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Critique

Journal of Socialist Theory

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Unequal Exchange: Key Issues for the Labor Theory of Value

Barry Finger

To cite this article: Barry Finger (2020) Unequal Exchange: Key Issues for the Labor Theory of Value, Critique, 48:2-3, 169-187, DOI: 10.1080/03017605.2020.1759206

To link to this article: https://doi.org/10.1080/03017605.2020.1759206

Published online: 09 Jul 2020.

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Critique, 2020

Vol. 48, Nos. 23, 169187, https://doi.org/10.1080/03017605.2020.1759206

Unequal Exchange: Key Issues for the Labor Theory of Value

Barry Finger

Arghiri Emmanuel pioneered the theory of Unequal Exchangethe imperialism of trade

as an explanation for the persistence of underdeveloped economies in the 1960s. But the theory also claims to provide a robust explanation for the abandonment of revolutionary politics by metropolitan working classes, who, in the most extreme versions of this theory, no longer constitute an exploited class. It has remained somewhat dormant as a key to modern imperialism until recently revived in the work of Zak Cope1 and John Smith,2 who link this to the emergence of global production chains. What makes this theory so compelling is that it draws on commonly held, but rarely re-examined, consensus understandings of the operations of the law of value much of which has to be unraveled and reconstructed before the fundamental flaws in this thesis can be revealed. This requires a fresh look at the problems of abstract labor, the transformation problem, skilled labor and role of international monetary exchanges for the operation of the law of value.

Keywords: Unequal Exchange; Transformation Problem; Labor Aristocracy; Abstract Labor; Money; Price; Value

The transformation problem, the challenge and perpetual bane of would-be Marxist economists, is not merely a logicians Rubiks cube. Our understanding of the relation between price and value has real world, political implications. From Arghiri Emma- nuel,3 Ranjit Sau,4 Samir Amin,5 and an obscure 1970s Swedish Maoist sect (the Com- munist Working Group, CWG) to the most militant and modern exponents of

1 Zak Cope, Divided World Divided Class (Montreal: Kersplebedeb, 2015) and Cope, The Wealth of Some Nations (London: Pluto Press, 2019).

2 John Smith, Imperialism in the Twenty-first Century (New York: Monthly Review Press, 2016).

3 Arghiri Emmanuel, Unequal Exchange: A Study of the Imperialism of Trade (New York: Monthly Review Press, 1972).

4 Ranjit Sau, Unequal Exchange, Imperialism and Underdevelopment (Calcutta: Oxford University Press, 1978).

5 Samir Amin, Unequal Development (New York: Monthly Review Press, 1976).

© 2020 Critique

Unequal Exchange such as John Smith and Zak Cope, the contentious interpretations of the price-value relationship has been recruited to support a fully rounded Third World-ist orientation. In its most fulsome form, Unequal Exchange offers a robust defense of the proposition that workers of the global metropoles consume more value than they produce owing to the drain of surplus value from the dependent econ- omies of the global south. First world workers therefore cease to exist as an exploited class in any meaningful sense of that term.

And the kicker is that the primary mechanism of this drain resides not in the extrac- tion of monopoly rents, the profits repatriated from direct investment in third world economies or debt peonage, but in normaltrade relations based on global value chains.

The political implications are momentous. Trade imperialism, the domination of the political economies of the north over the south, unifiesaccording to Copeall sectors, strata and classes of the exploiting nations in a shared defense of existing arrangements. Quibbles over the trade agreements in the north, fearsome as they may appear up close, are in perspective all about how the bounty from trade exploita- tion is distributed rather than about opposition to how it is extracted. It follows, if we are to accept the theory, that trade imperialism provides the deep material roots of chauvinism, racism and the long retreat from revolutionary politics that, according to Cope and others, characterizes the house-broken workers of the imperialist economies.

Let me spell out the implications in stark terms. This does not mean, as Emmanuel stated bluntly, that

workers and capitalists of the imperialist center have straightened out everything which separates them. But what separates them is no longer an antagonistic opposi- tion, that is to say, an opposition which can only be resolved by going beyond the existing system; it is an opposition between partners for the sharing of the spoils in the framework of the system. This is the very meaning of reformism. They are there- fore natural allies in any outcome in which it is a question of confronting the sup- pliers of these spoils.6

A socialistrevolution, to paraphrase Emmanuel, in the privileged Northif such a thing, given this understanding of the structure of the world capitalism were even con- ceivablewould lead to a form of social imperialism if it were to leave the basic struc- tures of trade intact. It would be comparable to a revolt on a pirate ship where the officers and captain were overthrown and the booty was distributed on an equal basis. To characterize the resulting order as a pirate-commune would be absurd because the piratesbooty is still rooted in the pursuit of robbery.

This goes well beyond the classical socialist arguments, by no means universally accepted by revolutionaries, about the very existence of a labor aristocracy. Previous generations of Marxists who raised this concept as an explanation of reformism, as

6 Communist Working Group, Unequal Exchange and the Prospects of Socialism (Copenhagen: Manifest Press, 1986), p. 12.

aristocracy was exploited, better compensated yes, but still exploited; they did not hold to the conviction that the working class of the imperialist nations as a whole consti- tuted a labor aristocracy; and they did not maintain that the existence of such fleeting sectoral bribescould become a permanently entrenched advantage.

So lets take a step back. If this seems altogether too abstract, then think of it this way. If we were to divide the value of world output by the number of active productive laborers employed in the world economy, we would notionally derive the global value of output per worker. If we were then to perform the same operation on a national scale and compare the two results, we would notice the following: the value of output per worker in the developed economies exceeds that of the average; that of the underdeveloped economies fall below the world average. If a unit of simple, abstract laborlabor of average skill and intensitycreates the same value in the same working time wherever it is employed in the global economy, then these results plausibly imply a redistribution of value from south to north.

