The Palgrave Encyclopedia of Imperialism and Anti-Imperialism

Living Edition
| Editors: Immanuel Ness, Zak Cope

Marxism, Value Theory, and Imperialism

  • Torkil LauesenEmail author
Living reference work entry
DOI: https://doi.org/10.1007/978-3-319-91206-6_147-1

Synonyms

Transnational transfer of value; Unequal exchange, globalized production, the smiley curve

Marx’s critique of capitalist accumulation is based on an analysis of the commodity. Commodities are the cells in the capitalist system. In the commodity, we find the DNA of capitalism. It contains the contradictions that drive the system from a simple exchange of goods in a medieval town square to today’s globalized capitalism. In Das Kapital, Marx unfolds the logic of capitalism in increasing complexity. His original plan was to “examine the system of bourgeois economy in the following order: capital, landed property, wage-labour, the State, foreign trade, world market” (Marx 1859: 1). However, Marx only got halfway through his analysis. He never properly outlined theories of the state, the world market, international trade, or imperialism for that matter (although he did analyze colonialism and England’s exploitation of other nations).

My aim here is to explain how Marx’s concept of value unfolds in neoliberal global capitalism, with a focus on how transnational transfer of value takes place – in short, imperialism. In order to do this, I find it necessary to convey certain features of the value concept, which are important for the transnational transfer of value. They may seem basic and simple, nevertheless often misunderstood.

Capitalist Accumulation and Value

The driving force in the capitalist mode of production is accumulation. The capitalist invests in order to create more capital. To accomplish this goal, the capitalist seeks to sell as many commodities as possible at the highest price to maximize profit. Let us look in more detail at the characteristics of commodities.

A commodity has two forms of value: use value and exchange value. Its use value is defined as its ability to satisfy a physical or psychological need, as a raincoat or a Teddy bear. The use value is mainly of interest of the buyer. No matter how different their use value is, commodities have something in common, that is, they are comparable on a certain level of abstraction and in certain quantitative relations. This commonality is what Marx calls value – or more specific exchange value (in connection with use value). Exchange value is defined as the quantitative relation between commodities no matter how different they are. Thus, for instance, 500,000 toothbrushes equal one Mercedes-Benz.

Whether something is a commodity does not depend on certain physical qualities but on the social relationships between seller and buyer. We can neither touch nor see value. We can only touch and see the commodities that have value. Value can be measured in labor time or in quantities of other commodities, but it is not a quality physically embedded in commodities. As Marx put it, “So far no chemist has ever discovered exchange value either in a pearl or a diamond” (Marx 1867a: 53).The ultimate test is the market: whatever can be sold is a commodity. It has use value for the buyer, while it is on the market that the exchange value unfolds.

Therefore, what all commodities have in common is that they are produced by human labor for exchange. Both use value and exchange value are reflected in labor. Use value relates to the concrete labor necessary to produce a commodity: sewing, welding, etc. Use value and concrete labor are qualitative in nature and satisfy needs. Exchange value relates to abstract labor, which is quantitative in nature, measuring the time, energy, knowledge, and experience needed to produce. Of particular importance is the socially necessary labor time, which is the time required for the production of a commodity based on the average quality and intensity of labor as well as the technological development available for production.

Therefore, it is human labor in the production process that is the source of value. However, the specific determination of the actual exchange value occurs on the market. (I will return to how this is so.) It is the fact that all commodities are products of human labor, which makes it possible to relate them to one another. Thus, value reconciles the production sphere and the circulation sphere in capitalist accumulation. Both are necessary in the realization of the value.

In the preface to the first volume of Capital published in 1867, Marx announced his plans for four volumes: one on capitalist production, one on the circulation of capital, one on “the varied forms assumed by capital in the course of its development,” and one on “the history of the theory.” In a letter to Engels, dated July 31, 1865, Marx wrote that the volumes were to be considered as an “artistic whole” (Marx 1865: 173). If one only reads the first volume, one’s impression might be that production is essential and circulation secondary. However, Marx was very clear about the relationship between production and circulation in the valorization of capital: “Capital cannot … arise from circulation, and it is equally impossible for it to arise apart from circulation. It must have its origin both in circulation and not in circulation” (Marx 1867b: 268).

The Value of Labor-Power and Surplus-Value

Labor is the common measure of the value of all commodities. However, the commodity that is purchased in the form of wages is not an ordinary commodity. What the capitalist buys is the labor-power of the worker: the strengths, the energy, the knowledge, and the commitment for a specific quantity of time. To keep up this power, the worker needs a certain supply of substance. The value of the labor-power is the amount of labor necessary to produce these substances. However, the two quantities are not equal. The labor time and energy the worker delivers are more than what is needed to produce the substances the worker needs to be able to deliver the labor-power.

