandeer output for a new, and expanded, round of production. The surplus value that workers produced over and above their wages, fell to the employers as profit - a ready source of reinvestment.
Its dynamism, though, was based on conflict. With each expansion of the factory system, a new regiment of labourers was dragooned into service. British history throughout the nineteenth century was dominated by the question of how to accommodate this growing army of labourers. On the one hand the franchise was extended and successive attempts were made to inculcate interlocutors amongst this new class; on the other hand, repression was meted out in cavalry charges, lock-outs and transportations.
The factory system was emulated across northern Europe, in Germany, Belgium, Holland, France, Italy, Austria; as well as in the United States to the West and Japan to the East. Emulation generalised the factory system. Now the legions of workingmen in Manchester, Birmingham and Glasgow were joined by new battalions in Liege, Berlin, Cologne, Hamburg, Paris, Lyons, Milan, Vienna, as well as Chicago, Pittsburgh and New York to the West and Tokyo and Shanghai to the East. As in Britain, disciplining the growing army of industrial workers preoccupied elites, just as they were enjoying the great surplus that they created.
The factory system was inherently expansive. Creating so much more than it consumed, it generated the means for its own reproduction. It drew in men and raw materials from the countryside. And its output was sold on an ever-expanding market. In the first instance, that market was created by the expansion of the factory system itself. New points of production were simultaneously new points of consumption. Industries purchased raw materials and intermediate goods; workers and their families bought mass consumption goods; owners and investors brought luxury goods. But the dynamic character of the factory system, and the mass markets that grew up alongside it, were also the source of its inherent instability.
4. The scramble for territory
Between 1876 and 1914 European powers managed to annex eleven million square miles of territory, mostly in Africa and Asia. They needed to guarantee the supply of raw materials, like oil, cotton, sugar, rubber and tin to feed their growing industries; and also to seize hold of native labour as indentured servants, peons and tied peasants to extract the raw materials. These new points of primary production in the colonies also gave rise to new points of consumption, rudimentary in the native labourers, more extravagant in their white overseers, for the products of the metropolitan factory system. Competition on the world market was transformed into the scramble for new territories, as the factory system expanded now not just in output, but territorially as well.
5. Imperialism and decay
The internationalisation of the industrial system had been driven forward by dynamic character of capitalism. It was given a new impetus by its turn to recession. As intensive investments displaced men with machines, the source of profits, labour, was diminished, and no longer offset by an expansion of output. A cycle of increasingly more violent economic crises (1870-1888, 1910-13, 1926-39) punctuated the upward growth. Forcing down wages, and devaluing fixed capital investments, these crises did in turn create the conditions for renewed growth, but only at great social cost, and without altering the underlying source of declining profitability.
But the crises in the metropolitan centres of capital accumulation also created a new, disruptive drive to the internationalisation of the capitalist system. As investors withdrew their capital from home markets, they looked for other fields to invest in. The export of capital as a response to declining profits at home was noticed by John Hobson, who warned that Britain was turning into a nation of rentiers and coupon-clippers, living off profits generated in colonial industries.
Capitalism in crisis also leant heavily on the state. States acted to fill the gaps that the factory system left empty, guaranteeing credit to, even subsidising failing industries, purchasing armaments, building roads, railways and hospitals. The more the state acted as guarantor of social order, the more intimately were private capitalists tied to the fortunes of the nation, and the more they identified their commercial success with the nation's military-diplomatic success. This identification was well-founded. States defended domestic industry against rivals by raising tariffs, and guaranteed foreign investments with garrisons and gunboats.
6. The breakdown in the world system
The system of nation states that had been built around more modest growth was broken apart by the expansionary dynamic of industrial capitalism. The ruling capitalist class had consolidated political power in nation states. Furthermore, these states had, to a greater or lesser degree, bound the labouring class to them, through the franchise, social insurance and other welfare programmes. But the competitive dynamic of the industrial system manifested itself in competition between states. The Russian Marxist V.I. Lenin called this competition 'inter-imperialist rivalry', and predicted that it would lead to a 're-division of the world'. In particular the 'late entrants' to the imperialist club, Germany, Japan and the USA, found that their allotted position in the system of world production was restricted. The conservative powers, Britain and France had already divided up the colonies and the markets between them. The existing balance of power amongst the developed nations would be dramatically re-set.
The rivalry between nation-states, though, is only the diplomatic-military form that the conflicts written into the system of capital accumulation assumed. At its root, the system was driven forward by the surplus that capitalists wrung from their workers. This was a contest between, let's say, Imperial Chemical Industries and IG Farben, over who would realise the greater share of the surplus value created by their joint workforces, with the Admiralty and the Kaiser acting as their champions. That said, once set in train, the political-military contest often operated at many removes from the division of the surplus product amongst national-capitals.
7. The First World War and The twenty-years crisis
Inter-imperialist rivalries broke out into World War in 1914. Contest over the Balkans was the immediate cause. German demands for colonies challenged the British and French Empires. Allied with Austria and Turkey, Germany was beset by British and French forces contesting its invasion of Belgium to the West, and their Imperial Russian allies to the East. Troops were armed with rifles and machine guns, but not yet motorised, giving rise to the labour-intensive and barbaric form of trench warfare. Armistice in 1918 was followed by a punitive peace of financial reparations and the loss of German territory in Alsace-Lorraine to France in the South and to Poland to the East. The Austrian and Turkish Empires were broken up. A string of smaller states in the East were newly recognised in the Treaty of Versailles, as a buffer zone to German expansion, but proved to be a source of continual instability, due to their dependence on more powerful sponsors.
Though one late entrant to the imperialist club, Germany, had been black-balled, another, America, emerged as the guarantor of economic stability, extending the international credit that sustained post war recovery, under Charles Dawes' Plan (the third late entrant, Japan, was granted status in the carve-up of China, but was refused its claim to racial equality with the white nations). But the withdrawal of this US credit after the stock market on Wall Street crashed in 1929 once again threw Europe into turmoil. German reparations were a source of conflict with France, and a contest for influence in Eastern Europe with Britain showed that the post-war stabilisation had only put the problem of re-dividing the world on hold.
Behind the immediate clash between Germany and France and Britain lay a more profound conflict between Britain and the United States. The declining cohesion of the British Empire threatened world stability, while the United States, having emerged as the dominant economic power behind the world trading system was not yet ready to assume the role of world policeman. The expansion of US capitalism demanded the opening up of the remaining European empires to US trade. More immediately, its expansion in the Far East was constraining Japanese imperialism.