Unequal exchange
Encyclopedia
Unequal exchange is a much disputed concept which is used primarily in Marxist economics
, but also in ecological economics
, to denote forms of exploitation
hidden in or underwriting trade. 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 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 superprofit
s. 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 footprint
s 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.
This practice was already known and described in medieval times and earlier, and it led to theories of a “just” or “fair” price for products. For example, according to medieval Christian theologians, the profit mark-up should never be more than one-sixth (16-17%) of the value of the traded object (see Paul Bairoch, Victoires et deboires, Vol. 3, Gallimard 1997, p. 699). The idea of unequal exchange surfaces again nowadays in controversies over fair trade
. However, in modern neoclassical economics
, the notion of a morally justifiable price is regarded as unscientific; at most one can talk about an “equilibrium price” in an open, competitive market. If the value of a good is simply equal to the price someone is prepared to pay for it according to individual choice, no exchange can be unequal.
Anyone can claim to have been "cheated" or shortchanged in exchange, in the sense of receiving an "unfair" price for a commodity, less than it is really worth, or having to pay more than it is really worth. The crucial question which must be answered therefore is what the "real value" of commodities actually is, what their real worth is, and how that could be objectively established. A related question is why the "victim" traded at a lower price, when he could have gotten a higher price elsewhere.
This question preoccupied social philosophers and economic thinkers for many centuries. It contributed to the "moral science" of political economy
, which was originally concerned with the problem of what would be a fair and just exchange, and how trading could be regulated in the interests of a more harmonious progress of human society.
In modern thought, however, value in economics is regarded as a purely subjective matter — it can be judged only on the basis of how an individual actually lives his life and how he conducts himself as an individual in the marketplace. The only “objective” aspect that remains is the price at which a commodity sells or is purchased, and this becomes the foundation for modern economic science.
So in modern economics, value is essentially a question of style, moral behaviour and the spirituality of individuals, not an economic issue. If unfair trading practices occur, it must be that there is an impediment to freely competitive markets; and if those markets or market access could be open, all would be fair. Fair competition is said to be guaranteed through:
In that case, the concept of "unequal exchange" can only refer to unfair trading practices, such as:
By implication, unequal exchange is not itself viewed here as an economic process, because if open market access and market security exist, then trade is equal and fair by definition - it is equal because everybody has the same access to the market, and it is fair because just laws and their enforcement ensure that this is so. Another way of saying this is that if citizens have equal rights and equal opportunity, there cannot be any unequal exchange, except if citizens behave in immoral ways.
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:
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:
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,
The overall effect is that, Marx believed, in the trade between nations, more work exchanges for less work - the richer the rich become, the more capital assets they have to make additional claims to wealth from somewhere else, and the poorer the poor become, the more work they actually have to do, to obtain an equivalent amount of products for production or consumption. The end result of that situation is rising debt levels. Because if the exploitation through unequal exchange has become extreme, it is no longer possible to generate sufficient current income through production to pay off all the claims on that production, and the only way in which production can be maintained at all, is through the credit mechanism which defers the financial consequences of current consumption in space and time.
In Marx's analysis, the conflict between free trade
and protectionism
is the necessary result of market competition, and not simply a matter of state policies which mediate the conflict. Those market actors who are in a strong bargaining position and have a trading advantage will typically favour free trade to enlarge their potential markets, while those in a weaker bargaining position or somehow disadvantaged in trade will support protectionism. The persistence of this conflict through the whole history of market trade, in various guises, is often seen as evidence for the persistence of unequal exchange. But it could be that those who have the greatest market power will favour both free trade and protectionism of different kinds, to suit their own position, based on their ownership and control of property. In the final analysis, Marx argues, market power is based on the effective control of capital assets, on private property
. The more assets on has, the more one can borrow, and consequently the bigger the amount of capital one can use to extract additional income.
