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VALUE AND UNEQUAL EXCHANGE
IN INTERNATIONAL TRADE
Contrary to the claims made by neoliberal governments and mainstream
academics, this book argues that the huge increase in trade in recent decades has
not made the world a fairer place: instead, the age of globalization has become a
time of mass migration caused by increasing global inequality.
The theory of unequal exchange challenges the free trade doctrine, claiming
that transfers of value from poorer to richer countries are hidden behind apparently
equivalent market transactions. Following a critical review of the existing
approaches, the book proposes a general theory of unequal exchange in the light of
an innovative reconstruction of Marx’s international law of value, in which money
and exchange rates play a crucial role in decoupling value captured from value
produced by dierent countries, even in perfectly competitive world markets. On
this theoretical basis, the book provides an empirical analysis of the international
transfers of value in both traditional trade and global value chains. The resulting
world mapping of unequal exchange shows the geographical hierarchy of capital
global exploitation by revealing a world divided into two quite separate camps of
donor and receiving countries, the former being the poorer countries and the latter
the richer countries.
This book is addressed to scholars and students of economics and social
sciences, as well as activists of the North and the South, interested in a better
understanding of the asymmetric power relations implied in global trade. It makes
a signicant contribution to the literature on political economy, trade, Marxism,
international relations, and economic geography.
Andrea Ricci is tenured Assistant Professor in Economics at the University of
Urbino, Italy. He obtained a MA in International Economics from the Graduate
Institute of International and Development Studies of Geneva (Switzerland) and
a PhD in Political Economy from the Università Politecnica delle Marche (Italy).
ROUTLEDGE FRONTIERS OF POLITICAL
ECONOMY
INTANGIBLE FLOW THEORY IN ECONOMICS
Human Participation in Economic and Societal Production
Tiago Cardao-Pito
FOUNDATIONS OF POST-SCHUMPETERIAN ECONOMICS
Innovation, Institutions and Finance
Beniamino Callegari
DISTRIBUTIVE JUSTICE AND TAXATION
Jørgen Pedersen
THE CHINA–US TRADE WAR AND SOUTH ASIAN ECONOMIES
Edited by Rahul Nath Choudhury
POLITICS AND THE THEORY OF SPONTANEOUS ORDER
Piotr Szafruga
PREVENTING THE NEXT FINANCIAL CRISIS
Victor A. Beker
CAPITAL THEORY AND POLITICAL ECONOMY
Lefteris Tsouldis
VALUE AND UNEQUAL EXCHANGE IN INTERNATIONAL
TRADE
The Geography of Global Capitalist Exploitation
Andrea Ricci
INFLATION, UNEMPLOYMENT AND CAPITAL
MALFORMATIONS
Bernard Schmitt
Edited and Translated in English by Alvaro Cencini and Xavier Bradley
For more information about this series, please visit: www .routledge .com /books /
series /SE0345
VALUE AND UNEQUAL
EXCHANGE IN
INTERNATIONAL TRADE
The Geography of Global
Capitalist Exploitation
Andrea Ricci
First published 2021
by Routledge
2 Park Square, Milton Park, Abingdon, Oxon OX14 4RN
and by Routledge
605 Third Avenue, New York, NY 10158
Routledge is an imprint of the Taylor & Francis Group, an informa
business
© 2021 Andrea Ricci
The right of Andrea Ricci to be identied as author of this work has been
asserted by him in accordance with sections 77 and 78 of the Copyright,
Designs and Patents Act 1988.
All rights reserved. No part of this book may be reprinted or reproduced or
utilised in any form or by any electronic, mechanical, or other means, now
known or hereafter invented, including photocopying and recording, or in
any information storage or retrieval system, without permission in writing
from the publishers.
Trademark notice: Product or corporate names may be trademarks or
registered trademarks, and are used only for identication and explanation
without intent to infringe.
British Library Cataloguing-in-Publication Data
A catalogue record for this book is available from the British Library
Library of Congress Cataloging-in-Publication Data
Names: Ricci, Andrea, author.
Title: Value and unequal exchange in international trade: the geography of
global capitalist exploitation/Andrea Ricci.
Description: Abingdon, Oxon; New York, NY: Routledge, 2021. |
Series: Routledge frontiers of political economy | Includes bibliographical
references and index.
Identiers: LCCN 2020053542 (print) | LCCN 2020053543 (ebook)
Subjects: LCSH: International trade. | Income distribution. |
Economics. | Capitalism.
Classication: LCC HF1379 .R526 2021 (print) | LCC HF1379 (ebook) |
DDC 382–dc23
LC record available at https://lccn.loc.gov/2020053542
LC ebook record available at https://lccn.loc.gov/2020053543
ISBN: 978-0-367-51397-9 (hbk)
ISBN: 978-0-367-51399-3 (pbk)
ISBN: 978-1-003-05366-8 (ebk)
Typeset in Times New Roman
by Deanta Global Publishing Services, Chennai, India
v
CONTENTS
List of gures viii
List of tables x
List of abbreviations of Marx’s works cited in the text xi
Preface xiii
1 Introduction: Theoretical foundations and measurement of
unequal exchange 1
1.1 The cultural hegemony of free trade neoliberalism 1
1.2 The “practical circumstances” of unequal exchange in
heterodox and Marxist economics 3
1.3 The theoretical foundations of unequal exchange 7
1.4 Mapping unequal exchange in the actual global economy 13
2 The heresy of unequal exchange 16
2.1 The antecedent: The dispute between mercantilism and free
trade 16
2.1.1 Mercantilism 16
2.1.2 The dogma of free trade and neo-mercantilist exceptions 19
2.2 Structuralist unequal exchange 23
2.2.1 Lewis’s dualistic model 25
2.2.2 The “Prebisch–Singer thesis” 27
2.3 Marxist unequal exchange 30
2.3.1 Non-equivalent exchange 33
2.3.2 Unequal exchange and monopoly capitalism 37
2.4 Arghiri Emmanuel’s theory of unequal exchange 39
2.5 A taxonomy of the forms of unequal exchange 44
Notes 45
Bibliography 48
vi
CONTENTS
3 The social algorithm of value 53
3.1 The Marxist debate on abstract labour 53
3.2 Social labour in general 58
3.3 The social algorithm of value 62
3.3.1 The notion of algorithm in Marx’s Mathematical
Manuscripts 73
3.4 The dual nature of substance and form of value 77
3.4.1 The dual nature of abstract labour 78
3.4.2 The dual nature of exchange value 81
Notes 84
Bibliography 87
4 The dual measure of value: Money and labour time 90
4.1 “Money as general commodity” 90
4.1.1 The simplifying assumption of gold money in Marx’s
Capital 91
4.1.2 Commodity in general and specic social forms of
commodity 94
4.2 The functions of money 97
4.2.1 Money as the medium of circulation 97
4.2.2 Money as the measure of values 100
4.3 The fundamental equivalence of value 109
4.3.1 The measurement of exchange value: Labour time and
money 109
4.3.2 The monetary expression of labour time 111
4.4 The law of value and unequal exchange 121
4.4.1 Value transfers and the law of value 121
4.4.2 The world market and unequal exchange 124
Notes 128
Bibliography 132
5 The international law of value and money: A general model of
unequal exchange 136
5.1 Why are prices higher in richer countries? 136
5.1.1 The “Penn puzzle” in standard trade theory 139
5.1.2 The “Penn puzzle” in non-standard trade theory 141
5.2 Universal labour and international value in Marx’s theory 142
5.3 The value of money and unequal exchange 150
vii
CONTENTS
5.3.1 Intensity and productivity of labour and the value of
commodities 150
5.3.2 The essential modication of the international law of value 153
5.3.3 The international value of money and unequal exchange 157
5.3.4 Trade and unequal development in regional and international
capitalist space 161
5.4 A general model of unequal exchange 165
5.4.1 A Marxian model of exchange rate determination 165
5.4.2 A disaggregated general model of unequal exchange 171
Notes 176
Bibliography 179
6 The geography of global exploitation: Measuring unequal
exchange over the last 30 years 185
6.1 Global value chains and the new international division of
labour 185
6.2 An aggregate model of unequal exchange in value added
trade with GVCs 189
6.3 International value transfers from 1990 to 2019 196
6.3.1 The total size of value transfers in the global economy 198
6.3.2 The receivers: Inow value transfers in Centre regions 200
6.3.3 The donors: Outow value transfers in the Emerging
Periphery 203
6.3.4 The donors: Outow value transfers in the Poor
Periphery 211
6.4 The relevance of unequal exchange in the actual global economy 213
Notes 219
Bibliography 220
Appendix 6.1 Country classication in geographical regions 221
Index 223
viii
FIGURES
5.1 The Penn eect in 2017. GDP per capita in PPP and price level
for 166 countries. Price level of USA = 1, PPP in 2011 base.
