Post on 26-Jan-2023
Lesson 3
Marx on International Trade Francesco Macheda
Course
Introduction to International Political Economy
Fall 2014
A Preliminary distinction: Marx and the Marxists
• Since the publication of Lenin‟s Imperialism (1917) it has
become a Marxist commonplace to attribute the phenomena of
international uneven development to the direct investment by the
rich capitalist countries in the Third World.
The focus shifts to:
domestic and
international rivalries
of giant monopolies
their political
interaction with
various capitalist states
the antagonisms between states
(imperialism as an aspect of
monopoly capitalism)
This means that uneven development appear inexplicable without some
additional factors: monopoly, IDE, political power, conspiracy.
All these theories of uneven development accept Ricardo‟s law of
comparative costs as being valid on its own grounds.
Marx on International trade (I)
• Marx (1818-1883) did not develop an organic and complete
theory of I.T.
• It was his original intention to extend the analysis presented in
the 3 volumes of Capital to the treatment of international trade.
But this never happened since he died before he could..
• Nonetheless, the development of the law of value as well as
the theory of money in Capital contains all the necessary
elements for its (their) extension to international trade.
• The goal is to examine how Marx‟s categories allow us to
understand why capitalism creates the inequality regardless of
historical and specific circumstance.
Marx on International trade (II)
• By using the Marx‟s categories, it is possible to derive the
phenomena of international uneven development from the free
and unrestricted trade of commodities.
• Free trade itself ensure that the advanced capitalist countries
dominate international exchange, and that the less developed
nations end up chronically in deficit and chronically in debt.
• The international exchange is uneven since the losses are
indissociable from the gains, that is, international exchange is
a system of unilateral transfers of wealth.
• This system is neither transitory nor accidental but it is an
endemic and chronic condition of global capitalist market.
Marx‟s theory of value and the concept of
unequal exchange (I)
• To Ricardo, the value of a commodity is given by the labour-time
required to produce it. Since all commodities exchange in
proportion to the labor-times required for their production, their
money prices are determined by the quantities of the labor-times
embodied in them.
• Marx agrees to Ricardo that, as far as production is concerned,
only labour produces value. But once commodities are
exchanged on the market, their prices do not usually correspond
to the labour-time embodied in them.
Quantity labour embodied
in commodity A Value of commodity A
Money price of
commodity A = =
Quantity labour embodied
in commodity A = Value of commodity A = Money price of
commodity A
To fix out idea more clearly let‟s see when a commodity is exchanged in proportion to
its own exchange value, so that we may isolate the intrinsic determinants of price. The
individual value of a commodity (W) produced by a single firm is given by:
a. value of C (means of production)
b. value added by living labor L
For capitalist production to be profitable, workers must accept as wages (V)
the money equivalent of a value less than that which they themselves add to
W: L > V
Marx‟s theory of value and the concept of
unequal exchange (II)
W = C+L The value of C and L is
transferred to the output W
during the production process.
To explains this difference it is necessary do distinguish between labor-time and labor-power
What workers sell in the market is non not their labor time, but their capacity-for-
labor, i.e. the sum of the mental and physical capabilities which a worker can put to
use in production. Through the wage paid out to him, the capitalist obtains the right to
set these capabilities to work each day. As such, the worker must receive as wages
enough money to buy its means of subsistence in order to reproduce these capabilities.
Workers enter production as inputs having a specific value. They leave production
having added a quantity of value to the product through their labor-time (L). Up to a
certain point, the value newly created equals the value of the labour power employed
(V). From that point on, extra, or surplus, value (S) is produced. S is the difference
between L and V.
0 8 4
Value – V (4 hours) Plus-value – S (4 hours)
Total Value added by living labour – L (8 hours)
S is the excess of value added
(L) by living labor over the
value of its labor-power (V).
S is the value appropriated by the
firm. Laborers are expropriated of
a part of the value they produce.
L-V = S
Marx‟s theory of value and the concept of
unequal exchange (III)
The value of a commodity is: W=C+V+S. Once detracted of the production costs (C+V),
profit can only arise if workers produce plus-value: W-C-V=S. In turn, the rate of return of
investment is given by the surplus-value divided by the invested capital: S/C+V.