Now lets take that understanding one-step further to grasp Copes perspective. Cope et al., situate this redistribution in the global drive to equalize profit rates, and by implication in the accepted distinction between value and price, where profits stand in uniform proportion to capital investment rather than to the outlay on wages. Earlier versions of this, say in the works of Otto Bauer7 and Henryk Grossman,8 rested on the familiar distinctions between capital intensity (the organic composition of capital) as it operated on the international stage in accordance to Marxs perspective in the third volume of Capital (or at least in Engelsorganization of Marxs notebooks). According to Bauer and Grossman, imperialist capital engaged in trade on the basis of a higher organic composition of capital than its colonial trade partners. As a result, value was transferred, as it is in the domestic economy from sectors with low organic compositions to sectors with high compositions.

7 Let us now attempt to comprehend in economic terms the opposition between two regions that are at differ- ent levels of capitalist development, but that engage in the exchange of commodities with one another a task for which the Marxian theory of price provides us with a valuable tool.

The mass of the surplus value produced in both regions is determined by the mass of surplus labor provided by the workers of both regions. But what part of this surplus value falls to the capitalists in each of the two regions? The capital of a more highly developed region has a higher organic composition, that is, in the region that is more advanced in capitalist terms the same amount of wage capital (variable capital) corresponds to a greater amount of material capital (constant capital) than is the case in the less developed region. Marx has taught us to under- stand thatdue to the tendency to equilibrium in the rate of profitit is not a case of the workers of each of the two regions producing surplus value for theircapitalists; rather the surplus value created by the workers of both regions is divided between the captalists of both regions, not according to the amount of labor carried out in both regions . It is as if the surplus value produced in both regions is first thrown on a pile and the divided between capitalists according to their amount of capital. The capitalists in the more highly developed region thus not only exploit their own workers, but also appropriate a part of the surplus value that has been produced in the less devel- oped region.Otto Bauer, The Question of Nationalism and Social Democracy (Minneapolis: University of Min- nesota Press, 2000), p. 200.

8 Henryk Grossmann, Das Akkumulations- und Zusammenbruchsgesetz des kapitalistischen Systems (Frank-

furt: Verlag Neue Kritik KG, 1970), pp. 428441.

But this is not what the modern theorists of unequal exchange are getting at. For them, the basis for this transference resides in differences in the rate of exploitation and in the super-exploitation of third world workers, whereby wages, in the extreme, are forced below that needed to reproduce labor-power. Even this is distorts their contention, sinceas Cope maintainsthere is no effective rate of exploitation for first world workers. The differences in the rate of exploitation are between two sectors of the world economy, one in which workers are exploited and one in which a labor aristocracy appropriates and consumes goods and services in excess of the value it produces in its entirety.

If this claim seems all a bit baffling, I offer this illustration of Copes thesis. Assum- ing for the sake of simplicity that profits are simply proportional to invested constant capital:

Imperialist nations: invested capital $1000 global south: invested capital $1000 Productive labor 100 productive labor 900

Value contributed to world economy: value contributed to world economy:

$200 $1800

Imputed monetary value of output per worker $2000/1000 or $2.

If we arbitrarily set the rate of profit at 20%, then the imperialist nations earn $200 in profits, as does the global south. Now further assuming the wage bill differential of 9:1, then first world workers wages are $1440 and third world wages are $160. Clearlyor I hope its clearfirst world workers in this scenario consume more monetary value than they produce in its entirety.

The standard reply is that of Kidron and Charles Bettelheim (K/B) (ironically, also associated with Maoism), which on closer inspection, to anticipate, fails the test of logic. Their argument is that workers of the advanced economies earn more because they are more productive, and being more productive they are also more exploited. By this they mean that the (gross) monetary value of output/worker in the north exceeds the gross monetary value of output/worker in the subordinate economies. If, we further assume that capital invested turns over in 10 years so the yearly con- sumed constant capital is $100, then from the above $(C + V + S) in the advanced world is $(100 + 1440 + 200) and output per worker is $1740/100 or $17.4; of the sub- ordinate economies 460/900 or $0.5. This means that the productivity differential is 34.8, far greater than the wage differential.

Even so, and perhaps counter-intuitively, the rate of exploitation is 200/1440 or 13.8% in the advanced economies vs. 200/160 or 125% in the global south.

So, while productivity differentials are greater than wage differentials, this still does not necessarily mean, despite K/Bs objections to the contrary, that first world workers are more exploited. First world workers can be paid more because they are more pro- ductive of value, not necessarily because they are both more productive and more exploited. Or, so even a naïve employment of national statistics such as that invoked by K/B might rightfully inform us.

But this is as far as Kidron/Bettelheim can take us. For even they unquestioningly accepted the basic understanding of the relationship between value and price that Marx laid out, that profit rates are equalized through the transference of surplus value.

Cope and his co-thinkers are well placed logically to reject this framed refutation on grounds that should, I hope, be obvious. Kidron/Bettelheims analysis assumes at the outset that which it needs to provei.e. that the process of world trade does not lead to a drain of value from the third world, thatin other wordsthe values given by national statistics upon which they calculate productivity differentials are not already reflective of that previous redistribution. K/Bs refutationsimply assumes in the first instance what it needs to prove.

From Copes and Emmanuels analyses, the actual rate of first world exploitation is clearly nil. The net productivity north and south is equal by assumption, $2 of value produced per hour worked. That is, an hour of first world labor contributes the same monetary value as the expenditure of an hour of third world labor. Yet workers of the global north contribute $200 in new monetary value to the world economy, while con- suming $1440 of global monetary value. They, first world workers, are effectively a net exploiter, along with their employers, of third world labor.

Every improvement in the standard of living in the global north, each pay raise, each additional social service, every new benefit comes quite literally at the expense of third world workers. Or so Cope argues, as did Emmanuel, and the CWG etc., before him. So real solidaritywith third world workers quite obviously suggests subordination if not outright retreat from engagement with first world struggles!!