(Source: Our elaboration on Penn World Table version 9.1.) 137
6.1 World value transfers in total and GVC trade in value added.
Billions of dollars, 1990–2019. (Source: Own elaborations on
UNCTAD-EORA, IMF, WB, and ILO data.) 198
6.2 World value transfers in total and GVC trade in value
added. Percentage of world GDP, 1990–2019. (Source: Own
elaborations on UNCTAD-EORA, IMF, WB, and ILO data.) 200
6.3 Centre regions: Inow total value transfers. Billions of dollars,
1990–2019. (Source: Own elaborations on UNCTAD-EORA,
IMF, WB, and ILO data.) 202
6.4 Centre regions: Inow total value transfers. Percentage of GDP,
ten-year average, 1990–2019. (Source: own elaborations on
UNCTAD-EORA, IMF, WB, and ILO data.) 205
6.5 Centre regions: Inow GVC value transfers. Percentage of GDP,
ten-year average, 1990–2019. (Source: Own elaborations on
UNCTAD-EORA, IMF, WB, and ILO data.) 205
6.6 Share of outow value transfer from Emerging and Poor
Periphery regions. (Source: Own elaborations on UNCTAD-
EORA, IMF, WB, and ILO data.) 206
6.7 Emerging Periphery regions: Outow total value transfers.
Billions of dollars, 1990–2019. (Source: Own elaborations on
UNCTAD-EORA, IMF, WB, and ILO data.) 208
6.8 Emerging Periphery regions: Outow total value transfers.
Percentage of GDP, ten-year average, 1990–2019. (Source: Own
elaborations on IMF, WB, and ILO data.) 210
6.9 Emerging Periphery regions: Outow GVC value transfers.
Percentage of GDP, ten-year
average, 1990–2019. (Source: Own elaborations on UNCTAD-
EORA, IMF, WB, and ILO data.) 210
ix
FIGURES
6.10 Poor Periphery regions: Outow total value transfers. Billions of
dollars, 1990–2019. (Source: Own elaborations on UNCTAD-
EORA, IMF, WB, and ILO data.) 213
6.11 Poor Periphery regions: Outow total value transfers.
Percentage of GDP, ten-year average, 1990–2019. (Source: Own
elaborations on UNCTAD-EORA, IMF, WB, and ILO data.) 215
6.12 Poor Periphery regions: Outow GVC value transfers.
Percentage of GDP, ten-year average, 1990–2019. (Source: own
elaborations on UNCTAD-EORA, IMF, WB, and ILO data.) 215
x
TABLES
2.1 Forms of unequal exchange in the literature 45
5.1 The law of value and unequal exchange 176
6.1 GDP per capita in current dollars ($) and in purchasing power
parity (PPP), relative price level, and population of world
regions in 2019 197
6.2 Centre regions: Inow value transfers in total and GVC trade in
value added. Billions of current dollars, 1990–2019 201
6.3 Centre regions: Inow value transfers in total and GVC trade in
value added. Percentage of GDP, 1990–2019 204
6.4 Emerging Periphery: Outow value transfers in total and GVC
trade in value added. Billions of current dollars, 1990−2019 207
6.5 Emerging Periphery: Outow value transfers in total and GVC
trade in value added. Percentage of GDP, 1990−2019 209
6.6 Poor Periphery: Outow value transfers in total and GVC trade
in value added. Billions of current dollars, 1990–2019 212
6.7 Poor Periphery: Outow value transfers in total and GVC trade
in value added. Percentage of GDP, 1990–2019 214
6.8 Per capita value transfers in total, GVC, and domestic net
exports in current dollars, 2019 217
6.9 Unequal Exchange Dependency Index, 2018 218
xi
MCGP: Marx, K., Critique of the Gotha Programme. Written: 1875.
Source: Marx/Engels Selected Works, Volume Three. 1970.
Moscow: Progress Publishers. Available at: www .m arxis ts .or g /arc
hive/ marx/ works /1875 /goth a /ind ex .ht m.
MEC: Marx-Engels Correspondence. Available at: www .m arxis ts .or g /
arc hive/ marx/ lette rs /in dex .h tm
MECW: Marx, K., Engels, F., Marx & Engels Collected Works, 50 volumes.
1975–2004. London: Lawrence and Wishart.
MEOC: Marx, K., Engels, F., Opere di Marx e Engels. Volume XXXI, due
tomi. 2011. Napoli: La Città del Sole.
MEW: Marx. K. Economic Works of Karl Marx 1861–1864 The Process
of Production of Capital. Draft Chapter 6 of Capital. Results of
the Direct Production Process. Available at: www .m arxis ts .or g /
arc hive/ marx/ works /1864 /econ omic/ index .htm.
MG: Marx, K., Grundrisse. Foundations of the Critique of Political
Economy (Rough Draft), Written: 1857–1861. Source: Grundrisse.