When prices are proportional to values, profit and rate of profit in any given
firm are directly determined by the plus-value produced in that firm alone.
Marx‟s theory of value and the concept of
unequal exchange (IV)
• Marx points out that the value produced within a production unit is not necessarily
the value appropriated by it (by that capitalist).
• Rather, the value produced by all the firms is redistributed among all capitalist units.
This transfer of value is inherent in exchange when the same commodity is
produced by capitals with different levels of productivity and is sold for the same
price.
SPHERE OF PRODUCTION
C V S
Value added
(v.a. per
worker)
Total W output Direct W
per unit
Producer 1 10.000 4.000 4.000 8.000 (1000) 18.000 10 1.800
Producer 2 4.500 1.000 1.000 2.000 (1000) 6.500 5 1.300
TOTAL 14.500 5.000 5.000 10.000 (1000) 24.500 15
SPHERE OF DISTRIBUTION
Market price
per unit
Gross
revenue Profit realized
Value added
(v.a. per
worker)
Surplus‟
transfer
Tech.
efficiency
OCC
Producer 1 1.633 16.333 2.333 6.333 (791) - 1667 2,5
Producer 2 1.633 8.166 2.666 3.666 (1833) + 1666 4,5
TOTAL 1.633 24.500 5.000 10.000 (1000)
To fix our ideas more clearly, consider two firms making computers of essentially the same power and
functionality. Suppose that producer P1 pays $10,000 in C. She employs 8 workers and pays $4,000 in V.
She produces 10 computers. Suppose that producer P2 makes 5 computers with $4,500 in C. She employs
2 workers, spending $1,000 in V. No question here of complex versus simple, or skilled versus unskilled
labour; this is the same work carried out by the same workers with the same level of skill and the same
intelligence. Therefore, wages are the same everywhere ($ 500 per worker).
There are now 15 computers on the market, which we assume sell for a total of $24,500.
Let us now compare the situation before and after production. Before, there was $10,000 in C in P1's
hands, and $4,500 in P2's hands: a total of $14,500. After production, there are only computers and they
are worth $24,500. Thanks to the workers' activities, total value has risen by $10,000: that is, they have
added this value. The workers received $5,000, so that a surplus-value of $5000 is available for the
producers. The rate of surplus-value in both sectors is 100%. But the proportion of this new value which
each producer appropriates is different. Let see why. Each computer sells for the same, average, price.
Since there are a total of 15 computers this comes to $24,500/15 =$1,633 per computer. Producer P1, who
sells ten of them, receives $16,333 of the gross revenue and P2 receives the rest, namely $8.166. Since
P2's C cost was $4,500 it appears that the P2 workers added $3,666, i.e. $1833 for each worker (instead
of only $ 2000, i.e. $1000 for each worker at the level of production). P1's C cost was $10,000 so it
appears that the P1 workers – who are four times as numerous – added only $6,333, that is 791 for each
worker (instead of $ 8.000, i.e. $1000 for each worker at the level of production). Apparently, therefore,
each P2 worker produces almost 2.5 times as much value as each P1 worker. From the point of view of
the individual producers, it seems as if the P1 workers are much less productive compared to the P2
workers. Moreover the owner of the more efficient technique realizes a profit of $2.666, even higher than
his rival who secures a miserable $2.333.
table‟s explanation
• This calculation obscures the reality that the difference is not the responsibility
of P1‟s lax workers but the less advanced machines they work on.
The efficiency differentials imply that the sale of products must actually take place
at prices which differ systematically from direct prices
Marx‟s theory of value and the concept of
unequal exchange (V)
Firms with high more capital intensive
techniques must sell their products at
prices above their respective direct prices
Firms with more labour intensive
techniques must sell at prices below
their respective direct prices
The only difference is the technology because
the differences result from the different
productivities of the 2 sets of machines
Firms characterized by different
levels of productivity must sell
the same commodities for the
same price to stay on market
Within the free
market
The fact that market prices deviate from direct prices means that some firms must get
less profit and others more, than that indicated by their respective S.
Exchange on the basis of market prices hides that appropriation of value and is called
unequal exchange (UE).
