Unequal exchange

Last updated December 14, 2023

Unequal exchange is used primarily in Marxist economics, but also in ecological economics (more specifically also as ecologically unequal exchange), to denote forms of exploitation hidden in or underwriting trade. Unequal exchange is usually calculated by assuming that any trade between a country with a high price level and a country with a low price level, is exploitation.^[1] Originating, in the wake of the debate on the Singer–Prebisch thesis, as an explanation of the falling terms of trade for underdeveloped countries, the concept was coined in 1962 by the Greco-French economist Arghiri Emmanuel to denote an exchange taking place where the rate of profit has been internationally equalised, but wage-levels (or those of any other factor of production) have not. It has since acquired a variety of meanings, often linked to other or older traditions which perhaps then raise claims to priority.

In the works of Paul A. Baran, and subsequently adopted in the dependency approach of Andre Gunder Frank, there is a related but distinct concern with the transfer of values due to superprofits. This did not refer to the terms of trade, but to the transfer taking place within multinational corporations (called "monopolies"). Versions of unequal exchange originating within the dependency tradition are commonly based on some such concern with monopoly and center-periphery trade in general. Here, if unequal exchange occurs in trading, the effect is, that producers, investors and consumers incur either higher costs or lower incomes (or both) in the buying and selling of commodities than they would have, if the commodities had traded at their “real” or "true" value. In that case, they are disadvantaged in trading, and their market position is worsened, rather than strengthened. On the other side, the beneficiaries of the trade obtain a superprofit. This term implies that the beneficiaries of unequal exchange are capitalists or entrepreneurs, whereas as understood by Emmanuel the beneficiaries are the high-wage country consumers or workers.

The most renowned of those adopting the term is Samir Amin, who tried to link it to his own argument on the interdependent uneven development of rich and poor countries. Ernest Mandel also adopted the term, although his theory was based rather on that of the East-German Marxist Gunther Kohlmey. The most common approach within Marxism is to talk about unequal exchange whenever unequal labour values are being exchanged (e.g., John Roemer), and this type of approach has then been elaborated in recent decades by ecological economists, based instead on, e.g. ecological footprints or energy.

Depending on definition, the historical occurrence of unequal exchange can be traced to anything from the origins of trade itself, not limited to the capitalist mode of production, to the origins of significant international wage-differentials, or to the post-war appearance of a significant net-inflow of raw-materials to the developed countries. In the approach of Immanuel Wallerstein the origins of the modern world-system, or what others, such as Ernest Mandel, would call the rise of merchant capitalism, is said to have entailed unequal exchange, although the idea was criticised by Robert Brenner.

Another aspect of these theories is the criticism of fundamental assumptions of Ricardian and neoclassical theories of comparative advantage, which could be taken to imply that international trade would have the effect of equalising the economic position of the trading partners. More generally, the concept was a criticism of the idea that the operation of markets would have egalitarian effects, rather than accentuating the market position of the strong and disadvantaging the weak.

Modern liberal economists work under the assumption that value is essentially a question of style, moral behavior 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. Marxian economists, on the other hand, argue that the cheap labor found in undeveloped economies allows for profit which would not be possible where wages are higher. Raul Prebisch and Hans Singer hypothesized that the price of raw materials declines relative to finished industrial products. This makes "peripheral" countries rich in resources tend towards less power in trade.^[2]

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 [may] 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 [is] not as in the exchange between capitalist and worker."

To counteract unequal exchange between socialist countries that were members of the Council for Mutual Economic Assistance (COMECON), members countries like Cuba which were deemed underdeveloped received subsidies.^[3]^: 76

Empirical indicators

The terms of trade . This refers to the relative prices of goods and services traded on international markets, specifically the weighted average of a nation's exports relative to its import prices, as indicated by the ratio of the export price index to the import price index, measured relative to a base year.
Accounting analysis of product unit values, i.e., the composition of the various costs included in the final market price of a commodity (the price to the final consumer who uses or consumes the product). If for example it is found that an increasing fraction of that sale price represents costs other than direct production and transport costs, but instead profit, interest and rent income, then unequal exchange in trade has probably increased. But because of the "creative" gross and net income & expenditure accounting that is done, this is often not easy, since various incomes and expenditures are included under headings which make it difficult to understand what the costs were actually for, or what activity gave rise to the incomes.
The change in the shares of net income between social classes and groups. If the discrepancy between the gross and net incomes of one social class, relative to another social class, increases, then a transfer of claims to wealth is occurring. This could be due to less income generated in production, or to income transferred in exchange (trading), or to taxation. We can compare also the actual average labour hours put in by one social class, to the net income accruing to that social class.
The trend in the cost structure of production of a country as a whole, or particular sectors, which refers to the amount of capital expenditures not directly related to the actual production of a product, i.e. financial costs incurred in addition to materials, equipment and labour (interest payments, incidental expenses, insurance, taxes, rents and the like).
The proportion of net profits, net rents, net interest payments and net property income transferred to other nations or obtained from other nations, such as is shown for example by the discrepancy between GDP and GNI and by Balance of Payments data, and the difference between imports and exports of goods and services.