Marxists operating in the tradition that embraces the latent revolutionary potential of all working classes have failed to face the challenge that this poses to our politics. And this failure is an undispersed cloud that hovers over our work.

The nub resides in a common naïve acceptance of how Marxists traditionally approach the relationship of value and price; the fault for which resides squarely in how we conceptualize the transformation problem. According to this commonly held understanding, surplus value, rather than being a social relationship, has the qual- ities of a liquid that flow from sector to sector according to differences in capital inten- sity (or rates of exploitation). But what exactly are the market forces that compel this movement to generate a uniform rate of profit? This is commonly brushed aside with reference to the circulation process, as if this is a self-evident clarification, rather than a restatement of the conclusion in different terms. Its not even Marxs reasoning.

So lets ask, what, were we to follow Marxs lead, compels low organic compositions of capital to systematically relinquish surplus value and what makes those profits migrate to sectors with high organic compositions?

His answer is that the ebb and flow of capital from low profitability to high profit- ability sectors brings about the tendency to profit uniformity. But if this more proxi- mate explanation were a sufficient, let alone an adequate, answer, there would be a permanent bias toward investment in capitals with lower organic compositions and in technology within each sector that reduces the capital intensity of prevailing

production processes. And yet this is an obvious absurdity and goes against the entire grain of Marxs analysis.

On the one hand we have a clearly observable trend: capitals do abandon sectors with low profitability and enter sectors where the prospects for profits are enhanced. But on the other hand, this rarely involves the relative reduction in capital invested per worker. Quite the opposite. Capital moves where profit opportunities present them- selves, but these opportunities have nothing to do with relative capital intensity. They revolve around the sufficiency of market saturation in the various branches of production; that is in the prospect for sharing temporary rents, prospects that are themselves eliminated through the movement of capital and the expansion of output. And in parallel, it evolves egress from oversaturated branches and the relative shrinkage in output; or conversely by investment in productivity enhancing technol- ogy that allows more profits to be realized at the same price, through lower costs, or by the introduction of measures to enhance labor intensity while reducing the number of employed workers and pocketing the wages saved.

But what drives capital intensity is the need to enhance productivity, allowing capital, wherever it is invested, to reap a temporary advantage by producing below the costs of prevailing sectoral averages. Innovation forces competing capitals within that branch to follow the lead or perish, while raising the intensity and duration of labor to offset the potential loss of market share before new productive enhancing technologies are implemented and take full force.

No matter how one dices these multidimensional capital movements, none of the means by which a uniform rate of profit could be established involves the transference of value. They involve the movement of capital and changes in the methodsextensive and the intensiveby which labor is exploited. And yet the mystical transference of value embedded in this understanding of the unity of total price with total value remains a cornerstone of marxistical analysis and the basis on which unequal exchange is ideologically entrenched.

The problem is rooted in Marxs shortcut. For Marx arbitrarily identified prices as the monetary form of values that bear a specific set of characteristics. To be precise, he defined, or at least provisionally identified, value as proportional to prices wherein profits (the monetized expression of surplus value) stand in uniform relation to wages. Wages are assumed to be uniform because all labor is similarly assumed, for purposes of simplification, to be homogeneous. Marx abstracted from differences in turnover times and the secondary deductions of interest, rent and commercial profit. Since prices of production arising from this simple, average laborreflecting a uniform rate of exploitationare not proportional to value so-defined (except under the exceptional condition in which organic compositions are themselves uniform), Marx tied himselfand usin a logical cul de sac.

Are prices of production a departure from value, a modified value? Or, are they a special configuration of value? Marx unfortunately juggled both propositions simul- taneously, insisting that they are different aspects of the same thing.

Which is precisely what they are not. Even if we accept all the other simplifications, nothing in Marxs analysis justifies the assumption of uniform rates of exploitation. That is, even if we posit all employed labor to be productive and all productive labor to be that of simple, average labor and even if we further assume that this labor is paid a given wage without variation, there is no basis on which we can further demonstrate that market forces bring about and reconcile this uniform wage with a parallel uniform rate of exploitation; and therefore no reason why we should assume this.

Having failed to establish this, Marx made a veritable hash out of the transform- ationproblem. Insisting without justification that rates of exploitation are equal because wages are uniform, he could only see the formation of prices of production as a result of a blind processfrom forces that he could not and did not describeof surplus value transference through re-pricing. The average rate of exploitation is both unknown and unknowable to individual capitalists. But even if known, it would also be a matter of utter indifference. What is known is how revenue streams are divided in each enterprise between profits and wages and how individual profit rates differ from the prevailing rate in the domestic economy, including the export sectors. Capitalists know, in other words, their effective rate of exploitation, their rate of profit and how that rate falls short or exceeds the norm. From that they adjust their investment decisions and the organization of work accordingly.

It is competition that drives capitals into those applications yielding a higher rate of surplus value than the average and pulls it out of those where the opposite is the case until the proportional distinction between individual market values and prices of pro- duction are eliminated.

All prices, Marx rightly makes clear, are value in the form of money, whatever their characteristics. Values themselves are directly expressed in labor times; prices re- express those labor-times in monetary form. The synchronous effects of capital move- ments, innovation, changes in the organization of work and of the relative expansion and reduction in sectoral output generate prices of production. These, after the fact, reveal the differential combinations of organic compositions and rates of intensive and extensive exploitation sufficient to generate equal profitability. If capitals of higher organic composition of capital sell their output at prices of production (prices that reflect an average rate of profit) that can mean and can only mean that workers there are effectively exploited at a higher rate (or at a higher annual rate, if differences in turnover times are factored in9) than their counterparts elsewhere who also sell their output at prices of production. Prices of production are not a differ- ent category of value, where profits diverge from monetized surplus values. They are

9 Where working capital turns over once per year, the annual rate of surplus value is ns/v, where n = 1, or simply s/v. Marx generally employs this simplifying assumption to aid his illustrations. If n exceeds 1, then the wages advanced at the beginning of the turnover period are returned multiple (n) times during the year as output is sold and the advanced variable capital is returned. Additional surplus value is thereby generated without any additional outlay of capital for wages.

how equilibriumvalues adjust themselves through modifications in the distribution and allocation of capital and labor power in a competitive environment in which rea- lized profit and surplus value produced are one and the same.