All these arguments illustrate that market trade supplies no specific moral norms of its own, beyond the (contractual) obligations necessary to settle transactions. If one is "free to choose" in market trade, one is also able to choose freely what morality to follow, within an accepted or enforced legal framework. Those moralities might clash, but there may exist no neutral arbiter that can adjudicate: it may be that "between equal rights, force decides".
The typical response to these criticisms is that one may be forced to buy or forced to sell, even just for survival - whether one likes that or not, and under unfavourable conditions - both because markets set price levels beyond anyone's control, and because market actors have unequal bargaining power. Thus, it may be impossible ever to reach the position of fair or equal exchange, except through non-market interventions. That is, market trade could be liberating, but it could just as well be very oppressive. If the rich/poor gap widens constantly, and terms of trade deteriorate constantly, the idea of "trading up the ladder" or "trickle down effects" is seriously undermined.
Marxian economics
Marxian economics refers to economic theories on the functioning of capitalism based on the works of Karl Marx. Adherents of Marxian economics, particularly in academia, distinguish it from Marxism as a political ideology and sociological theory, arguing that Marx's approach to understanding the...
, but also in ecological economics
Ecological economics
Image:Sustainable development.svg|right|The three pillars of sustainability. Clickable.|275px|thumbpoly 138 194 148 219 164 240 182 257 219 277 263 291 261 311 264 331 272 351 283 366 300 383 316 394 287 408 261 417 224 424 182 426 154 423 119 415 87 403 58 385 40 368 24 347 17 328 13 309 16 286 26...
, to denote forms of exploitation
Exploitation
This article discusses the term exploitation in the meaning of using something in an unjust or cruel manner.- As unjust benefit :In political economy, economics, and sociology, exploitation involves a persistent social relationship in which certain persons are being mistreated or unfairly used for...
hidden in or underwriting trade. Originating, in the wake of the debate on the Singer-Prebisch thesis
Singer-Prebisch thesis
The Singer–Prebisch thesis postulates that terms of trade, between primary products and manufactured goods, deteriorate in time...
, 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
Arghiri Emmanuel
Arghiri Emmanuel was an economist who became known in the 1960s and 1970s for his theory of 'unequal exchange'. The theory was an attempt to explain the falling trend in the terms of trade for underdeveloped countries, while criticising the different approaches of Raúl Prebisch, Hans Singer, and...
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 Baran
Paul Baran
Paul Baran was a Polish American engineer who was a pioneer in the development of computer networks.He invented packet switching techniques, and went on to start several companies and develop other technologies that are an essential part of the Internet and other modern digital...
, and subsequently adopted in the dependency
Dependency theory
Dependency theory or dependencia theory is a body of social science theories predicated on the notion that resources flow from a "periphery" of poor and underdeveloped states to a "core" of wealthy states, enriching the latter at the expense of the former...
approach of Andre Gunder Frank
Andre Gunder Frank
Andre Gunder Frank was a German-American economic historian and sociologist who promoted "dependency theory" after 1970 and "World Systems Theory" after 1984...
, there is a related but distinct concern with the transfer of values due to superprofit
Superprofit
Superprofit , is a concept in Karl Marx's critique of political economy, subsequently elaborated by Lenin and other Marxist thinkers.-The origin of the concept in Marx's Capital:...
s. 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
Superprofit
Superprofit , is a concept in Karl Marx's critique of political economy, subsequently elaborated by Lenin and other Marxist thinkers.-The origin of the concept in Marx's Capital:...
. 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
Samir Amin
Samir Amin is an Egyptian economist. He currently lives in Dakar, Senegal.- Biography :Samir Amin was born in Cairo, the son of an Egyptian father and a French mother . He spent his childhood and youth in Port Said; there he attended a French High School, leaving in 1947 with a Baccalauréat...