1973. London: Penguin Books in association with New Left
Review. Translated by Martin Nicolaus. Available at: www .m arxis
ts .or g /arc hive/ marx/ works /1857 /grun driss e /ind ex .ht m
MK1: Marx, K. Capital. A Critique of Political Economy. Volume I:
The Process of Production of Capital. First English edition of
1887. Translated: Samuel Moore and Edward Aveling, edited by
Frederick Engels. Moscow: Progress Publisher. Online Version:
Marx .o rg 1996, Marxists .o rg 1999. Available at: www .m arxis ts .or
g /arc hive/ marx/ works /1867 -c1 /i ndex. htm
MK1FGE: Marx, K. Das Kapital:Kritik der politischen Oekonomie. Erster
Band. Buch I: Der Produktionsprocess des Kapitals. 1867.
Hamburg: Verlag von Otto Meissner.
MK2: Marx, K. Capital. A Critique of Political Economy. Volume II:
The Process of Circulation of Capital. Written: 1863-1878, edited
for publication by Engels in 1885. Source: First English edition
(1907). Moscow: Progress Publishers, 1956. Available at: www .m
arxis ts .or g /arc hive/ marx/ works /1885 -c2 /i ndex. htm
ABBREVIATIONS OF MARX’S WORKS
CITED IN THE TEXT
xii
ABBREVIATIONS OF MARX’S WORKS CITED IN THE TEXT
MK3: Marx, K., Capital. A Critique of Political Economy. Volume
III: The Process of Capitalist Production as a Whole. Written:
1863–1883. First Published: 1894. Edited by Frederick Engels.
Source: Institute of Marxism-Leninism, USSR, 1959. New York:
International Publishers. Online Version: Marx .o rg 1996, Marxists
.o rg 1999. Available at: www .m arxis ts .or g /arc hive/ marx/ works
/1894 -c3 /i ndex. htm
MKFGE: Marx, K. Capital. A Critique of Political Economy. Volume I: The
Process of Production of Capital. First Chapter. First German
edition of 1867. English translation by Albert Dragstedt. Source:
Dragstedt, A. (1976). Value: Studies by Karl Marx. London: New
Park Publications, pp. 7–40. Available at: www .m arxis ts .or g /arc
hive/ marx/ works /1867 -c1 /c ommod ity .h tm
MMMs: Marx, K., Mathematical Manuscripts. Written: 1881. Edited
by S. A. Yanovskaya. Translated: Pradip Bapsi. 1994. Calcutta:
Viswakos Parisad.
MNW: Marx, K., Notes on Adolph Wagner's “Lehrbuch der politischen
Ökonomie”. Written: 1881. Available at: www .m arxis ts .or g /arc
hive/ marx/ works /1881 /01 /w agner .htm
MTSV: Marx, K., Theories of Surplus-Value [Volume IV of Capital],
Written: 1863. Source: Theories of Surplus Value. Moscow:
Progress Publishers. Available at: www .m arxis ts .or g /arc hive/
marx/ works /1863 /theo ries- surpl us -va lue /i ndex. htm
MVPP: Marx, K., Value, Price and Prot. Written between the end of May
and June 27, 1865. First published: 1898. Edited by Eleanor Marx
Aveling. New York: International Co., Inc, 1969. Available at:
www .m arxis ts .or g /arc hive/ marx/ works /1865 /valu e -pri ce -pr ot/
index .htm
xiii
This book, the result of long years of reection and research, was written dur-
ing turbulent months for both the individual and the collective life of each of us,
wherever we are in the world. And it was written in Italy, the country that rst
experienced the devastating consequences of the Sars-CoV-2 virus on the bodies
and minds of many people, even more than where it appeared for the rst time.
The images of the endless chain of military vehicles travelling into Bergamo at
night, one of the richest cities in Europe, and loading hundreds of corpses for
incineration, or those of an elderly, white-dressed Pope Francis walking alone in
the rain of a ghostly and deserted Rome, will remain forever etched in my mem-
ory, as will the continuous ringing of sirens in the darkest days of the pandemic.
The place where I work and teach, Urbino, the Ideal City of the Renaissance, has
paid a high price in terms of infected and victims. As I hand over the manuscript
to the publisher, the plague rages even more than before in Europe, after a short
summer break, and we still do not know the nal outcome of this story for each
of us.
In these months, we lived in a continuous swing of worries and hopes. Our
daily habits have been upset, especially in the most pleasant aspects of existence,
those of aectivity, conviviality, and enjoyment. We have still learned little about
the biology of the virus, but a great deal about the social eects of the pandemic in
the world of global capitalism. All the injustices, contradictions, and inequalities
of the social system have been amplied. Despite the heavy troubles suered, I
live in a small part of the world that is rich and well equipped. In other parts, less
rich and less fortunate, the pain suered by people is much greater. All of this is
alarming and calls for urgent practical action for a radical transformation of the
current social system before other even more devastating crises break out, starting
with the climate and environmental emergency.
The virus put an end to a whole historical phase, that of neoliberal capitalist
globalization, which began just 30 years ago with the fall of the Berlin Wall.
The post-pandemic world of tomorrow will be very dierent from that of before.
We do not know whether it will be better or worse. It is up to the individual and
collective engagement and struggle of each of us, wherever we are, to make it
better. This book deals with a salient aspect of the world of before, exploring on
PREFACE
xiv
PREFACE
a theoretical and empirical level the phenomenon of unequal exchange in inter-
national trade, and its role in the enlarged reproduction of the gap in economic
development between rich and poor countries. Although with varying degrees of
intensity, the topics covered will remain relevant in the world to come, as long as
the capitalist mode of production continues to exist.
A few limited parts of the book are revised and modied versions of my follow-
ing papers: “The mathematics of Marx”, Lettera Matematica, 2018, 6(4), 221–5,
for paragraph 3.3.1; “Unequal exchange in the age of globalization”, Review
of Radical Political Economics, 2019, 51(2), 225–45, for paragraph 5.4.2; and
“Unequal exchange and Global Value Chains”, forthcoming in Research in
Political Economy, vol. 36, for paragraphs 6.1 and 6.2. The vast majority of the
arguments are, therefore, presented for the rst time.
I spent the forced social isolation imposed by the rigid lockdown writing this
book. It cost me eort, but it also gave me intellectual satisfaction. The same can-
not be said for the people closest and dearest to me, as my voluntary self-isola-
tion in studying and writing added to the discomfort of the pandemic emergency.
Therefore, I would like to thank Loredana for the patience, love, and material and
moral support she has given me during this dicult period.
November 23, 2020
1
1.1 The cultural hegemony of free trade neoliberalism
The Covid-19 pandemic in 2020 most likely marked the end of a long histori-
cal phase of the world economy, known as capitalist globalization, which began
exactly three decades earlier with the fall of the Berlin Wall and the close of the
Cold War. During this period, the emergence and widespread diusion of new
information and communication technologies, which at that time were taking their
rst timid steps, transformed private, social, and economic life, thus supporting
the expansion of the capitalist global market. The world economic geography
has been profoundly restructured both in the localization of industrial activities,
especially manufacturing, and in the size and composition of the international
ows of goods, services, and nancial assets, as never before in the history of
capitalism. The hallmark of this phase has been the liberalization of domestic
and international markets for goods, capital, and labour, pursued through a broad
spectrum of neoliberal economic policies by almost all governments worldwide.