Capitals capture the values they themselves generate, but the values they generate expand at different rates depending on the degree to which labor is subject to sec- toral exploitation under the constraint of an average rate of profit and a given wage.

So, if we reject the unfounded claim that capitals in competition transfer values by means of unknown market processes, theres no a priori basis for the theory of unequal exchange in foreign trade any more than in the (hypothetically) closed system of national capital. Again, this is not to deny the existence of secondary contractual deductions from monetized surplus value that constitute commercial profit (the differ- ence between wholesale and retail prices), interest on borrowed capital, and rentsfrom patents, royalties and monopolies as well as from landownership. These consti- tute real imperialist deductions from developing economies. But these sub-divisions of surplus value are known obligations, not the result of intuited black box operations attributable to global value chains.

Now consider international trade. Because all market transactions are monetary, national currencies represent a given amount of labor time through the correlation of the productive labor hours expended with the price of the output that corresponds to that expenditure. Thus if 100 hoursof expended labor in the global north is rep- resented by $1640(quotation marks because these are simple illustrations from above and dollars are used as a stand in for separate national currencies), then 1 hour of labor generates $16.4 in value or conversely one dollar represents approx. 0.06 of an hour of labor time.

Labor in the global south is expressed in a different currency, where at existing exchange rates, 900 hours are represented by $360, meaning the one-hour of third world labor is expressed by $0.4. The terms of trade in national currencies, in other words, brings about a condition in which 1 hour of labor in the advanced economies requires a currency exchange ratio resulting in a swap of 41 hours of third world labor. But now weve come full circle. This certainly appears to be unequal exchange, the very condition we have been at pains to deny. And if this unequal exchange does not have roots in the transformation of values into prices, where is it located? Isnt it Marxs contention that one hour of simple average labor generates the same value on average, if exploited under equal conditions intensively and extensively, in one

national economy as it does in any other national economy? The short answer is no. But that too takes some unpacking.

Do currency exchange rates constitute a new basis for a drain of value from national economies? Again, the answer is no. But if not, what then is their significance?

And, restating this problem from a different angle, how can we reconcile the fact that first world workers, though contributing fewer nominal hours than third world workersand who may indeed be exploited at a far lesser ratenevertheless create so much more additional value?

Lets take a step back and approach this from the perspective of a closed national economy, where there is one national currency and then reintroduce currency exchange rates and the service they perform in the context of global trade. For the lessons we can learn here can be extended to the world stage.

The question of labor equivalency has, it is true, the assumption of an expenditure of physiological labor (both physical and mental) in both time and intensity. But the expenditure of labor-time of diverse labors must be socially equalized before they can assume the substance of laboror abstract laborin the phenomenal form of money. The transformation of equal expenditures of physiological labor into socially unequal quantities of abstract labor is itself a social event that emerges where exchange becomes the social form of the process of production. Products are exchanged on the market, consequently, not according to equal but according to equalized quantities of labor. That ongoing transformation of concrete and discrete physiological expendi- tures of labor time into socially equalized abstract labor is the predicate for the unequal exchange of the products of labor bearing diverse skills and training.

Expressed differently, labor-time can be made into an objective unit of measure only when the work of different individuals is qualitatively abstracted from and requantified in a form that is universally recognized as an equivalent of abstract labormoney. Money (the pricing unit) is the phenomenal expression of a homogeneous magnitude of the fundamental substance of social labor time: simple, average labor. Simple average labor is the labor of the average worker, the laborer working with the average degree of skill and intensity. This unit of abstract value, the expenditure of an hour of simple, average labor, is invariant. Changes in the average degree of skill and intensity as capitalism evolves affects the complexity of the technology average laboris expected to master and therefore its productivity, but not the unit of measure. What skill mixture constitutes simple, abstract labor differs therefore over time and place.

Labor-power is a commodity. But the products of skilled labor do not fetch a higher price because skilled labor captures a higher wage. The value of the workforcewhat determines wages, wage differentials and sectoral rates of exploitationand the values produced by that work force of varying qualifications are two different studies. Just because the product of one day of labor from the gem cutter is worth two days of labor from the ditch digger does not necessarily mean that the wages of the gem cutter must be twice that of the ditch digger. Nor the converse. To state it differently, the value consuming claims by labor and its value-creating force are separate propositions.

The reduction of products of complex labor to multiples of simple, average labor is the result of an objective social process whereby commodities are equalized on the market through the distribution of social labor in pursuit of profit.

When that labor in question is skilled it requires longer professional training and more significant education than the average. If the period of training can be shor- tened or the material resources and labor diverted to training are reduced, the value of the products of this skilled labor falls. That much can be established. But

it would be futile to search for an a priori algorithm, a mathematical operating prin- cipal, for the precise equalization of physiologically disparate expenditures of con- crete labor-time among different skill sets as these skills evolve over time. The incessant reduction and rebalancing, nevertheless, takes place under capitalism, but not directly through the conscious plan of the otherwise atomized producers. It occurs roundaboutly through market exchange and competition, through the cea- seless movements of capital in search of profit without the active collaboration of the agents of production.

The upshot relevant to this discussion is that an hour of skilled work produces more value than an hour of simple average labor; more value still than rote or brute labor. It does so not because skilled labor is more productive, but because skilled labor is itself the product of a greater expenditure of labor-time in its formation and maintenanceits production and reproductionthan is the labor required for average and for unskilled work.