, who tried to link it to his own argument on the interdependent uneven development
Uneven and combined development
Uneven and combined development is a Marxist concept to describe the overall dynamics of human history. It was originally used by the Russian revolutionary Leon Trotsky around the turn of the 20th century, when he was analyzing the developmental possibilities that existed for the economy and...
of rich and poor countries. Ernest Mandel
Ernest Mandel
Ernest Ezra Mandel, also known by various pseudonyms such as Ernest Germain, Pierre Gousset, Henri Vallin, Walter , was a revolutionary Marxist theorist.-Life:...
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
John Roemer
John E. Roemer is an American economist and political scientist. He is currently the Elizabeth S. and A. Varick Stout Professor of Political Science and Economics at Yale University. Prior to joining Yale, he was on the economics faculty at the University of California, Davis, and before entering...
), and this type of approach has then been elaborated in recent decades by ecological economists, based instead on, e.g. ecological footprint
Ecological footprint
The ecological footprint is a measure of human demand on the Earth's ecosystems. It is a standardized measure of demand for natural capital that may be contrasted with the planet's ecological capacity to regenerate. It represents the amount of biologically productive land and sea area necessary to...
s 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
Capitalist mode of production
In Marx's critique of political economy, the capitalist mode of production is the production system of capitalist societies, which began in Europe in the 16th century, grew rapidly in Western Europe from the end of the 18th century, and later extended to most of the world...
, 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
Immanuel Wallerstein
Immanuel Maurice Wallerstein is a US sociologist, historical social scientist, and world-systems analyst...
the origins of the modern world-system, or what others, such as Ernest Mandel, would call the rise of merchant capitalism
Merchant capitalism
Merchant capitalism is a term used by economic historians to refer to the earliest phase in the development of capitalism as an economic and social system. Early forms of merchant capitalism were developed in the medieval Islamic world from the 9th century, and in medieval Europe from the 12th...
, is said to have entailed unequal exchange, although the idea was criticised by Robert Brenner
Robert Brenner
Robert P. Brenner is a professor of history and director of the Center for Social Theory and Comparative History at UCLA, editor of the socialist journal Against the Current, and editorial committee member of New Left Review...
.
Another aspect of these theories is the criticism of fundamental assumptions of Ricardian and neoclassical theories of comparative advantage
Comparative advantage
In economics, the law of comparative advantage says that two countries will both gain from trade if, in the absence of trade, they have different relative costs for producing the same goods...
, 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.
Basic definition
The basic principle of unequal exchange can be described simply as "buying cheap and selling dear", in such a way that a commodity or asset is bought either:- Below its real value, and sold at a higher value, or
- At its real value, but sold above its real value, or
- Above its real value, and sold at a price even higher than its already inflated acquisition cost (e.g., stock market).
This practice was already known and described in medieval times and earlier, and it led to theories of a “just” or “fair” price for products. For example, according to medieval Christian theologians, the profit mark-up should never be more than one-sixth (16-17%) of the value of the traded object (see Paul Bairoch, Victoires et deboires, Vol. 3, Gallimard 1997, p. 699). The idea of unequal exchange surfaces again nowadays in controversies over fair trade
Fair trade
Fair trade is an organized social movement and market-based approach that aims to help producers in developing countries make better trading conditions and promote sustainability. The movement advocates the payment of a higher price to producers as well as higher social and environmental standards...
. However, in modern neoclassical economics
Neoclassical economics
Neoclassical economics is a term variously used for approaches to economics focusing on the determination of prices, outputs, and income distributions in markets through supply and demand, often mediated through a hypothesized maximization of utility by income-constrained individuals and of profits...
, the notion of a morally justifiable price is regarded as unscientific; at most one can talk about an “equilibrium price” in an open, competitive market. If the value of a good is simply equal to the price someone is prepared to pay for it according to individual choice, no exchange can be unequal.
Anyone can claim to have been "cheated" or shortchanged in exchange, in the sense of receiving an "unfair" price for a commodity, less than it is really worth, or having to pay more than it is really worth. The crucial question which must be answered therefore is what the "real value" of commodities actually is, what their real worth is, and how that could be objectively established. A related question is why the "victim" traded at a lower price, when he could have gotten a higher price elsewhere.