The removal of all political, social, and environmental obstacles to the free play
of market forces was promoted as the only instrument able to provide economic
eciency and distributive equity, ensuring economic growth and social welfare to
all countries in the world regardless of their initial stage of development.
After 30 years, the shining promises of the neoliberal new world order have
dissolved in the dramatic social impact of the pandemic emergency, which has
revealed all the fragilities, inequalities, and injustices of capitalist globaliza-
tion. The medical eects of the disease caused by the biological virus reinforce
the economic eects of the crisis caused by the social virus of neoliberalism.
Fundamental primary needs, such as the safeguarding of health and the pres-
ervation of basic economic conditions of individuals and communities, have
proved to be luxuries, reserved for a minority of privileged people in the world.
The global birth inequalities of national citizenship add to the domestic class
inequalities in determining the many drowned and the few saved in the post-
pandemic world.
1
INTRODUCTION
Theoretical foundations and measurement of
unequal exchange
Andrea Ricci
2
INTRODUCTION
At other times, neoliberal globalization has appeared to be about to die. For the
rst time at the turn of the new millennium, when a powerful no-global popular
movement inamed the streets of the world in protest against neoliberal policies,
bringing together farmers and students, workers and intellectuals, and churches
and trade unions. There was a second time at the end of the rst decade of the new
century when the bursting of the Wall Street bubble and the bankruptcy of some
big nancial corporations produced a world economic crisis on a scale compa-
rable to the Great Depression preceding the Second World War. On both occa-
sions, after a short period of turmoil, the neoliberal order regained strength as the
only possible option to govern the complex world of today. The neoliberal model
showed a great capacity for adaptation, abandoning economic policy guidelines
previously considered inviolable, such as monetary tightening and a balanced
state budget, without ever sacricing its fundamental tenets of the supremacy of
private enterprise and capitalist competition.
The cultural hegemony of neoliberalism has been an essential element of its
endurance to the adverse events provoked by itself, preserving a passive mass
consensus despite the practical failure of its policies. The success of the neoliberal
model has, however, resulted more from the weakness, both practical and theoreti-
cal, of possible alternatives than from its internal coherence. One of its fundamen-
tal political and ideological pillars is the doctrine of free trade, which advocates
that international trade is mutually benecial for all countries and ensures a fair
distribution of the gains, provided that it is not hampered by public interven-
tion. This view is as old as economic science itself, having been formulated since
Adam Smith and David Ricardo, and subsequently retained by the neoclassical
and marginalist schools as the main legacy of classical political economy. The
neoliberal belief in the free market is stronger at the international level than it is
at the national level. In fact, the possibility of super partes state intervention in
domestic markets is contemplated to guarantee equal opportunities for compet-
ing rms. This is not the case in the international arena where sovereign states
rather than private rms are the players, because the absence of an impartial world
sovereign authority precludes this option. Hence, the market should be the only
ruler of the global economy. The birth in 1995 of an international institution, the
World Trade Organization, exclusively dedicated to sanctioning every minimum
infraction of the rule of free trade, marked the crowning of the neoliberal vision
of the world.
The political and theoretical critique of the ideology of free trade has been
mainly focused on the unrealism of hypotheses rather than on the internal fal-
lacy of doctrine. The huge gulf separating the ideal world of perfect competition
between rms and equal power between states, from the real world of monopo-
lies and imperialism, has been the privileged target of the political and cultural
challenge to neoliberalism. The dominant ideology, however, had an easy time
replying to this criticism by providing two types of reactions. On the one hand,
neoliberalist fundamentalism reiterated with even greater rmness the need for
market liberalization to counteract private and state monopolies, in an attempt
3
INTRODUCTION
to bring the real world closer to the ideal. On the other hand, reformist neolib-
eralism attempts to bring the ideal world closer to the real one by relaxing the
hypotheses of the original model, with the introduction of market imperfections
that can justify second-best exceptions of specic and limited government mar-
ket regulations. Paradoxically, social and political anti-liberalist movements have
often simultaneously supported both internal tendencies of the dominant ideol-
ogy, endorsing both the enhancement of market competition to ght monopolies
and partial redistributive measures, without being able to propose a consistent
alternative system.
The lack of a coherent theoretical critique of the principle of free trade, not just
in the real world but also in the imaginary world of perfect competition, has contrib-
uted to the neoliberal cultural hegemony. In fact, only a few have contended that a
situation of perfectly competitive free trade, besides being far removed from reality,
does not represent an ideal world at all, because it would be marked by horizontal
exploitative relations between peoples and nations in addition to the vertical exploi-
tation between social classes. This is certainly a politically slippery ground because
it risks fuelling anti-democratic nationalist and revanchist movements, thereby con-
cealing the class oppression of capital on labour both nationally and globally. In
reality, the opposite is true. The refusal to investigate reality for fear of the conse-
quences that knowledge can bring means hiding one’s head in the sand, thus leaving
the eld free for authoritarian national and ethnic fundamentalism.
1.2 The “practical circumstances” of unequal
exchange in heterodox and Marxist economics
However, there is also a strictly theoretical reason behind the lack of a radical cri-
tique of free trade, which brings together various heterodox economic approaches.
It lies in the idea that the general equilibrium of perfect competition in all markets
of goods and productive resources, within and between countries, represents a neu-
tral situation between trade partners. Neutral in the sense that the exchange would
be equivalent because the equilibrium market price would conform to the natural
or ideal price or, for Marxists, to the value in its pure or modied form of the
price of production. In other words, when all markets, including that of capital and
labour, are perfectly competitive, both nationally and internationally, free trade
would ensure equivalent international exchange between countries. Equivalent
does not mean fair, but that the reasons for unfairness in the international distri-
bution of wealth lie elsewhere than in the sphere of commodity exchange. They
were identied from time to time in some “practical circumstances” of historical,
political, or social nature such as the dierent economic starting conditions, the
legacy of colonialism, or the over-exploitation of the workers of the Periphery. In
any case, in a world of perfect competition, the commodity exchange would not
play any autonomous role in determining the social and geographical distribu-
tion of the economic surplus, limiting itself to passively recording the underlying
extra-market unequal conditions.
4
INTRODUCTION
With regard to non-Marxist heterodox approaches, this statement is somehow
tautological since the ideal or natural price, denoting a situation of equivalent
exchange, is dened just as the equilibrium market price of a general perfect
competition economy. In such a view, therefore, the inequality of international
exchange can only arise from the violation of perfect competition in any one of
the domestic or international markets. Non-Marxist approaches dier among
themselves on the question of whether or not real capitalism can approach the
ideal model by means of appropriate corrective measures and reforms. Those
who consider it possible adopt a moderate and reformist attitude, while those who
consider real capitalism irreformable adopt a more radical stance of moral revolt
against the system, often lacerated by a sentiment of impotence faced with the gap
between the rational and the real. The question stands out dierently for Marxists.