As we have argued, the equation of the monetary price of the annual product (money income of productive labor and capitalists), $(V + S), with the number of hours performed in the year by productive (value-creating) labor, establishes the labor-content of the monetary unit. Because of this identity, disparate economic activi- ties expressed in prices are simultaneously represented by so many hours of abstract value, of socially standardized units of work. Accordingly, the monetary value of the net product $(v + s) of skilled workers and rote labor in the various branches and within each branch of the economy are represented through this equation as so many deviations (multiples or fractions) from the mean. (And, it may be added, this suggests another element in the profit equalizing mechanism, since workers with different skill sets and different value enhancing abilities can also be exploited at different rates.)

From a formal standpoint, value creating disparities between an hour of skilled, average or unskilled labor seem to involve a form of unequal exchange, because an unequal exchangeof hours takes place in the exchange of commodities of equal worked time, through unequal prices. But, it should be clear. Skilled labor does not exploit unskilled labor. These inequalities are inherent in an economy in which labor is heterogeneous in complexity and commodity exchange is regulated indirectly by means of market autonomy and spontaneous laws of movement in pursuit of profit.

With this, we can extend lessons from this hypothetically closed national economy to international trade on a consistent and parallel footing.

The unit of a national currency, to recap, represents the labor-time content of simple, average laborlabor of average skill and complexity exploited under average conditions within that national economy. But for commodities to exchange on the international marketfor labor to become truly social labor on the world arenacurrencies have to be reduced to the proper multiple of one another enabling markets to clear in balance. That reduction by means of balanced trade regulates how the unit of simple, average labor in one economy relates to its simple, average labor counterpart of every other trading partner.

With that in mind, lets rework through the process discussed above from this per- spective, but with the following modifications. (Again, it is assumedto accommodate Copethat there is an international tendency for profit rate convergence.)

Imperialist nations: Global South:

invested capital $1000 invested capital ¥1000

Productive labor 100 productive labor 900

Value contributed to value contributed to Contribution to world economy: Contribution to world economy:

$100 + 1440 + 200 = $1740 ¥100 + 160 + 200 = ¥460

1 year of American labor is equated to $16.4($¥1640/100); 1 year of Chinese labor equates to ¥0.4 (¥360/900).

Now if trade is balanced such that each exchange $100 worth of exports at the exchange rate of 1 yuan for 0.1 dollars, ¥1000 in Chinese commodities are exchanged against $100 of American exports. Since ¥1000 is the equivalent of 400 Chinese labor- time years and $100 is the equivalent of 6.1 American labor-time years worked, 1 year of American labor-time expended is the international equivalent of 65.5 years of col- lectively expended Chinese labor-time.

This is, of course, an extreme example and is not constructed for purposes of approximating real conditions. In reality, there is no observable tendency for world- wide uniformity of profit rates. Domestic capital, especially third world capital which is less free to roam the world, choses to enter the export market in pursuit of additional profit advantages that cannot be satisfied by expanding production for domestic sales. It is divergences from the national averages that steers domestic investment. International trade is not regulated by tendency for profit rate convergence.

But these objections are entirely secondary. The political upshot does not depend on mirroring real world circumstances, but in elaborating the logic under which capital- ism operates. The takeaway with respect to our critique of unequal exchangestill holds.

In summary, Copes theory of unequal exchange is based on an interpretation of value theory arising from Marxs treatment of the transformation problem, which is flawed from the outset. But not for the reasons customarily attributed to it: for not having input values converted into prices and having the entire relationship of valueand price recalculated on that basis.

The customary interpretation quite literally destroys the individual relationship between production time and price in the market place, the only locus where the law of value can assert itself as an immanent operational force. To proclaim that this relationship is re-establishedat the level of the entire economy (the totality), as have so many Marxists, by the asserted equality between total prices and total values (or total profits with total surplus value or some other invariance principle) according to innumerable competing formulae is beside the point. Without its market underpinning these vaunted equalities are nothing other than definitional

identities, an exercise in asserting the equivalence of apples and oranges.10 These invariance principles, mutually incompatible in the main and utterly irrelevant, are defended not for their actual economic significance, but solely for their alleged adher- ence to the spiritof Marxs approachthat is on their appeal to orthodoxy.

Eighty years ago the heterodox Keynesian Joan Robinson, in her critical evaluation of Marx, offered a more trenchant interpretation than an entire succeeding generation of orthodoxMarxists.

Since profit per unit of capital tends to be equal, and capital per man employed is not equal, the rate of exploitation (profit per man) is not equal, in different indus- tries. It tends to be above average where capital per man is above average.

Too bad so much ink was spilled ignoring her.11

This misunderstanding of the relationship of value to price is the common frame- work of Cope and his critics alike, which is why Copes approach is so compelling. And all this is compounded by Copes naïve assertion, which also echoes through the Marxist econo-sphere, that an hour of labor-time expended per se anywhere has an equal power to generate value, both within, and among various economies; or even that an hour of simple, average labor wherever it is expended, has this power, without distinction to time and place. What is interesting is his and his co-thinkers insistence, when others denied it, that average rates of national exploitation might diverge. But he and they, too, proved unable to extend that insight into the workings of domestic capitalist interactions among its various sectors and to consider the impli- cations of that premise for their conclusions.

The theory of unequal exchange stands and falls with these series of unexamined propositions.

We have tried to show where these assertions, and therefore the entire analysis, fail the test of logic and are incompatible with the theory of value.