Quantification of Unequal Exchange

In a 2022 article for the journal Global Environmental Change , Jason Hickel et. al. sought to quantify the amount of unequal exchange between the global south and the global north between 1990 and 2015. Their results found unequal exchange to amount to over $10 trillion per year in Northern prices, creating a drain of raw materials, energy and labor.^[1]

Criticism

Peter Somerville, writing for the journal Capitalism Nature Socialism , criticized ecological unequal exchange theory as "confused, internally inconsistent, and misrepresents the nature of global extractivism and labour exploitation."^[4]

Related Research Articles

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In economics, a commodity is an economic good, usually a resource, that specifically has full or substantial fungibility: that is, the market treats instances of the good as equivalent or nearly so with no regard to who produced them.

In political economy and especially Marxian economics, exchange value refers to one of the four major attributes of a commodity, i.e., an item or service produced for, and sold on the market, the other three attributes being use value, economic value, and price. Thus, a commodity has the following:

Capital accumulation is the dynamic that motivates the pursuit of profit, involving the investment of money or any financial asset with the goal of increasing the initial monetary value of said asset as a financial return whether in the form of profit, rent, interest, royalties or capital gains. The aim of capital accumulation is to create new fixed and working capitals, broaden and modernize the existing ones, grow the material basis of social-cultural activities, as well as constituting the necessary resource for reserve and insurance. The process of capital accumulation forms the basis of capitalism, and is one of the defining characteristics of a capitalist economic system.

Labour power is the capacity to do work, a key concept used by Karl Marx in his critique of capitalist political economy. Marx distinguished between the capacity to do work, i.e. labour power, and the physical act of working, i.e. labour. Labour power exists in any kind of society, but on what terms it is traded or combined with means of production to produce goods and services has historically varied greatly.

In Marxism, the valorisation or valorization of capital is the increase in the value of capital assets through the application of value-forming labour in production. The German original term is "Verwertung" but this is difficult to translate. The first translation of Capital by Samuel Moore and Edward Aveling, under Engels' editorship, renders "Verwertung" in different ways depending on the context, for example as "creation of surplus-value", "self-expanding value", "increase in value" and similar expressions. These renderings were also used in the US Untermann revised edition, and the Eden and Cedar Paul translation. It has also been wrongly rendered as "realisation of capital".

Surplus labour is a concept used by Karl Marx in his critique of political economy. It means labour performed in excess of the labour necessary to produce the means of livelihood of the worker. The "surplus" in this context means the additional labour a worker has to do in their job, beyond earning their keep. According to Marxian economics, surplus labour is usually uncompensated (unpaid) labour.

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Prices of production is a concept in Karl Marx's critique of political economy, defined as "cost-price + average profit". A production price can be thought of as a type of supply price for products; it refers to the price levels at which newly produced goods and services would have to be sold by the producers, in order to reach a normal, average profit rate on the capital invested to produce the products.

Productive and unproductive labour are concepts that were used in classical political economy mainly in the 18th and 19th centuries, which survive today to some extent in modern management discussions, economic sociology and Marxist or Marxian economic analysis. The concepts strongly influenced the construction of national accounts in the Soviet Union and other Soviet-type societies.

Fictitious capital is a concept used by Karl Marx in his critique of political economy. It is introduced in chapter 25 of the third volume of Capital. Fictitious capital contrasts with what Marx calls "real capital", which is capital actually invested in physical means of production and workers, and "money capital", which is actual funds being held. The market value of fictitious capital assets varies according to the expected return or yield of those assets in the future, which Marx felt was only indirectly related to the growth of real production. Effectively, fictitious capital represents "accumulated claims, legal titles, to future production" and more specifically claims to the income generated by that production.

Capital. A Critique of Political Economy. Volume I: The Process of Production of Capital is the first of three treatises that make up Das Kapital, a critique of political economy by the German philosopher and economist Karl Marx. First published on 14 September 1867, Volume I was the product of a decade of research and redrafting and is the only part of Das Kapital to be completed during Marx's life. It focuses on the aspect of capitalism that Marx refers to as the capitalist mode of production or how capitalism organises society to produce goods and services.