In Marxist economic theory, the price is the monetary expression of an under-
lying economic category, the value, deriving from the abstract labour socially
necessary for the production of the commodities exchanged on the market and con-
sumed by society. Beyond the major dierences between the various approaches
on what value and abstract labour are, which will be discussed extensively in the
book, in Marxist economics, the exchange is dened as equivalent when there is
correspondence between the equilibrium price and value, or more precisely, when
the market price uctuates around a long-term regulating price determined by the
value of the commodity. The automatic mechanism that ensures this result in capi-
talism is referred to as the law of value. Price, therefore, represents in the sphere
of commodity circulation the realization in money form of the value created in the
sphere of production. In the economic works that Marx left us, the correspond-
ence between regulating market price and value does not occur in two cases. The
rst exception derives from extra economic factors resulting from natural or arti-
cial monopolies in the production or exchange of commodities. They somehow
represent concrete historical deviations of the pure capitalist mode of production,
which undermine its internal coherence except in one case. The virtuous excep-
tion providing dynamism to the capitalist system is the temporary technological
monopolistic advantage that an innovative rm has over the average of the sector,
which allows it to sell its production at a price higher than its individual value. In
the long run, however, this advantage is going to disappear because of capitalist
competition. The second exception to the perfect equivalence of market exchange
is instead a structural feature of a mature competitive capitalist system resulting
from the equalization of prot rates between industries.
Marx’s theoretical intention was to show that capitalism is a contradictory sys-
tem based on exploitative relations even in its pure form of perfect competition
when the law of value can operate without any obstacles whatsoever. In a general
static equilibrium of perfect competition, the capitalist prot derives exclusively
from the equivalent exchange of a very special commodity, the labour power,
which, unique among all other commodities, is able to create a value greater than
its own value when used productively. The monopoly of the conditions of produc-
tion by capital, resulting from the private ownership of the means of production,
5
INTRODUCTION
is what allows the appearance of the capitalist surplus. This latter represents the
specic capitalist social form taken by the economic surplus, resulting from the
dierence between the resources employed and the product obtained from the
economic activity of the whole society.
The analysis of the formation of the capitalist social surplus is the subject of
the rst book of Marx’s Capital. In this theoretical framework, Marx exposes
the functioning of the law of value in its purest form, considering only the com-
petition between individual capitals operating within a given sector of produc-
tion, i.e. producing a commodity of the same type. At a high level of abstraction,
this can be formally described as the competition in a self-replacing system
between rms producing a composite commodity, the net product, which is
the sum of the quantity of products remaining after subtracting the quantity
of each product used as an intermediate good in the social process of produc-
tion. Traditionally, in Marxist economics, this situation is described as the com-
petition between capitals of identical organic composition equal to the social
average, where the organic composition of capital refers to the ratio between
means of production, or constant capital, and labour, or variable capital. The
distribution of the capitalist social surplus among the many individual capitals
composing the total social capital occurs through the law of value. Or, looking
at the thing from another point of view more in line with reality, the competi-
tion between individual capitalist prot-seeking rms spontaneously generates
an objective regulatory mechanism of distribution of the capitalist social surplus
represented by the law of value. In static equilibrium, the distribution of capital-
ist social surplus arises through the determination of the regulating market price
resulting from the functioning of the law of value. Under perfect competition
and an identical organic composition of capital, the regulating price corresponds
to the value produced in each rm, and consequently, all market exchanges are
equivalent exchanges.
In the third book of Capital, Marx removes the hypothesis of an identical
organic composition of capital, used to pinpoint in its essence the formation of
the capitalist surplus resulting from the social exchange between total capital and
labour power of the whole society, in order to address the more concrete case
of capitalist competition between rms producing dierent commodities. In this
situation, if commodities were exchanged as before at their value, the rms oper-
ating in sectors with a lower-than-average organic composition of capital would
obtain a higher rate of prot than those in the opposite situation, since they would
extract more surplus value per unit of capital. Inter-industry competition, there-
fore, leads to a modication of the law of value assuring the equalization of prot
rates for all capitals. The market regulating price this time no longer uctuates
around value but around the price of production, determined by the sum of the
average industry cost of production and the general average rate of prot. This
modication of the law of value implies transfers of value in equilibrium from
sectors with a lower organic composition of capital to those with a higher one.
In a pure capitalist economy, therefore, exchanges normally are non-equivalent
6
INTRODUCTION
because the commodities are not sold at their value, but at a value modied by the
equalization of prot rates forced by capitalist competition.
The formation of prices of production is the only essential modication of the
law of value that Marx has fully analyzed, although not the only one he suggested
in referring to the international market. It is also the only one admitted by the subse-
quent Marxist economic theory, in which the divergence between regulating market
price and price of production can derive exclusively from extra economic impedi-
ments to the complete implementation of the capitalist law of value. According to
the prevailing Marxist economics, which generally ignored Marx’s suggestions on
the international dimension, in an equilibrium of perfect competition on all markets,
commodities are exchanged at prices of production, and the only transfers of value
operating in trade derive from the formation of the general rate of prot. The price
of production is the Marxist transposition of the classical natural or ideal price into
the concrete capitalist economy. The exchanges that take place on its basis, there-
fore, should not be considered as unequal in the strict sense, rather as mere non-
equivalent exchanges, because they occur in full compliance with capitalist social
rationality. In this sense, non-equivalent exchange would represent the specic
capitalist form of equivalent market exchange. The unequal exchange in interna-
tional trade would, therefore, constitute a deviation from the law of value, resulting
from concrete historical circumstances extraneous to pure capitalist logic, imposed
by direct or indirect coercive methods by imperialist powers or large transnational
monopolistic corporations. Such a view has sometimes led Marxist economists to
look favourably on economic globalization and trade liberalization as long as it is
accompanied by the ght against monopolies.
Chapter 2 of this book presents a review of the main arguments brought against
the doctrine of free trade by the various economic schools that have supported the
thesis of unequal exchange in international trade. Starting from ancient mercan-
tilism to subsequent neomercantilism, economic structuralism, and dependency
theory of more recent times, non-Marxist heterodox approaches have highlighted
a series of typical exceptions to perfect competition in domestic and international
markets of goods and production factors that determine an unequal distribution
of the trade gains between countries at dierent levels of development. Marxist
approaches have in turn outlined, in addition to value transfers resulting from
dierent organic compositions of national capitals, the impediments to the full
enforcement of the law of value that arise from monopolistic conditions on the side
of capital, with the theory of monopoly capitalism, and labour, with Emmanuel’s
thesis on the bargaining power of Western trade unions.