Marx‟s theory of value and the concept of
unequal exchange (VI)
It appears that differences between firms, regions and nations are
due to the differences between the intrinsic productive capacity of
their workers. But without changing a single attribute of the labour
force, a redistribution of capital & technology change everything.
UE rewards the technological leaders and penalizes the technological laggards.
If a producer increases its efficiency, there is an increase in the appropriation of
value at the cost of all other producers in proportion to their level of efficiency
P2 enjoys a surplus profit (+1.666) due to his
temporary monopoly in a new technology. His
ownership of a part of human knowledge incarnated
in his machines lets him seize a share of the value
created elsewhere and concentrate it in his hands.
Looking back at computer producers An exceptional proportion of
surplus value will always be
appropriated by innovators, and
the rest will always be
correspondingly deprived.
Apparently there are no obstacles which prevent technological laggards
from gaining access to the most advanced technologies
All she needs is technology and capital
Uneven Development
Unequal exchange and uneven development
In reality, one of the biggest obstacles
relies on intellectual property
there is the possibility that the I mover would accumulate
advantage. The innovative firm may use the additional
profit it has already made to make further productivity-
enhancing investments that once again put it ahead of the
game, so it gains more technological rents that provide it
with the resources to continue the same pattern
Its function is to maintain the pre-existing
relation between knowledge and capital
through the protection of such relation
if the process of technological diffusion itself deprives the backward countries of the
capital they require to deploy the new technology, then these countries will never catch up
Attacca dopo “All she needs is
technology and capital”: It is true
that Marx described the
introduction of cost-reduction
innovation by a „first-mover‟
who initially enjoyed extra
profits. However, in Marx‟s view
this situation is necessarily
temporary, lasting only until
competition generalizes the new
technology across the sector.
Attacca dopo “to continue
the same pattern”:The result
may be a self reinforcing
process that gives rise to
privileged concentrations of
high-productivity capital.
Without a world market through which technically advanced capital can
exploit the labour of others, its source of super-profit would not exist.
Unequal exchange, free trade and uneven
development
Free market is synonym of
imperialism
it is systematic appropriation
of international value
capitalist enterprises in the imperialist
countries appropriate value systematically
from enterprises in the dominated countries.
The technological leaders (countries)
realize more surplus value (i.e., the
capitalists in those countries realize
higher profits) at the expense of the
other countries. In terms of
distribution of value, this means that
there is a transfer of value from the
dominated to the dominant bloc.
=
The dependent countries produce what the center
needs through the use of more labour-intensive
techniques so as to ensure both a transfer of value to
the center and continued technological dependence.
This appropriation is the
origin, and in a subsequent
period the outcome, of a
cumulative process involving
capital formation, investment
in research and development,
technological innovations.
When exposed to competition, firms within low productivity nations would
tend to suffer declining shares in the international market.
Their higher costs
International trade unbalances and financial
dependency (I)
would make it difficult for
them to sell outside the nation
would leave their markets vulnerable
to products originating in high
productivity (lower costs) nations.
Unlike the theory of comparative costs, there
are no magic mechanisms that automatically
make nations automatically equal.
in Ricardo this magic
mechanism relies on the
quantity theory of money
2. The money outflow from less
efficient economy would lower prices
1. The money inflow into the more
efficient economy would raise prices This process implies that sooner
or later UK cloth would undersell
its Portuguese counterpart. In the
end, free trade benefits all.
International trade unbalances and financial
dependency (II) – Marx‟s theory of money
Marx was strongly critical of the quantity theory on which
Ricardo‟s results were based
a. There is no correlation between changes in
money supply and variation of commodity prices.
It is the amount and distribution of
social labor-time which determine
how valuable a commodity will be in
exchange, that is, its money-price.
b. It is not the quantity of money that determines
the price of the commodities.
According to Marx:
• Money price is the external measure of the
value of a commodity
• Money does not cause worth, it measures it
It is the sum of value of the
commodities produced in a
given period which determines
the sum of their money supply.
Any quantity of money over and
above this amount will be redundant
since the market absorbs only that
sum of money supply that is needs
for the circulation of good produced
in a given period.