10 See Appendix for a brief discussion of money and the transformation problem.

11 To be fair, the later Robinson was utterly confused about the significance of what she herself had earlier written. In her 1965 forward to the 1942 An Essay on Marxian Economics, from which this citation is extracted, she wrote, There is no reason to postulate any tendency for the rates of exploitation to be equalized, and then oblivious to the point being made in the text, continued with so as to make prices proportionate to values. How can rates of exploitation be equal for prices to be proportionate to values, since this is precisely the condition that violates that outcome? She thereby seems to be criticizing Marx both for holding rates of exploitation constant, and therefore contradicting the assertion of proportionality between value and price in exchange; and then again by denying this relationship under the only condition in which that proportionality could be affirmedthrough compensating variations in the rate of exploitation. Joan Robinson, An Essay on Marxian Economics (London: St Martins Press, 1971), p. xi.

And to add to the confusion, Roman Rosdolskyusually one of the most perceptive interpreters of Marxdefended Marxs approach to the transformation problem, while criticizing Robinson on the grounds that labour-time as a measure of value is in no way dependent on equal rates of exploitationand it is amazing to put it mildly, to see Marxs (or Ricardos) theory of value interpreted in such a way. He then blithely proceeded. Because equal numbers of workers, who are employed in different industries, with other conditions being the same (same working time, intensity of labour etc) emphasis added, produce the same amount of surplus-value, a transformation of values into production pricesmust take place, if an average rate of profit is to prevail. The difference is obvious.Roman Rosdolsky, The Making of Marxs Capital (London: Pluto Press, 1977), p. 540.

We dont deny that third world workers are more exploited or that they may be subject, under extreme duress, to a rate of super-exploitation. But what we do assert is that first world workers are, nevertheless, still very much exploited and that their exploitation continues to play a significant role in the world economy; that it is possible to suffer from a greater degree of exploitation, as are the hypothe- tical third world workers in our illustration, and yet produce far less surplus value per hour worked than workers in the advanced economies; and that it is possible to consume more value while being less exploited, as are first world workers in this illustration.

None of which is meant to deny the moral and economic travesty of the present international division of labor, which walls workers in the third world to low value- added, low wage job ghettos needed to prop up profit rates for world capitalism.

What it does signify is that there is still a meaningful basis for international labor solidarity predicated in militancy and common struggle rather than in first world retreat, subordination and self-abnegation. Labor arbitrage, which is the engine of modern value chains, is not merely the shift of work from better to poorer paid workers. It is a shift of work from the hands that once created more value to the hands that now create less. For many of the same levels of skill once wielded by pro- duction workers of the global north can now be reproduced and outsourced to the global south where it can reproduced at a fraction of the social cost and resources. The modern system of free trade liberates national capitals to roam the world in search of labor power, where the reproduction costs of ability in multiform skills is minimized.

The labor that the average industrial worker in the third world is now able to execute is far above the average in complexity that it was able to perform several gen- erations ago. By the same token, the resources now mobilized to create that labor power in the third world is far below what was previously required in the post war era to train-up similarly skilled labor in the advanced economies of the world.

This has hollowed out much of the old industrial working classes of the global north. And it has led to the piecemeal dismantling of the welfare states whose pro- visions, no longer required, had socialized much of the mass maintenance skill costs of these workers. These capitalist overhead costs are now being shed, under the fig leaf of fiscal discipline and austerity, as the world economy now allows these skills to be purchased on the cheap. This has led ever-growing swathes of first world workers to be, in effect, scrap-heaped.

It is capitalism and the capitalist division of world labor in pursuit of profit that remains the common enemy of workers everywhere. Rather than creating a first world labor aristocracy, capitalism has generated a punctuated race to the bottom and unleashed a cataclysm of reactionary, populist responses.

Disclosure Statement

No potential conflict of interest was reported by the author(s).

Appendix

Notes on the transformation problem:

I

According to Marx, price is value (labor-time) in the form of money. So the transform- ation of values into prices of production rests on the understanding of some relation- ship between the expenditure of social labor time and the unit of account (the pricing unit). If prices are proportional to values, the labor time newly worked up (V + S) cor- responds to its monetary equivalent $(V + S) as an accounting identity. From this identity, the labor time content of the monetary unit is established in accord with the proportionality of labor-time in exchange.

Marx breaks this accounting identity in volume 3, leading many critics to question the consistency of his analysis. Others pounced on this apparent contradiction to offer alternative interpretations. Under the most famous re-interpretation, the Bortkiewicz algorithm12 and subsequent iterations of that algorithm, the recalculation of input values are simultaneously transformed with output values into prices of production. For Marxs critics, this alleged deficiency was the most glaring. But if input values have to be re-priced, it is only because Marxs erroneous contention is blindly accepted that surplus values are and have been previously redistributed through market com- petition. This redistribution must therefore be consistently carried through both on the input side as well as on the output side.

The proposed correction establishes a series of exchange ratios that can only be nor- malized as distinct prices by the choice of a numeraire. This numeraire fulfills the function of money, insofar as it is a unit of account and a medium of exchange.

The choice of this numeraire is also utterly arbitrary, since it has no other signifi- cance other than to transform ratios into absolute numbers. So, for example if there are three commodities, there are two independent exchange ratios: say, A/B and B/ C from which A/C can be inferred; and one degree of freedom to insert a pricing unit. The numeraire (money unit) allows A, B and C to be expressed in absolute prices while preserving these ratios, rather than as a list of exchange proportions rela- tive to other commodities.

Bortkiewicz posited a monetary unit, in which the labor time incorporated in the surplus product (Σs) is equated with its monetary equivalent $(Σs). So, in his example, the 200 hours of labor time that is needed to generate the surplus product (gold), before the transformation of values into prices, are arbitrarily represented by

$200 worth of monetary units after the transformation. Commodity values are implicitly determined by the amount of gold they command in exchange.

12 Ladislaus von Bortkiewicz, On the Correction of Marxs Fundamental Construction in the Third Volume of Capital, appendix to Paul Sweezy, editor, Karl Marx and the Close of His System and Böhm-Bawerks Criticism of Marx (New York: Augustus M Kelley, 1949), pp. 199221.