This question preoccupied social philosophers and economic thinkers for many centuries. It contributed to the "moral science" of political economy
Political economy
Political economy originally was the term for studying production, buying, and selling, and their relations with law, custom, and government, as well as with the distribution of national income and wealth, including through the budget process. Political economy originated in moral philosophy...
, which was originally concerned with the problem of what would be a fair and just exchange, and how trading could be regulated in the interests of a more harmonious progress of human society.
In modern thought, however, value in economics is regarded as a purely subjective matter — it can be judged only on the basis of how an individual actually lives his life and how he conducts himself as an individual in the marketplace. The only “objective” aspect that remains is the price at which a commodity sells or is purchased, and this becomes the foundation for modern economic science.
So in modern economics, value is essentially a question of style, moral behaviour and the spirituality of individuals, not an economic issue. If unfair trading practices occur, it must be that there is an impediment to freely competitive markets; and if those markets or market access could be open, all would be fair. Fair competition is said to be guaranteed through:
- Free access for all to the market place, and
- A legal and security framework which protects traders from being cheated and robbed.
In that case, the concept of "unequal exchange" can only refer to unfair trading practices, such as:
- Not getting an equal opportunity of access to the market,
- Illegal trading practices, ranging from plunder, robbery and theft, to extortion or price mark-ups which are against the law.
By implication, unequal exchange is not itself viewed here as an economic process, because if open market access and market security exist, then trade is equal and fair by definition - it is equal because everybody has the same access to the market, and it is fair because just laws and their enforcement ensure that this is so. Another way of saying this is that if citizens have equal rights and equal opportunity, there cannot be any unequal exchange, except if citizens behave in immoral ways.
Unequal exchange in Marxian economics
Karl MarxKarl Marx
Karl Heinrich Marx was a German philosopher, economist, sociologist, historian, journalist, and revolutionary socialist. His ideas played a significant role in the development of social science and the socialist political movement...
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
Adam Smith
Adam Smith was a Scottish social philosopher and a pioneer of political economy. One of the key figures of the Scottish Enlightenment, Smith is the author of The Theory of Moral Sentiments and An Inquiry into the Nature and Causes of the Wealth of Nations...
and David Ricardo
David Ricardo
David Ricardo was an English political economist, often credited with systematising economics, and was one of the most influential of the classical economists, along with Thomas Malthus, Adam Smith, and John Stuart Mill. He was also a member of Parliament, businessman, financier and speculator,...
(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
Prices of production
Prices of production refers to a concept in Karl Marx's critique of political economy. It is introduced in the third volume of Das Kapital, where Marx considers the operation of capitalist production as the unity of a production process and a circulation process involving commodities, money and...
, 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 labourSurplus labourSurplus 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 . According to Marxian economics, surplus labour is usually "unpaid 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
Das Kapital
Das Kapital, Kritik der politischen Ökonomie , by Karl Marx, is a critical analysis of capitalism as political economy, meant to reveal the economic laws of the capitalist mode of production, and how it was the precursor of the socialist mode of production.- Themes :In Capital: Critique of...
, 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
Surplus value
Surplus value is a concept used famously by Karl Marx in his critique of political economy. Although Marx did not himself invent the term, he developed the concept...
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
Capital accumulation
The accumulation of capital refers to the gathering or amassing of objects of value; the increase in wealth through concentration; or the creation of wealth. Capital is money or a financial asset invested for the purpose of making more money...
and market expansion takes the form of imperialism
Imperialism
Imperialism, as defined by Dictionary of Human Geography, is "the creation and/or maintenance of an unequal economic, cultural, and territorial relationships, usually between states and often in the form of an empire, based on domination and subordination." The imperialism of the last 500 years,...
, i.e., an aggressive international competition process aimed at lowering costs, and increasing sales and profits.
