Unequal Exchange - Unequal Exchange in Marxian Economics

Unequal Exchange in Marxian Economics

Karl Marx aimed to go beyond moral discussion, in order to establish what, objectively speaking, real values are, how they are established, and what the objective regulating principles of trade are, basing himself principally on the insights of Adam Smith and David Ricardo (but many other classical political economists as well). He was no longer immediately concerned with what a "morally justified price" is, but rather with what "objective economic value" is, such as is established in real market activity and real trading practices.

Marx's answer is that "real value" is essentially the normal labour cost involved in producing it, its real production cost, measured in units of labour time or in cost-prices. Marx argues that the "real values" in a capitalist economy take the form of prices of production, defined as the sum of the average cost price (goods used up + labour costs + operating expenses) and the average profit reaped by the producing enterprises.

Formally, the exchange between Capital and Labour is equal in the marketplace, because, assuming everybody has free access to the market, and an adequate legal-security framework exists protecting people against robbery, then all contractual relations are established through free and voluntary consent, on the basis of juridical equality of all citizens before the law. If that equality breaks down, it can only be, because of immoral behaviour by citizens.

But Marx argues that, substantively, the transaction between Capital and Labour is unequal, because:

• Some economic agents enter the market with large assets they own, as private property, while other enter the market owning very little at all, except their capacity to do work of various kinds. That is to say, the bargaining power and bargaining positions of economic agents are differentially distributed, and this means, that private accumulation of capital occurs on the basis of appropriating surplus labour, either the surplus labour of the workers whom the owner of capital assets hires, or the surplus labour of workers hired by another owner of capital assets.

• External to the market, goods are produced by workers with a value in excess of labor-compensation, appropriated by the owners of productive capital assets. Marx's reference to unequal exchange refers therefore both to unequal exchange in production, and unequal exchange in trade.

• Another type of unequal exchange is a corollary of the tendency of the rate of profit to equalize under competitive conditions, insofar as producers obtain the ruling market prices for their output, irrespective of the different unit labor-costs of different producers of the same product.

In Das Kapital, however, Marx does not discuss unequal exchange in trade in detail, only unequal exchange in the sphere of production. His argument is that unequal exchange implied by labour contracts, is the basis for unequal exchange in trade, and without that basis, unequal exchange in trade could not exist, or would collapse. His aim was to show that exploitation could occur even on the basis of formally equal exchange.

Marx however also notes that unequal exchange occurs through production differentials as between different nations. Capitalists utilized this differential in several ways:

• By buying a product produced more cheaply in another nation, and selling it at home or elsewhere for a much higher price;

• By relocating the site of production to another nation where production costs are lower, because of lower input costs (wage costs and materials/equipment supply costs). That way, they pocketed an extra profit.

• By campaigning for protective tariffs shielding local industry from foreign competition.

That, Marxian economists argue, is essentially why the international dynamic of capital accumulation and market expansion takes the form of imperialism, i.e., an aggressive international competition process aimed at lowering costs, and increasing sales and profits.

As Marx put it,

"From the possibility that profit may be less than surplus value, hence that capital exchange profitably without realizing itself in the strict sense, it follows that not only individual capitalists, but also nations may continually exchange with one another, may even continually repeat the exchange on an ever-expanding scale, without for that reason necessarily gaining in equal degrees. One of the nations may continually appropriate for itself a part of the surplus labour of the other, giving back nothing for it in the exchange, except that the measure here not as in the exchange between capitalist and worker."

The overall effect is that, Marx believed, in the trade between nations, more work exchanges for less work - the richer the rich become, the more capital assets they have to make additional claims to wealth from somewhere else, and the poorer the poor become, the more work they actually have to do, to obtain an equivalent amount of products for production or consumption. The end result of that situation is rising debt levels. Because if the exploitation through unequal exchange has become extreme, it is no longer possible to generate sufficient current income through production to pay off all the claims on that production, and the only way in which production can be maintained at all, is through the credit mechanism which defers the financial consequences of current consumption in space and time.

In Marx's analysis, the conflict between free trade and protectionism is the necessary result of market competition, and not simply a matter of state policies which mediate the conflict. Those market actors who are in a strong bargaining position and have a trading advantage will typically favour free trade to enlarge their potential markets, while those in a weaker bargaining position or somehow disadvantaged in trade will support protectionism. The persistence of this conflict through the whole history of market trade, in various guises, is often seen as evidence for the persistence of unequal exchange. But it could be that those who have the greatest market power will favour both free trade and protectionism of different kinds, to suit their own position, based on their ownership and control of property. In the final analysis, Marx argues, market power is based on the effective control of capital assets, on private property. The more assets on has, the more one can borrow, and consequently the bigger the amount of capital one can use to extract additional income.