According to the other variants that equate total value with total price, the labor hours expended in on the gross product Σ(c + v + s) is made the equivalent of an equal sum of currency units $Σ(c + v + s), so that x hours, living and dead, expended on gross output are equated with x dollars.

The Bortkiewicz correction is mathematically coherent and economically meaning- less. Either of the invariance principals appealed to (total values in labor-time equal to total monetary prices, or total surplus values in labor- time equaling total monetary profits) is chosen simply to appease the thirst for orthodoxy. The deeper significance in the Bortkiewicz example itself is that the prices of all commodities are normalized in terms of the abstract quantity of labor embodied in the gold for which they exchange. That Bortkiewicz adds the utterly nonsensical insistence of making 1 hour of surplus labor represent $1, however, has been pored over and debated as if something of over- whelming marxistical significance were at stake.

The total price to total value equivalency, on the other hand, signifies that the price of individual commodities are instead normalized in terms of the fractional part of the gross labor time expended on the corresponding aggregate product against which these individual commodities are exchanged. Or to state that proposition in different terms,

$1 is equated to the gross value added (overhead costs consumed plus wages of pro- ductive workers plus profits) on average by the exertion of one hour of productive labor time. Again, it is of no substantial significance that the sum of the fractional parts in dollars equals the sum of the fractional parts in hours. Either way, individual prices simply represent the portion of total value commanded by commodities in the process of exchange.

It is Marx who first insisted on an invariance between total prices and total values and total profits and total surplus values, despite the logical deficiency behind that claim: by virtue of the fact that values and prices are measured in two different dimen- sionstime and money. There is no reason for these to directly equate. For the labor theory of value to be coherent, they need to be proportional, not identical.

That is why these pricingunits serve no explanatory purpose and clarify nothing about the distribution of social labor time, not only among the many sectors of the economy, nor of the distributions of dead to living labor, and paid to unpaid labor. These are the central functional distinctions that the law of value reveals. Once the proportionality principal in exchange is dropped, the averageor in Marxs case, uniformrate of exploitation and rate of profit must be modified. There is no longer any way of imputing a meaningful labor-time content arising from production to any of the elements of c, v and s. And why would attempt to, since they have no operational, no lawful, significance? For in fact, all these distinctions are effectively effaced by these corrections.

These algorithms did not redeemthe labor theory of value; they laid the foundation for its later abandonment as a needless redundancy under the impact of the neo-Ricar- dian school.

II

Fred Moseleys Defense of the Marxian Transformation Problem13

It is the position of this paper that there is no transformation problem in the received sense. Prices of production are also monetary values proportional to labor times embo- died in commodities. Capitalist prices embodying a uniform rate of profit are perfectly consistent with value proportionality, once, contra Marx, the presumption of a uniform rate of sectoral exploitation is rejected. Capitals of differing composition can be made to coexist through competition with offsetting rates of exploitation by means of capital movement in search of profit opportunities. Such movements redis- tribute work, modify working hours and change workplace organization to adjust the intensity and extensity of exploitation. Differences in turnover times weigh into this by further changing the sectoral rates of annual surplus value. The operations of the theory of value, as propounded by Marx in the first volume of Capital, remain in this way fully operable as the purview is expanded, as it is in Marx, from capital in general to the many capitals in competition in the third volume.

The transformation problemresides in the false-step detour that Marx introduced in reconciling values and prices. Marxs critics caught him dead to right, though his orthodox followers have continued to wage a prolonged rearguard defense. Valuescan be derived according to the assumption of an equal rate of exploitation, in which case there are differing rates of profits; or according to an equal rate of profits, in which case there are differing rates of exploitation. These two assumptions can only yield the same results if a third assumption is in effect, the assumption of equal organic compositions of capital. The root of Marxs dilemma in his approach to the transformation problemresides in his attempt to reconcile the first two irre- concilable assumptions.

And few have been more heroic in that defense than Fred Moseley.

But without the condition of proportionality, which Marx and Moseley deny, it cer- tainly seems that the sum of prices of production cannot be reconciled with the sum of values, nor the sum surplus values with the sum of profits, nor the value rate of profit with the price rate of profit.14

To illustrate Moseleys take on this, compare simple values with prices of pro- duction that violates the rule of proportionality in exchange.

Mc: Mv ≠ c: v; Mc: Mp ≠ c: s and Mv: Mp ≠ v:s where Mc, Mv and Mp are (monetary) prices for means of production, wage goods and capitalist consumption goods (invest- ment and personal) that simultaneously represent the hours need to produce the quantity of gold used to purchase these goods. Moseleys money is, at bottom, a vari- ation of Bortkiewiczs unit of account. These monetized values, per Moseley, reflect the incorporation of previously redistributed surplus values, which is why they are no longer proportional to the embodied values required for the production of these

13 Fred Moseley, Money and Totality (Chicago: Haymarket Books, 2016).

14 Truth be told, this has not always my position. Years ago, I wrote an essay largely in agreement with Mose- leys perspective, The Transformation Problem: An Anti-Critique, Critique, May 2010.

goods. Howas opposed to wherethey are redistributed is not really addressed. Moseley, more importantly, introduces a dual accounting system, where the hours rep- resented by prices of production for the various classes of commodities in circulation are distinguished from the hours represented by socially equalized production times. So, how does this resolve the transformation problem? By reframing the issue.

Assume M (cost-prices) are given at the beginning of production, and that the labor content of the monetary unit is determined not post factum by the relationship between the price of the annual product $(V + S) that emerges and the productive labor hours expended (V + S), as defended in this paper, but rather by the amount of labor time represented by the sums of gold units invested as capital.

Again, keep in mind that the money unit (weights of gold), for Moseley, acts as an exogenously existing ex ante constant that represents a given quantity of abstract labor time.