As Marx put it,
The overall effect is that, Marx believed, in the trade between nations, more work exchanges for less work - the richer the rich become, the more capital assets they have to make additional claims to wealth from somewhere else, and the poorer the poor become, the more work they actually have to do, to obtain an equivalent amount of products for production or consumption. The end result of that situation is rising debt levels. Because if the exploitation through unequal exchange has become extreme, it is no longer possible to generate sufficient current income through production to pay off all the claims on that production, and the only way in which production can be maintained at all, is through the credit mechanism which defers the financial consequences of current consumption in space and time.
In Marx's analysis, the conflict between free trade
Free trade
Under a free trade policy, prices emerge from supply and demand, and are the sole determinant of resource allocation. 'Free' trade differs from other forms of trade policy where the allocation of goods and services among trading countries are determined by price strategies that may differ from...
and protectionism
Protectionism
Protectionism is the economic policy of restraining trade between states through methods such as tariffs on imported goods, restrictive quotas, and a variety of other government regulations designed to allow "fair competition" between imports and goods and services produced domestically.This...
is the necessary result of market competition, and not simply a matter of state policies which mediate the conflict. Those market actors who are in a strong bargaining position and have a trading advantage will typically favour free trade to enlarge their potential markets, while those in a weaker bargaining position or somehow disadvantaged in trade will support protectionism. The persistence of this conflict through the whole history of market trade, in various guises, is often seen as evidence for the persistence of unequal exchange. But it could be that those who have the greatest market power will favour both free trade and protectionism of different kinds, to suit their own position, based on their ownership and control of property. In the final analysis, Marx argues, market power is based on the effective control of capital assets, on private property
Private property
Private property is the right of persons and firms to obtain, own, control, employ, dispose of, and bequeath land, capital, and other forms of property. Private property is distinguishable from public property, which refers to assets owned by a state, community or government rather than by...
. The more assets on has, the more one can borrow, and consequently the bigger the amount of capital one can use to extract additional income.
Empirical indicators of unequal exchange
- The terms of tradeTerms of tradeIn international economics and international trade, terms of trade or TOT is /. In layman's terms it means what quantity of imports can be purchased through the sale of a fixed quantity of exports...
. 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.
Criticisms of the concept of unequal exchange
Broadly, six main criticisms can be distinguished:- The first criticism of the concept of unequal exchange is that, even although it may be proved to occur, this of itself has no specific moral or policy implication. "Unequal" does not necessarily imply "unfair". Reference is made here to human choice: if somebody choses to buy or sell above or below what a product is really worth, that is their own choice, and they only have themselves to blame, if they get a bad deal.
- The second criticism is that even although unequal exchange can be proved to occur, it is preferable to no trade at all. At least if trade occurs, everybody can gain something from it, even if it means some gain more than others. If that is accepted by all parties to the trade, it cannot be morally wrong. It may be that a good purchased in one country fetches a much higher price in another, but in good part that higher price is due to the costs involved in the trading process as such. Traders aim to sell goods as competitively as they can, and if the final price is comparatively high, there is not much they can do about that.
- This argument is extended with the idea that people have to learn to "trade up the ladder". Yes, the starting position may be one of inequality, but by "trading up" it is possible to "get even" over time, i.e., over time it is possible to improve one's market position, perhaps with the aid of credit. Inversely, a "trickle down effect" is said to occur whereby the enrichment of some through trade will improve the position of others less fortunate over time. Trading problems should therefore be viewed in terms of a process of development over time, whereby market actors gradually improve their position although unequal positions can never be abolished.
- The epistemic criticism revolves around the idea that it is impossible to specify objectively and/or universally what a fair or equal exchange would be anyway; any such judgement is regarded as either subjective, or biased in favour of some group or other. Any economic exchange will be "unequal" from some point of view. A sub-argument here is, that not less labour exchanges for more labour, but that labour is itself valued differently in different places.