Just as with other commodities, the value and use value of labor-power is different. Labor-power’s use value for capital is its capacity to produce an amount of commodities, the exchange value of which is greater than the exchange value of labor-power itself. This difference is what Marx called surplus-value – the source of profit. (Value and surplus-value are of no interest for workers or capitalist. What they are interested in are prices, wage, and profit. These concepts are certainly also of our interest; however in order to understand how these forms of appearance of value are generated and divided, we need to explain the basis for these forms of presentation. I will return to the transformation from value/surplus-value to wage, price, and profit.)

Technically, we can divide the workday into two periods: one, in which the worker reproduces the value of their labor-power, and another in which they create surplus-value (Marx 1867c: 162–164). The rate of surplus-value depends on the extent of the second period. The rate of surplus-value therefore indicates the level of exploitation of labor-power:
$$ \mathrm{Rate}\ \mathrm{of}\ \mathrm{surplus}-\mathrm{value}=\mathrm{time}\ \mathrm{of}\ \mathrm{surplus}-\mathrm{value}/\mathrm{time}\ \mathrm{required}\ \mathrm{to}\ \mathrm{reproduce}\ \mathrm{the}\ \mathrm{value}\ \mathrm{of}\ \mathrm{labor}-\mathrm{power}. $$
Alternatively, in terms of capital (variable capital equals wage):
$$ \mathrm{The}\ \mathrm{rate}\ \mathrm{of}\ \mathrm{surplus}-\mathrm{value}=\frac{\mathrm{s}\mathrm{urplus}-\mathrm{value}}{\mathrm{variable}\ \mathrm{capital}}$$
$$ {\mathrm{s}}^{\prime }=\mathrm{s}/\mathrm{v} $$
There are basically three ways capital can increase the rate of surplus-value and thereby the potential volume of profit:
  • Increase the absolute surplus-value by an extension of working time and/or the intensification of work, in relation to the required working hours to reproduce the “basket of goods” which forms the value of labor-power.

  • Increase the relative surplus-value by a productivity increase as a result of new technology or more effective management form, which reduces the “necessary working hours” share of the total working hours.

  • Extract super surplus-value by lowering the actual level of reproductive costs and thus the “necessary working time” share of the total working hours.

The concept of “super-exploitation” originates from Ruy Mauro Marini (1932–1997), a Brazilian economist known as one of the creators of Dependency Theory. In his book Dialéctica de la Dependencia, he describes how the breakthrough of industrialization in England in the nineteenth century was dependent on imports of cheap food produced through the super-exploitation of labor in countries such as Ireland and the countries of Latin America. An export-oriented capitalism in the periphery created a dynamic capitalist development in the center. Marini defines super-exploitation as a combination of all three measures to enlarge the amount of surplus-value:

The intensification of work, the extension of the working day and the expropriation of part of the necessary labour for the labourer to replace his labour power…. (Marini 1974, p. 36, Here quoted from Higginbottom 2014, p. 30)

The “Intensification and extension of the working day” equals Marx’s absolute surplus-value. However, it is the last mentioned form, which is of special interest here. By “expropriation of part of the necessary labour for the labourer to replace his labour power,” Marini refers to a wage depression in the colonial arrears under the value of labor-power, as Marini concludes:

In capitalist terms, these mechanisms… signify that the labour (Power) is paid under its value, and they correspond, therefore, to a super-exploitation of labour. (Marini 1974, p. 42. Here from Higginbottom 2014, p. 31)

Marini furthermore draws the interesting conclusion that the super-exploitation of labor-power in the periphery changes the pattern of extraction of surplus-value in England from being dependent on absolute surplus-value (longer and more intensified labor) to relative surplus-value (greater productivity) due to the dynamic development of industrial capitalism in the second half of the nineteenth century (Marini 1974, p. 13. Here from Higginbottom 2014, p. 32). The development of the productive forces in the center due to colonial super-exploitation increased the relative surplus-value considerably. However, the working class in the center managed to get its share of the gains from the increased productivity by raising their level of wages through trade union struggle. There is no necessarily built-in relationship between a raise in productivity and an increase in wages; who gains is a question of class struggle (for a historical account for the development of wage in the late nineteenth century in England, see Lauesen 2018, p. 52–55).

I will return to the importance of super-exploitation as a generator of surplus-value in contemporary global capitalism, as based on low-wage labor arbitrage (Smith 2016). First, however, I will have to return to the relation between the value of labor-power and the development of highly different wage levels.

The Price of Labor-Power

Labor-power is not like other commodities. There is no factory that produces labor-power. Labor-power does not produce labor-power. Labor-power is generated in the private sphere of society – mostly in families. However in this process, the laborers consume a certain “basket” of commodities, produced in the capitalist sphere, and thereby the value of labor-power depends on the value of these commodities.