On this basis we can begin to see how Moseley can claim that sum of simple value- prices (Moseleys term) equals the sum of prices of production and the sum of surplus values associated with simple value-prices equals the sum of profits corresponding to prices of production. To his credit, Moseley in his interpretation of the transformation problemunlike Bortkiewiczfully appreciates that valueshave to be expressed in common price form, before being equated with prices of production.

They can be so compared because, per Moseley, any sum of M, regardless of the actual labor-time incorporated in the commodities for which they exchange, rep- resentby definition or presumptiona given quantity of abstract labor embodied in the monetary material (gold). Equal quantities of M regardless if expended on com- modities priced proportional to embodied labor-time or at prices that diverge from embodied labor-time (such as his prices of production) always represent the same quantity of value (abstract labor time). Similarly any given return on investment, ΔM, which corresponds to the given M invested at the beginning of the production period, always represents, again by presumption, a given quantity of abstract labor time in the form of money, regardless of the conditions under which the commodities composing the aggregate surplus product are produced.

Simple values-prices consist first of all as the sum of monetized input values ΣMc+v (cost-prices) and this is the invariant structure that bridges the two subsystems (simple value prices and prices of production). The only thing that changes is the distribution of monetized surplus value arising from the current period of production. Previous redistributions are said to have been already accounted for in cost-prices. (I have already criticized the question-begging notion behind this supposed redistribution and will not revisit it here.)

Stated differently, a given expenditure of M for productive inputsmeans of pro- duction and wage goodsis an outlay of a quantity of the money material (gold) that therefore implicitly corresponds to a given amount of abstract labor-time embo- died in the gold units for which they exchange. And this holds, regardless of the labor time embodied in the commodities purchased by M. Similarly, ΔM represents a given quantity of labor time bearing no necessary relationship to the labor time embodied in

the commodity components of the surplus product. And it too holds under any con- ceivable condition of exchange. As embodied labor-times, c, v and s are effectively shelved. They are, perhaps, to follow Moseleys unstated logic, a provisional approxi- mation of reality that is abandoned as Marx incrementally approached the surface conditions of market exchange. For what now matters above all is the labor embodied in the monetary material.

There are now also two completely different and incompatible expressions of the labor-content of the monetary unit at play in Moseleys Marx: the exogenous one employed by Moseley (and Bortkiewicz) and the endogenous one immanent to the cir- culation of commodities as a collection of embodied values, which is employed by Marx in volume I. They imbue each commodity with a different quantity of abstract labor time.

This goes beyond a mere restatement of Marxs contention that prices of production are modified values. It suggests that a commodity value can be modified by changes in its price, that is, by changes in the terms of exchange with which a commodity is swapped out for gold.

If commodities exchange in accordance with the labor-time directly and indirectly associated with the production of each commodity, money is simply the veilthe uni- versal equivalentby which the proportionality of labor-time in the marketplace is socially constituted.

If, on the other hand, money is an autonomous standard of value determined by the production conditions that prevail in the gold sector, prices are no longer the barom- eter of labor time embodied in the production of commodities, but a measure of the labor-time commanded by commodities in their exchange with gold. So, on the one hand, commodities possess value by virtue of the fact that they are the products of social labor. But the quantity of social labor employed in their production is no longer the engine that regulates the amount of labor-time commodities can purchase or command in the process of exchange.

Moseleys moneyremains a unit of account, a medium of exchange and a store of value, but does so at the cost of shedding its ability to act as a universal equivalent. In effect, he rescues Marx by returning to Adam Smith. Labor values are replaced by pro- duction costs, (M), and revenue streams in excess of costs, ΔM, because Moseley, like Marx before him, and everyone who has trod Marxs path after him, finds it impossible to make the exchange of materialized labor equivalents otherwise accord with the capi- talist pricing system.

Short reading list:

Communist Working Group, Unequal Exchange and the Prospects for Socialism (Copenhagen, 1986), http://snylterstaten.dk/english/unequal-exhancge-and-prospects- socialism-communist-working-group.

Arghiri Emmanuel, Unequal Exchange: As Study of the Imperialism of Trade, with additional comments by Charles Bettelheim, New York, 1972.

Arghiri Emmanuel, Unequal Exchange Revisited, IDS Discussion Paper No. 77, August 1975.

Zak Cope, Divided World Divided Class (Montreal, 2012). Zak Cope, The Wealth of Some Nations (London, 2019).

Torik Lausen and Zak Cope, Imperialism and the Transformation of Values into Prices, Monthly Review, JulyAugust 2015.

Samer Amin, Unequal Development (New York, 1976).

Michael Kidron, Black Reformism: The Theory of Unequal Exchangein Capitalism and Theory (Chicago, 2018).

John Smith, Imperialism in the Twenty-First Century (New York, 2016).

Ranjit Sau, Unequal Exchange, Imperialism and Underdevelopment (Oxford, 1978).

Ranjit Sau, Underdeveloped Capitalism and the General Law of Value (Atlantic High- lands, nd).

Barry Finger, Unequal Exchange, International Socialist Review, Winter 20178, https://isreview.org/issue/107/unequal-exchange.

Joan Robinson, An Essay on Marxian Economics (London, 1971 (first edition 1942)). Roman Rosdolsky, The Making of Marxs Capital (London, 1977).

Otto Bauer, The Question of Nationalities and Social Democracy (Minneapolis, 2000).

Henryk Grossmann, Das Akkumulations- und Zusammenbruchsgesetz des kapitalis- tischen System (Frankfort, 1970).

Paul Sweezy, ed., Karl Marx and the Close of his System, essays by Eugen von Böhm- Bawerk and Rudolf Hilferding, with an appendix by Ladislaus von Bortkiewicz.

Fred Moseley, Money and Totality (Chicago, 2016).