Arghiri Emmanuel was a French Marxian economist who became known in the 1960s and 1970s for his theory of 'unequal exchange'.

In classical political economy and especially Karl Marx's critique of political economy, a commodity is any good or service produced by human labour and offered as a product for general sale on the market. Some other priced goods are also treated as commodities, e.g. human labor-power, works of art and natural resources, even though they may not be produced specifically for the market, or be non-reproducible goods. This problem was extensively debated by Adam Smith, David Ricardo, and Karl Rodbertus-Jagetzow, among others. Value and price are not equivalent terms in economics, and theorising the specific relationship of value to market price has been a challenge for both liberal and Marxist economists.

Criticisms of the labor theory of value affect the historical concept of labor theory of value (LTV) which spans classical economics, liberal economics, Marxian economics, neo-Marxian economics, and anarchist economics. As an economic theory of value, LTV is widely attributed to Marx and Marxian economics despite Marx himself pointing out the contradictions of the theory, because Marx drew ideas from LTV and related them to the concepts of labour exploitation and surplus value; the theory itself was developed by Adam Smith and David Ricardo. LTV criticisms therefore often appear in the context of economic criticism, not only for the microeconomic theory of Marx but also for Marxism, according to which the working class is exploited under capitalism, while little to no focus is placed on those responsible for developing the theory.

Exploitation is a concept defined as, in its broadest sense, one agent taking unfair advantage of another agent. When applying this to labour it denotes an unjust social relationship based on an asymmetry of power or unequal exchange of value between workers and their employers. When speaking about exploitation, there is a direct affiliation with consumption in social theory and traditionally this would label exploitation as unfairly taking advantage of another person because of their vulnerable position, giving the exploiter the power.

In Karl Marx's critique of political economy and subsequent Marxian analyses, the capitalist mode of production refers to the systems of organizing production and distribution within capitalist societies. Private money-making in various forms preceded the development of the capitalist mode of production as such. The capitalist mode of production proper, based on wage-labour and private ownership of the means of production and on industrial technology, began to grow rapidly in Western Europe from the Industrial Revolution, later extending to most of the world.

Socially necessary labour time in Marx's critique of political economy is what regulates the exchange value of commodities in trade and consequently constrains producers in their attempt to economise on labour. It does not 'guide' them, as it can only be determined after the event and is thus inaccessible to forward planning.

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Marxian economics, or the Marxian school of economics, is a heterodox school of political economic thought. Its foundations can be traced back to Karl Marx's critique of political economy. However, unlike critics of political economy, Marxian economists tend to accept the concept of the economy prima facie. Marxian economics comprises several different theories and includes multiple schools of thought, which are sometimes opposed to each other; in many cases Marxian analysis is used to complement, or to supplement, other economic approaches. Because one does not necessarily have to be politically Marxist to be economically Marxian, the two adjectives coexist in usage, rather than being synonymous: They share a semantic field, while also allowing both connotative and denotative differences.

References

1 2 Hickel, Jason; Dorninger, Christian; Wieland, Hanspeter; Suwandi, Intan (2022). "Imperialist appropriation in the world economy: Drain from the global South through unequal exchange, 1990–2015". Global Environmental Change. 73 (102467): 102467. doi: 10.1016/j.gloenvcha.2022.102467 .
↑ Ricci, Andrea (2018). "Unequal Exchange in the Age of Globalization" (PDF). Review of Radical Political Economics. 21: 21 – via Sage pub.
↑ Cederlöf, Gustav (2023). The Low-Carbon Contradiction: Energy Transition, Geopolitics, and the Infrastructural State in Cuba. Critical environments: nature, science, and politics. Oakland, California: University of California Press. ISBN 978-0-520-39313-4.
↑ Somerville, Peter (2022-01-02). "A Critique of Ecologically Unequal Exchange Theory". Capitalism Nature Socialism . 33 (1): 66–70. doi:10.1080/10455752.2021.2010107. ISSN 1045-5752.