But what defines this “basket of goods” and how is its price of labor-power – the wage – determined? Marx distinguished between two factors: the bare reproduction costs of labor-power and what he called the “historical and moral element.” The bare reproduction costs of labor-power relate to the costs that are necessary to keep the working class alive, fit to work, and able to have children who become new workers. In simple terms, they are the costs necessary for food, clothes, and shelter. When a worker receives a wage that covers only the bare minimum of what is necessary to reproduce the ability to work, it is often called a subsistence wage. However, the “necessary wants” also contain a historical and moral element, which was explained by Marx in the following way:

On the other hand, the number and extent of his so-called necessary wants, as also the modes of satisfying them, are themselves the product of historical development, and depend therefore to a great extent on the degree of civilisation of a country, more particularly on the conditions under which, and consequently on the habits and degree of comfort in which, the class of free labourers has been formed. In contradistinction therefore to the case of other commodities, there enters into the determination of the value of labour-power a historical and moral element. Nevertheless, in a given country, at a given period, the average quantity of the means of subsistence necessary for the labourer is practically known. (Marx 1867d: 121)

In other words, the historical and moral element of the value of labor-power is a product of class struggle – national and international – historical and current. This class struggle and the labor market it creates mediate the realization the value of labor-power into wages, in the same way as class struggle and the market mediate the realization of surplus-value into profit.

The long history of capitalism, the creation of a world divided into a center and periphery by colonialism and imperialism – together with the limited international mobility of labor – helps explain the enormous differences in wages globally. The price of labor-power, the wage, is relatively stable over time, but it varies significantly globally. That is in contrast with the price for other commodities, which varies significantly over time, but is relatively stable from place to place. The prices for copper and wheat, for example, go up and down almost daily, but they do so across the world. There is a world market price for most commodities with labor-power as a significant exception. The wage is dependent on national and global class relations. It is the result of norms, rules, laws, and not least the result of trade union efforts with regard to working hours, minimum wages, overtime pay, collective bargaining, and so on. Within countries – especially imperialist ones – there is a tendency for wages, for the same kind of work, to balance out. Globally however, the differences remain huge.

The Globalized Value of Labor-Power

When Marx formulated his conception of “the historical and moral element” of the value of labor-power, capitalism consisted of distinct national economies. In today’s neoliberal capitalism, there is a global market for capital and commodities with globalized production chains linking labor-power in the North and South together in the production of the same commodity. Furthermore, with the industrialization of the Global South, in the last decades, the level of technology and management regimes is also becoming increasingly similar on a global level. The value of a commodity is no longer based on varied and isolated national conditions. The value is based on global conditions. Thus labor-power also has a globalized value. Samir Amin writes:

My major contribution concerns the passage from the law of value to the law of globalized value, based on the hierarchical structuring – itself globalized – of the price of labor-power around its value…..this globalized value constitutes the basis for imperialist rent. (Amin 2010, p. 11)

It is crucial to distinguish between the value and the price (wage) of labor-power. As mentioned, labor-power is not an ordinary commodity produced by capital, but one generated in complex social relationships. Its value is determined by historical development as well as the current class struggle, family structure, and so on. This means that labor-power is reproduced under very different conditions in the South and North, but is nevertheless brought together through global production and consumption. The port worker who loads containers in Shanghai creates as much value as the port worker in Rotterdam who unloads them, assuming that the work has the same intensity and uses the same technology. However, the price of labor-power – the wage – varies due to the different historical backgrounds, different social relations, political conditions, and the limited mobility of labor, as Amin writes:

Capitalism is not the United States and Germany, with India and Ethiopia only” halfway” capitalist. Capitalism is the United States and India, Germany and Ethiopia, taken together. This means that labor-power has but a single value, that which is associated with the level of development of the productive forces taken globally (the General Intellect on that scale). In answer to the polemical argument that had been put against him - how can one compare the value of an hour of work in the Congo to that of a labor-hour in the United States? –Arghiri Emmanuel wrote: just as one compares the value of a hour’s work by a New York hairdresser to that of a hour’s labor by a worker in Detroit. You have to be consistent. You cannot invoke “inescapable” globalization when it suits you and refuse to consider it when you find it troublesome! However, though there exist but one sole value of labor-power on the scale of globalized capitalism, that labor power is nonetheless recompensed at very different rates. (Amin 2010, p. 84)

The “bare reproduction cost” and the “historical and moral component” of the value of labor-power are not two distinct and different elements. The class struggle may incorporate new elements in the “bare reproduction cost,” and repression can pressure the wage below that level. The wage may vary below as well above this global value of labor. The combination of the historical development of highly different wage levels between the Global North and South and the constitution of a global value of labor-power has several consequences. It entails different rates of surplus-value. The combination of globalized value and low wages in the South is the basis of extraction of what Marini calls super surplus-value, which generates super-profits for capital and relatively low prices of commodities for a North wage level. Thus, the difference between value and price of labor also causes a transfer of value from South to both capital and labor in the North.