- Fifth, it is argued that if unequal exchange exists, that is only because some groups or countries took the initiative to trade and generate wealth. That gave them an advantage or privileged starting position, sure, but they achieved it through their own initiative, and they justly deserve the benefit of that.
- Finally, it is argued that the market will spontaneously balance itself over time anyway, since, if some group feels hard done by and disadvantaged in trade, they will band together to drive up the price of what they sell in the competitive marketplace. Thus, the market will ultimately adjust to what goods and services are really worth, and market imperfections or rigidities will be ironed out through the process of market competition itself.
All these arguments illustrate that market trade supplies no specific moral norms of its own, beyond the (contractual) obligations necessary to settle transactions. If one is "free to choose" in market trade, one is also able to choose freely what morality to follow, within an accepted or enforced legal framework. Those moralities might clash, but there may exist no neutral arbiter that can adjudicate: it may be that "between equal rights, force decides".
The typical response to these criticisms is that one may be forced to buy or forced to sell, even just for survival - whether one likes that or not, and under unfavourable conditions - both because markets set price levels beyond anyone's control, and because market actors have unequal bargaining power. Thus, it may be impossible ever to reach the position of fair or equal exchange, except through non-market interventions. That is, market trade could be liberating, but it could just as well be very oppressive. If the rich/poor gap widens constantly, and terms of trade deteriorate constantly, the idea of "trading up the ladder" or "trickle down effects" is seriously undermined.
See also
- UsuryUsuryUsury Originally, when the charging of interest was still banned by Christian churches, usury simply meant the charging of interest at any rate . In countries where the charging of interest became acceptable, the term came to be used for interest above the rate allowed by law...
- Value-formValue-formThe value-form or form of value is a concept in Karl Marx’s critique of the political economy. It refers to a socially attributed characteristic of a commodity which contrasts with its tangible use-value or utility .The concept is introduced in the first chapter of Das Kapital where Marx argues...
- Fair tradeFair tradeFair trade is an organized social movement and market-based approach that aims to help producers in developing countries make better trading conditions and promote sustainability. The movement advocates the payment of a higher price to producers as well as higher social and environmental standards...
- Balanced tradeBalanced tradeBalanced trade is an alternative economic model to free trade. Under balanced trade nations are required to provide a fairly even reciprocal trade pattern; they cannot run large trade deficits....
- Singer-Prebisch thesisSinger-Prebisch thesisThe Singer–Prebisch thesis postulates that terms of trade, between primary products and manufactured goods, deteriorate in time...
- Rate of exploitation
- Surplus valueSurplus valueSurplus value is a concept used famously by Karl Marx in his critique of political economy. Although Marx did not himself invent the term, he developed the concept...
- Surplus labourSurplus labourSurplus 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 . According to Marxian economics, surplus labour is usually "unpaid labour"...
- TradeTradeTrade is the transfer of ownership of goods and services from one person or entity to another. Trade is sometimes loosely called commerce or financial transaction or barter. A network that allows trade is called a market. The original form of trade was barter, the direct exchange of goods and...
- Globalisation
- United Nations Conference on Trade and DevelopmentUnited Nations Conference on Trade and DevelopmentThe United Nations Conference on Trade and Development was established in 1964 as a permanent intergovernmental body. It is the principal organ of the United Nations General Assembly dealing with trade, investment, and development issues....
- Capital accumulationCapital accumulationThe accumulation of capital refers to the gathering or amassing of objects of value; the increase in wealth through concentration; or the creation of wealth. Capital is money or a financial asset invested for the purpose of making more money...
- Real prices and ideal pricesReal prices and ideal pricesReal prices and ideal prices refers to a distinction between actual prices paid for products, services, assets and labour , and computed prices which are not actually charged or paid in market trade, although they may facilitate trade...
- Dependency theoryDependency theoryDependency theory or dependencia theory is a body of social science theories predicated on the notion that resources flow from a "periphery" of poor and underdeveloped states to a "core" of wealthy states, enriching the latter at the expense of the former...