It follows
that
Rather than raising/decreasing the price level, the first manifestation of a
persistent excesses/deficiencies of money relative to the needs of circulation is:
The buildup of bank reserves
The drop of bank reserves
************************************************************
International trade unbalances and financial
dependency (III)
which is generally accompanied by a
decrease in the rate of interest as the banks
strive to convert reserves into capital.
which tends to rise the interest rate.
we try to apply this „Marxian‟ theoretical framework to the „Ricardian case‟
Because of their greater competitiveness, Portuguese capitalists in both branches are able
to undersell their English competition. Portuguese cloth and wine invade UK markets.
In UK the supply of money decreases UK money begins to flow back to Portugal
In Portugal the money supply increases
It is at this point that Marx‟s theory of money becomes critical
International trade unbalances and financial
dependency (IV)
as English cloth and wine
production succumbs to foreign
competition, the demand for
money-capital will also decrease.
Nonetheless, the continuing drain of money will lower bank reserves
This will tend to raise the interest rate
Insofar as this curtails investment, production of
other commodities will also contract
The primary effect of an outflow
of money from UK will be to
diminish the supply of loanable
money-capital.
In Portugal, the effects are just the
opposite. The primary effect of an
inflow of money will be the
expansion of bank reserves.
To the extent that investment is responsive to the interest rate, this
may stimulate the production and an expansion of productivity
Moreover, part of it will be
absorbed by the expanded
circulation requirements of
cloth and wine production; and
the rest will be absorbed in the
form of luxury articles.
This effect will increase the
supply of loanable money-capital
This will tend to lower
the interest rate
International trade unbalances and financial
dependency (V)
International trade unbalances and financial
dependency (VI)
ENGLAND
(Less competitive country)
Outflow of money
Increasing of interest rate
Contraction of investment
and production
Further loss of
competitiveness
PORTUGAL
(More competitive country)
Inflow of money
Decreasing of interest rate
Expansion of investment
and production
Further gain of
competitiveness
At some point, the interest rate differential will provoke a capital outflow
from the trade surplus country to the trade deficit one (less competitive).
International trade unbalances and financial
dependency (VII)
it will be to the advantage of Portuguese capitalists to lend their money-capital in UK
(where the interest rate is higher), rather than at home (where the interest rate is lower)
because
when this happens
short-term financial capital
flow from Portugal to UK
1. UK‟s rate of interest would then
reverse itself and begin to fall
2. Portugal‟s interest rate would rise
UK running a situation chronic trade
deficit which it covers by means of
short-term international borrowing
Portugal running a trade surplus
which enables its capitalists to
engage in international lending
It may seem that at this point the
situation would be balanced
According to Marx this is not quite correct:
England would have to eventually pay back not only the original loan, but also
the interest on it
The net effect must be an outflow of money from England, albeit at a later date
England will end up with a persistent trade deficit and a chronic short-term
indebtedness
International trade unbalances and financial
dependency (VIII)
Capitalist loans are made in
order to get profit
(in the form of interest).
so that
why?
1. Free trade does not make all nations equally competitive. Rather, it exposes the
weak to the competition of the strong.
2. Trade liberalization benefits the more efficiency firms located in the developed
countries because they are the most technologically advanced.
3. The technological backwardness of underdeveloped countries results in
chronic trade deficit and mounting international borrowing. Such imbalances
are the normal complement of free exchange between unequally competitive
trade partners.
The implicit conclusions inherent in the Marxist
trade theory
if the cause of inequality is external to the
market, then the solution is to remove the
external disturbance, not the market.
Marx’s predictions are the opposite
of those reached by Ricardo
4. The market itself is the cause of inequality. It is not monopoly or conspiracy
upon which uneven development rests, but the automatic tendencies of free
trade among nations at different levels of development.
Reference Materials
Carchedi, G. (1991), Frontiers of Political Economy, Verso, London (chapters 6; 7)
Desai, R. (2013), Geopolitical Economy, Pluto Press, London, pp. 142-146.
Freeman, A. (1996), The poverty of nations, MPRA Paper No. 482, Online at http://mpra.ub.uni-muenchen.de/482/
Marx, K. (1867/1992), Capital: Critique of Political Economy, Volume 1, Penguin Classics, London.
Shaikh, A. (1980), The laws of international exchange, in Growth, Profits and Property, Edward J. Nell (ed.), Cambridge University Press, Cambridge, chapter 13.