Unequal Exchange - Basic Definition

Basic Definition

The basic principle of unequal exchange can be described simply as "buying cheap and selling dear", in such a way that a commodity or asset is bought either:

• Below its real value, and sold at a higher value, or
• At its real value, but sold above its real value, or
• Above its real value, and sold at a price even higher than its already inflated acquisition cost (e.g., stock market).

This practice was already known and described in medieval times and earlier, and it led to theories of a “just” or “fair” price for products. For example, according to medieval Christian theologians, the profit mark-up should never be more than one-sixth (16-17%) of the value of the traded object (see Paul Bairoch, Victoires et deboires, Vol. 3, Gallimard 1997, p. 699). The idea of unequal exchange surfaces again nowadays in controversies over fair trade. However, in modern neoclassical economics, the notion of a morally justifiable price is regarded as unscientific; at most one can talk about an “equilibrium price” in an open, competitive market. If the value of a good is simply equal to the price someone is prepared to pay for it according to individual choice, no exchange can be unequal.

Anyone can claim to have been "cheated" or shortchanged in exchange, in the sense of receiving an "unfair" price for a commodity, less than it is really worth, or having to pay more than it is really worth. The crucial question which must be answered therefore is what the "real value" of commodities actually is, what their real worth is, and how that could be objectively established. A related question is why the "victim" traded at a lower price, when he could have gotten a higher price elsewhere.

This question preoccupied social philosophers and economic thinkers for many centuries. It contributed to the "moral science" of political economy, which was originally concerned with the problem of what would be a fair and just exchange, and how trading could be regulated in the interests of a more harmonious progress of human society.

In modern thought, however, value in economics is regarded as a purely subjective matter — it can be judged only on the basis of how an individual actually lives his life and how he conducts himself as an individual in the marketplace. The only “objective” aspect that remains is the price at which a commodity sells or is purchased, and this becomes the foundation for modern economic science.

So in modern economics, value is essentially a question of style, moral behaviour and the spirituality of individuals, not an economic issue. If unfair trading practices occur, it must be that there is an impediment to freely competitive markets; and if those markets or market access could be open, all would be fair. Fair competition is said to be guaranteed through:

• Free access for all to the market place, and

• A legal and security framework which protects traders from being cheated and robbed.

In that case, the concept of "unequal exchange" can only refer to unfair trading practices, such as:

• Not getting an equal opportunity of access to the market,

• Illegal trading practices, ranging from plunder, robbery and theft, to extortion or price mark-ups which are against the law.

By implication, unequal exchange is not itself viewed here as an economic process, because if open market access and market security exist, then trade is equal and fair by definition - it is equal because everybody has the same access to the market, and it is fair because just laws and their enforcement ensure that this is so. Another way of saying this is that if citizens have equal rights and equal opportunity, there cannot be any unequal exchange, except if citizens behave in immoral ways.