The literature review reveals that the thesis of unequal exchange has not yet
found its own independent theoretical foundation, as a structural element inher-
ent in the normal functioning of the capitalist economy at world level, but rather
derives from the imperfect operation of the competitive laws governing capital-
ism, be they the law of supply and demand or the law of value. This does not
mean that unequal exchange theories do not attach considerable importance to the
phenomenon, as one of the main causes of dierences in economic development
7
INTRODUCTION
between rich and poor countries. On the contrary, they all consider unequal
exchange as a concrete historical way of reproducing huge inequalities on a global
scale. However, the lack of an independent theoretical foundation makes unequal
exchange a political, historical, or sociological phenomenon more than economic
in the strict sense, placing it at a more concrete level of analysis than the fun-
damental laws of the global capitalist mode of production. In other words, by
removing the specic practical circumstances, it would be possible to envisage
a capitalist world economy without unequal exchange, where international trade
between dierent states takes place on the basis of equivalent exchange relations.
In this way, however, it becomes hard to understand why capitalist globalization
is to be opposed, rather than promoted to its extreme consequences by pursuing
full liberalization of all domestic and international markets, as the neoliberal uto-
pia demands. The lack of an independent theoretical foundation of the unequal
exchange thus facilitates the popularity of the doctrine of free trade.
1.3 The theoretical foundations of unequal exchange
An independent theoretical foundation requires that unequal exchange in inter-
national trade arises as a natural product of the capitalist mode of production on
a global scale, in its purest form of a perfectly competitive world economy. The
thesis presented in this book is that this independent theoretical foundation can
be found in Marx’s value theory. A consistent formulation of the international
law of value, following Marx’s suggestions, can reveal the exploitative relations
between developed and backward countries hidden behind the appearance of one
price of commodities in the world market, resulting from the free and uncondi-
tional play of perfectly competitive market forces.
In addition to the formation of prices of production, in some isolated passages
of his work, Marx mentions a further essential modication of the law of value at
the international level compared with the pure version outlined in the rst book
of Capital. Marx’s intentions were to conclude the critique of political economy
with two books on the state and international trade. According to the original plan,
the examination of the world market should have been the culmination of the
investigation on the capitalist mode of production. Unfortunately, Marx did not
manage to complete his project and the last books of Capital were never written.
Afterwards, Marxist economics did not follow Marx’s suggestions on the topic,
and so the international law of value was not the focus of systematic research
able to clarify its essential dierence with the national case. On the rare occa-
sions when a few Marxist economists have ventured into the subject, the limits
of the prevailing general interpretations of Marx’s value theory have prevented
meaningful theoretical conclusions to be reached. In fact, the specicity of the
international law of value can be grasped only through a reconstruction of the
fundamental categories of Marxian theory, from the concept of value to its deter-
minations of substance, form, and measure, which goes beyond the prevailing
interpretations.
8
INTRODUCTION
Chapter 3, after reviewing the salient points of the Marxist debate on abstract
labour as the substance of value, outlines the concept of value as a social algo-
rithm. This concept of value diers from the prevailing interpretations because of
its processual and relational rather than substantial character. In the substantialist
view, value is conceived as a qualitative property of the commodity deriving from
a social substance objectied in it, the abstract labour. This property is alterna-
tively intended as the quality common to all commodities to be the product of
human labour in the productivist approach or to have market exchangeability in
the circulationist approach. In any case, the value is understood as something
static, objective, “dead”, as a social quality or substance of the commodity that
is added to its natural qualities such as weight, length, hardness, etc. In reality,
abstract labour, the value-creating substance, is living labour, labour in motion,
a pure activity considered at the very moment in which it is performed, but not
as concrete action of the individual worker, rather as social labour of the whole
society. The substance of value is potentiality in becoming rather than actuality
already become. Objectied abstract labour is expressed by the determination of
exchange value as the form of value, not by the substance of value, which is pro-
cessuality, subjectivity in movement. Value is just the mechanism, procedure, or
code that transforms the living social subjectivity of abstract labour into the dead
social objectivity of exchange value. In this sense, value is a social algorithm, a
real abstraction.
The processual concept of value allows for a coherent reading of the intri-
cate development of value determinations in Marx’s theory. The private character
of production in capitalism determines the splitting of the general category of
social labour, dened as the set of human activities required for the production
of goods necessary for the satisfaction of social needs, into abstract labour neces-
sary for social production and abstract labour necessary for social consumption.
Abstract labour, with its dualistic determination, is the historically specic social
form assumed in capitalism by social labour in general. The code of value, which
originates from the spontaneous and uncoordinated activity of individual market
players as a generative structure of social order, restores to unity the dualism of
abstract labour. It thus ensures in an impersonal and unconscious way the division
of social labour among members of the community, which in pre-capitalist socie-
ties was the conscious and planned outcome of social practices inherited from
tradition or dictated by political and religious constraints. We will see how the
modern mathematical notion of algorithms was anticipated by Marx in the study
of dierential calculus included in the mathematical manuscripts written in the
last years of his life. The dual nature of the social substance of value as abstract
labour is reected in the dualism of its social form of expression of exchange
value, as value in production and value in circulation. Given the dual nature of
the exchange value, its magnitude can be conveyed in the two distinct measures
of market exchange ratio of commodities, or extrinsic measure, and quantity of
objectied socially necessary abstract labour, or intrinsic measure. The social
algorithm of value acts as an operator of market equivalence between these two
9
INTRODUCTION
expressions of exchange value, thus achieving the consistent division of social
labour and the continuous renewal of the cycle of material and social reproduction
of capitalist society.
In a capitalist economy, the exchange of commodities takes place through the
general intermediation of money. Capitalism is by its nature a monetary econ-
omy of private production and circulation of commodities where money is the
only visible manifestation of the dual measure of exchange value. Therefore,
Chapter 4 is devoted to money and how it can simultaneously express both intrin-
sic and extrinsic measures of exchange value in the form of market price. The
nature of money is the object of a long Marxist debate, which has given rise to
conicting approaches, both deriving from a substantialist concept of value that
leads to one-sided notions of abstract labour and exchange value. These dierent
interpretations can be schematically divided into productivist and circulationist,
including the traditional and more recent versions of both. The former argues that
socially necessary labour time spent in production is the only measure of value
and money merely represents the phenomenal reection of it, thus determining
the collapse of the social form into the social substance of value. The latter, on the
other hand, claims that abstract labour arises exclusively in the act of commodity
circulation where money is the only possible measure of value, thus determining
the collapse of the social substance into the social form of value.
Marxist debate has focused on the commodity nature of money, and in par-
ticular on whether Marx’s assumption of gold as money-commodity is essential
to the labour theory of value. If so, the denitive demonetization of gold in the
1970s would make Marx’s original formulation obsolete. The thesis argued in
Chapter 4 is that money is by its very nature a commodity in general, which in
capitalism can take dierent specic forms without changing its functions as the
general intermediary of exchange and measure of value. Marx, in the rst book
of Capital, assumes that gold is the money-commodity for “the sake of simplic-
ity”, and not for a logical or theoretical necessity. Both in the form of a capitalist
commodity such as gold and in the form of a non-capitalist commodity such as
inconvertible at money, money in capitalism always expresses visibly both the
intrinsic and extrinsic measures of the exchange value of commodities. The only
dierence between the two forms of money-commodity is in the mode of expres-
sion of the intrinsic measure of value, which in the case of gold is immediate as
the abstract labour time socially necessary to produce one unit of it, while in the
case of at money it is mediated by the monetary expression of labour time or
MELT. The MELT as the real measure of value expresses the equivalent conver-
sion ratio that exists at a given time between the intrinsic unit of measurement
in labour time and the extrinsic unit of measurement in money. The proposed
denition of MELT here is not subject to problems of circular reasoning that it
encounters in other interpretations of Marx’s value theory, such as in the New
Interpretation, because the equivalent conversion of the extrinsic and intrinsic
measures of exchange value is ensured by their common reference to the same set
of material objects, tangible and intangible, which constitutes the social product
10
INTRODUCTION
of a given period. The bare physical objectuality of the commodity, its merely
bodily form, acts as the common mediating element within the dualistic social
determinations of substance, form and measure of value.