Brolin, John (2006). The Bias of the World: Theories of Unequal Exchange in History. Sweden: Lund University. ISBN 978-91-628-7022-5.{{cite book}}: |work= ignored (help)^{[ permanent dead link ]}; more extensive draft version available at http://www.kallebrolin.com/Local%20Images%20Folder/portfoliostills/0TheBiasoftheWorld.pdf
Heintz, James. "Unequal exchange". Archived from the original on 2002-09-01.
Heintz, James. "The new face of unequal exchange; low wage manufacturing, commodity chains, and global inequality". Archived from the original (PDF) on 2014-03-05.
New Internationalist, "Free or fair trade - the facts"
Kohler, Gernot; Emilio José Chaves, eds. (2003). Globalization: Critical Perspectives. Hauppauge, New York: Nova Science Publishers. ISBN 1-59033-346-2. With contributions by Samir Amin, Christopher Chase-Dunn, Andre Gunder Frank, Immanuel Wallerstein.
Gernot Köhler, "Surplus value and transfer value"
Gernot Köhler, Unequal exchange 1965-1995
Gernot Köhler and Arno Tausch, Global Keynesianism: Unequal Exchange and Global Exploitation.
Gernot Köhler, "Comparative advantage - comparative exploitation"
Cem Somel, "Commodity chains, unequal exchange and uneven development", ERC working paper, September 2004. (PDF)
Arghiri Emmanuel, Unequal exchange; A study of the imperialism of trade.
Ernest Mandel, Late Capitalism.
Samir Amin, L'echange inégal et la loi de la valeur.
Samir Amin, Unequal Development.
Samir Amin, Imperialism and Unequal Development.
Raúl Prebisch, The economic development of Latin America and its principal problems.
Peter Bauer, Dissent on Development: Studies and Debates in Development Economics.
Klaus Busch, "Ungleicher Tausch – Zur Diskussion über internationale Durchschnittsprofitrate, ungleichen Tausch und komparative Kostentheorie anhand der Thesen von Arghiri Emmanuel", in: Probleme des Klassenkampfs, Nr. 8/9, Berlin 1973.
ECONOMARX bibliography
Alejandro's reference list
Christian Palloix,Inégalité des échanges mondiaux ou inégalité du développement des forces productives à l'échelle mondiale ?. La Pensée, n. 150, mars-avril 1970.
Christian Palloix, "The question of unequal exchange", in: Conference of Socialist Economists Bulletin, Spring 1972
Michael Hudson, Trade, development and Foreign Debt (2 Vols). London: Pluto Press, 1992.
Geoffrey Pilling, "Imperialism, Trade and 'Unequal Exchange': The work of Aghiri Emmanuel", Economy and Society, Vol. 2, 1973
Milton & Rose Friedman, Free to Choose. New York: Harcourt, 1979.
Arndt Hopfmann, Entwicklung, Gerechtigkeit und Weltmarkt - fur und wider das Theorem von Ungleichen Tausch
Richard Brown, The theory of unequal exchange : the end of the debate?, ISS occasional papers #65 The Hague : Institute of Social Studies, 1978.
Joseph L. Love, "Raúl Previsch and the origins of the doctrine of unequal exchange", in: Latin American research review; 15(1980):no.3, p. 45-72.
Reich, Peter-Utz, "Inequality in exchange", December 2006
Somel, Cem (September 2004). "Commodity chains, unequal exchange and uneven development" (PDF). ERC working paper. Retrieved December 3, 2009.
Communist Working Group, Unequal Exchange and the Prospects of Socialism. Copenhagen: Manifest Press, 1986.

External links

"Economarx bibliography on unequal exchange" . Retrieved December 9, 2014.
"Argentine Center of International Studies". Archived from the original on December 17, 2009. Retrieved December 3, 2009.
"Economic Commission for Latin America and the Caribbean" . Retrieved December 3, 2009.
"Revista Entelequia". Archived from the original on March 29, 2010. Retrieved December 3, 2009.
"University of Texas Inequality Project" . Retrieved December 3, 2009.
Tausch, Arno (May 11, 2006). "From the "Washington" towards a "Vienna Consensus"?". Vienna, Austria . Retrieved December 3, 2009.

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[:0-1] 1 2 Hickel, Jason; Dorninger, Christian; Wieland, Hanspeter; Suwandi, Intan (2022). "Imperialist appropriation in the world economy: Drain from the global South through unequal exchange, 1990–2015". Global Environmental Change. 73 (102467): 102467. doi: 10.1016/j.gloenvcha.2022.102467 .

[2] Ricci, Andrea (2018). "Unequal Exchange in the Age of Globalization" (PDF). Review of Radical Political Economics. 21: 21 – via Sage pub.

[:022-3] Cederlöf, Gustav (2023). The Low-Carbon Contradiction: Energy Transition, Geopolitics, and the Infrastructural State in Cuba. Critical environments: nature, science, and politics. Oakland, California: University of California Press. ISBN 978-0-520-39313-4.

[4] Somerville, Peter (2022-01-02). "A Critique of Ecologically Unequal Exchange Theory". Capitalism Nature Socialism . 33 (1): 66–70. doi:10.1080/10455752.2021.2010107. ISSN 1045-5752.

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