The substantialist notions of value, whether productivist or circulationist, con-
sider only the social form of the process of production and circulation, neglecting
the material form. In this way, value loses its conceptual unity as the prime mover
of the capitalist economy and takes on a dual nature expressed in the opposition
between substance and form of value, socially necessary labour and money, both
considered as internally unitary determinations without any possible common
denominator between them. In the processual notion, on the contrary, value as a
social algorithm, real abstraction, is a primary and as such unitary concept, which
is articulated in the internally dualistic determinations of substance and form of
value. Within both, the dualistic determinations of substance and form of value
there is a common element consisting of the material, bodily, form of commodity.
The capitalist social process of production and circulation is aimed at the valoriza-
tion of capital, but it must always simultaneously ensure the material reproduc-
tion of society, as a subordinate but essential result for its existence. Periodically,
economic crises break the coherence between material and social reproduction,
but they represent transitory periods that are overcome by the re-establishment of
the necessary social and material conditions of capital reproduction; otherwise,
the system could not survive its crises. In capitalism, the abstraction of social
labour in general concretely materializes in the direct, eective labour time per-
formed by all the workers employed in the production of all the commodities
exchanged in the market. At the level of the whole society, the quantity of abstract
labour, in both of its determinations of labour necessary for social production and
social consumption, necessarily coincides with the total direct labour supplied in a
given period for the production of the exchanged commodities. Abstract labour, in
turn, produces exchange values that are necessarily objectied in physical mate-
rial objects, whether tangible or intangible. The social form of exchange value,
in both of its determinations of value in production and value in circulation, is
always inevitably coupled with the material form of commodity, where use value,
the product of concrete labour, and exchange value nd their common bearer.
The circulation of commodities, therefore, is not only the circulation of exchange
values in monetary form but simultaneously circulation of exchanges values in
the bodily form of material objects. The social algorithm of value establishes the
fundamental equivalence between the expression in objectied abstract labour
time and the monetary expression of exchange value, placing both as equivalents
of the physical quantity of goods produced and exchanged in a given period. As
it will be shown, the physical quantity of the social product acts as a common
denominator allowing, on the one hand, the simultaneously visible manifestation
in money form of both intrinsic and extrinsic measures of value, and, on the other
hand, their mutual equivalent conversion into MELT.
The dualism of the determinations of substance, form, and measure of value,
which the social algorithm of value restores to unity, opens the possibility of
11
INTRODUCTION
non-equivalence in market exchange. The equivalence in fact is valid only at the
general level of society as a whole, where value created in production is neces-
sarily equal to value in circulation. This is not the case at the level of individual
exchanges, which are normally never equivalent since general equivalence is the
result of a statistical average, as Marx states. The non-equivalence of individual
exchanges implies that the exchange value created in production is quantitatively
dierent from the exchange value realized in circulation. In this situation, a uni-
versal labour unit converts into a dierent amount of money units for the two
trading partners, resulting in individual MELTs dierent from the average social
MELT. When exchanges are non-equivalent, value transfers between the elemen-
tary units of the system occurs in the process of the circulation of commodities.
In Capital, Marx deals with two forms of non-equivalent exchange, each of them
deriving from the action of capitalist competition in perfectly competitive mar-
kets, within the same industry and between dierent industries, respectively.
Value transfers take place in the rst book within the same industry between indi-
vidual rms with labour productivity dierent from the social average, and then
in the third book between individual industries with the organic composition of
capital dierent from the average of total social capital. In the rst case, they are
temporary because capitalist competition acts for their elimination, while in the
second case, they are permanent, and involve a modication of the law of value
resulting from the formation of prices of production that ensure the equalization
of prot rates in all industries.
In addition to inter-industry and intra-industry competition between capitals,
there is a third form of capitalist competition, occurring on the world market
between dierent national capitals. Marx proposed to deal with the eects of this
third form of capitalist competition on the law of value in the planned book on
international trade and the world market, which he never wrote. However, he left
some important indications in several passages of his published and unpublished
work, expressly referring to a further essential modication that the law of value
undergoes at the international level when considering the competition between
national capitals on the world market. Moreover, he also expressly mentioned the
exploitation of rich countries over poor ones resulting from value transfers oper-
ating in international trade, even in perfect competition. These suggestions show
how Marx regarded unequal exchange at the international level as a structural and
not accidental feature of the global capitalist mode of production. However, they
have been largely ignored or neglected by subsequent Marxist literature.
The reconstruction of the category of value and its dualistic determinations of
substance, form, and measure allows us, in Chapter 5, to identify which are the
essential modications of the law of value at an international level, and why they
give rise to unequal exchange as a structural phenomenon of the global capitalist
economy regardless of its degree of competitiveness. In the world market, the ele-
mentary units are individual countries, rather than rms as in the domestic market.
After having determined, following Marx’s suggestions, the universal labour unit
resulting from the average of dierent national labour intensities, we will see how
12
INTRODUCTION
the essential modication of the law of value is the consequence of international dif-
ferences in labour productivity, which lead to dierent monetary expressions of the
international value per unit of universal labour between countries. This modication
is directly reected in the dierent value of money between countries according
to their level of economic development, which manifests itself in a systematically
higher price level in more developed than in less developed economies.
This phenomenon, already noted by Ricardo and subsequently proven by a
large amount of empirical work up to the present day, is known in literature as
the “Penn eect”. It shows that the long-term equilibrium real exchange rate is
systematically overvalued for richer countries, and vice versa undervalued for
poorer ones, compared with the level that would guarantee the international pur-
chasing power parity of dierent national currencies. The “Penn eect” repre-
sents an embarrassing unresolved enigma for neoclassical economics because
it contradicts the theoretical foundations of the standard theory of international
trade that underlies the doctrine of free trade. In fact, if the long-term equilibrium
real exchange rate is dierent from the purchasing power parity rate, the terms
of trade, indicating the relative price of imported and exported goods of equal
value, are systematically dierent from unity, and would make international trade
not equivalent. Countries with an overvalued real exchange rate would gain from
international trade to the detriment of countries with an undervalued real exchange
rate, obtaining in exchange for a given volume of exported goods a number of
imported goods of higher value. Since the overvaluation of the real exchange rate
aects richer countries, international trade favours them at the expense of poorer
countries. Despite the vast amount of research, no convincing explanation has
succeeded in reconciling the consolidated empirical evidence of the “Penn eect”
with the neoclassical theory of free trade. Similarly, the rare attempts to formulate
a heterodox theory of international trade failed in this regard.
In the international law of value presented in Chapter 5, the “Penn eect” nds
a consistent theoretical justication. It is the empirical manifestation of the dif-
ference between exchange value in production and exchange value in circulation
of the commodities in the world market, which results in unequal exchange in
international trade and involves a systematic transfer of value from less developed
to more developed countries. The international law of value ensures that a com-
modity from whatever country produced is sold at the same identical price on the
perfectly competitive world market, and yet this equilibrium international price
implies international transfers of value. These value transfers between countries
on the international market have a similar nature to value transfers between rms
of the same industry with dierent labour productivities on the domestic market.
However, there is a fundamental dierence between the two situations because on
the international market the dierences between individual value and social value
of commodities tend to persist and reproduce continuously, while on the domestic
market they are eliminated by rms’ competition. The crucial factor that dieren-
tiates the international law of value from the domestic version is the simultaneous
presence of dierent national currencies, each expression of a specic national
13
INTRODUCTION
unit of social labour, having a dierent international purchasing power as a result
of the international competition of capitals.
Unlike neoclassical general economic equilibrium, and also many Marxist
interpretations of labour value theory, in Marx, the thesis of the long-term neutral-
ity of money is not valid. The existence of dierent currencies, in which national
prices are expressed, prevents the competitive mechanism from eliminating long-
term dierences between individual and social value in the world market, as it
happens instead at domestic level between rms with dierent labour productiv-
ity. Real exchange rate adjustments, both under xed and exible exchange rates,
crystallize this dierence and thus allow labour productivity to act in the same
way as labour intensity in dening the international value of commodities, in con-
trast to what happens domestically. In the last paragraph of Chapter 5, a formal
disaggregated general model of unequal exchange is presented in accordance with
the theoretical lines previously devised, which is able to encompass as special
cases all the various forms of unequal exchange and inter and intra-industry value
transfers identied in the literature reviewed in Chapter 2.
1.4 Mapping unequal exchange in the actual global economy
The empirical measurement of unequal exchange in the actual world economy is
addressed in Chapter 6. The process of economic globalization in the last 30 years
has not been conned to the sphere of commodity circulation with the boom in
trade ows between countries; it has also aected the sphere of production. The
liberalization of goods, labour, and capital markets, the reduction of transport
costs and shipping times, and the spread of new information and communication
technologies have all contributed to the emergence of a new model of organiza-
tion of production on a global scale. This new industrial paradigm has replaced
the old vertical and spatial integration of production with a new horizontal inte-
gration under the control of large multinational corporations based on the disper-
sion of the manufacturing cycle between rms and countries around the globe
aimed at minimizing costs. It has thus given rise to what in the specialist literature
are called global value chains (GVC), focusing on the delocalization of stages
of production through the practices of outsourcing and oshoring, in which the
value realized on the nal market is produced to varying degrees by each stage of
production in a multitude of factories scattered all over the world. The resulting
new international division of labour is characterized by the concentration of the
intermediate stages of processing and material assembly in peripheral countries,
where labour costs are lower, and the initial and nal stages of conception, design,
engineering, and marketing are in central countries, where the major part of the
distributed value added is gathered. All this has led to the dependent industriali-
zation of several enclaves in some peripheral countries, once specialized in agri-
cultural products and raw materials, and extensive deindustrialization in central
countries. It has resulted everywhere in the strengthening of the power of the
global capital to exploit labour and appropriate the economic surplus.
14
INTRODUCTION
The new organization of world production has also had consequences on the
structure of international trade. The ows of intermediate and semi-nished goods
have strongly increased their share in total imports and exports of each country,
so that they account for a large part of world trade. This category of goods crosses
the border several times to be processed in a number of dierent countries before
reaching the nal consumer market. The traditional method of recording imports
and exports based on gross value, used in ocial balance of payments accounting,
has therefore become less and less indicative of the countries’ real trade position,
as it is subject to repeated double counting. A more accurate picture of net trade
ows, on the other hand, is given by exports and imports measured in terms of
value added, the statistics of which are available in various databases compiled
by international institutions and research centres. The empirical measurement
of value transfers presented in Chapter 6 uses the UNCTAD-EORA annual data
on value-added trade, along with data from other ocial international economic
institutions for the other variables of the model and considers 175 countries aggre-
gated in 16 regions of the world economy for the period 1990–2019. The empiri-
cal analysis is based on an aggregate model developed in line with the theoretical
foundations established in previous chapters, which can identify international
intra-industry value transfers representing unequal exchange in the strict sense,
divided into transfers within GVC, and embedded in traditional domestic nal
exports.
The picture that emerges from the empirical analysis is that of a world divided
into two rigidly separated parts, with, on the one hand, the richer countries of the
Centre, which continuously beneted from an unequal exchange over the entire
period, and on the other hand, the poorer countries of the world’s Periphery,
which constantly suered an outow of domestically produced value through
trade. These latter countries, in turn, are divided into two groups of countries,
those of the emerging Periphery, aected by a rapid process of industrialization
that has brought their per capita income closer to the world average, and those of
the poor Periphery, where more than half of the world’s population lives, with
very low per capita income levels. Both the aggregated and detailed analysis by
regions shows that in the period of globalization, although with alternating phases
of expansion and contraction and with a geographical restructuring of ows, the
dimension of unequal exchange has continued to grow, especially within GVC.
The value transfers resulting from international trade are a substantial cause of
the huge inequalities in economic and social development in the global capitalist
economy. They congure a mechanism of global exploitation by the capital of
central countries towards peripheral workers, alongside the one suered by them
at a domestic level, involving the drainage of value achieved through the chan-
nel of international trade. The concrete manifestation of this mechanism is the
structural misalignment in real exchange rates, which determine long-run terms
of trade permanently unfavourable to the less developed countries. The result-
ing international monetary hierarchy leads to the emergence of a “currency rent”
for the richer countries resulting from their monopoly of hard currencies in the
15
INTRODUCTION
nancial and foreign exchange markets. The presence of monopolistic conditions
on the goods market only exacerbates the unequal exchange spontaneously gen-
erated by the operation of the international law of value in perfectly competitive
markets. Contrary to the doctrine of free trade, the liberalization of international
trade, rather than granting a fair benet to all the countries involved, consolidates
the world’s economic and political hierarchy by reproducing on an enlarged scale
the predominance of the capitalistically more developed Centre and the depend-
ence and subordination of the Periphery, both in its emerging regions and in the
poorest and marginalized ones. The theoretical and analytical framework pro-
posed in this book aims to provide appropriate conceptual and operational tools to
investigate the phenomenon of unequal exchange in the world economy, in order
to contribute to practical actions promoting a more just and rational international
economic and social order.
The heresy of unequal exchange
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