So what is the global value of labor-power in hard cash? As Marx explained in the quote above concerning the value of labor-power in a country:

the necessary wants…. are themselves the product of historical development,….. depend on the degree of civilization. Nevertheless,… at a given period, the average quantity of the means of subsistence necessary for the labourer is practically known. (Marx 1867d: 121)

We can now apply this to the global level, meaning that we can determine the global value of labor-power as the global average wage at a given time period. That means the average wage is calculated according to the number of workers on a certain wage level in the different parts of the world. A given level of wages compared to the global value of labor-power indicates whether you are in the center or periphery of the world system. The difference in wages between the USA and China is around 10:1 and between Sweden and Bangladesh 50:1. This definition of the global value of labor-power also allows us the possibility to quantify the size of transnational value transfer, and it allows us to measure whether a given wage level generates or consumes value in a global context. I have specified the method in the book, Unequal Exchange and the Prospects for Socialism in a Divided World (Manifest-Communist Working Group 1986: 110–113 and 131–140). At that time the average wage for workers in the imperialist countries was $5.50 per hour and $0.36 in the Third World. Hence, the difference was at a factor 15:1 and the average weighted factor was 5.7. Zak Cope in his book, Divided World Divided Class: Global Political Economy and the Stratification of Labour Under Capitalism (Cope 2015: 254–6), made the same calculation but with figures from 2008. He reaches a wage factor of 11 for OECD workers and 1 for Non-OECD workers, an average wage factor at 6,5, all summing up to a transfer of $4.9 trillion.

After this examination of the value and price of labor-power, I will turn to the transformation from value to price for commodities and the transformation of surplus-value into profit. The first step is a description of the circulation of capital.

The Circulation of Capital

For the capitalist, the use value of labor-power consists of its producing commodities whose exchange value exceeds the costs of the labor-power required to produce them. In order to exploit labor-power in this way, capitalists must own means of production. They must invest in workshops and factories, machines, raw materials, energy, and so on. This part of capital is called constant capital, because its value remains unaffected during the process of accumulation. The labor-power that the capitalist buys is called variable capital because it is used to create value that exceeds its own (Marx 1867e: 142–149).

The circulation of capital is divided into the sphere of production and the sphere of circulation. In the latter, commodities are bought and sold. Both spheres are dependent on one another: there is no circulation without production, and there is no point in producing without circulation. The first phase of the circulation of capital consists of capitalists acquiring means of production and buying labor-power. The second phase consists of using the means of production and the labor-power purchased to produce commodities. The third phase of the circulation of capital consists of trading commodities. In this phase, the capitalist collects the surplus-value created in the production process.

The capitalist must be able to sell the commodities that have been produced on the market at a price that includes both the expenses for constant and variable capital plus the surplus-value that can be used to either start the circulation of capital anew (with expanded possibilities) or to consume (Marx 1867f: 400). The total circulation of capital appears as follows:

(Or use the figure in Lauesen 2018, p. 461)

Abbreviations used in tables and formulas:

C Aggregate capital

V Value = c + v + s

c Constant capital

p Profit = P(c + v)

v Variable capital

p′ Rate of profit = s/(c + v)

s Surplus-value

s′ Rate of surplus-value

P′ Average rate of profit = s/(c + v)

 

PP Price of production = c + v−e−P′ (c + v)

 
Although the price of a commodity can differ from its value, it is determined by value in the final instance. According to neoclassical market economists, prices are determined exclusively by supply and demand on the market. This is, however, only the final touch. Commodities need to be produced and reproduced to keep the accumulation running. If capitalists do not recover the cost of production plus a profit on the market, they will not produce the commodities again, and accumulation ceases. The price they need is what Howard Nicholas calls “reproduction prices” (Nicholas 2011). But how do we measure costs of production, i.e., the inputs required to make a commodity? Freya Brown formulates the problem nicely:

We cannot use prices to measure inputs, for prices are what we are trying to explain in the first place! The only thing common between all the inputs of a commodity is labor. Thus, in any economy based on commodity production, the prices of commodities will in the final instance be fundamentally tied to the (socially necessary) labor-time embodied in those commodities. (Brown 2011)

From Surplus-Value to Profit

However, just as the worker is interested in the size of her wage more than the concept of value, the capitalist is interested in profit more than surplus-value. Profit, as we have seen, is dependent on production costs in general or what is called the cost price (Marx 1883b). How the cost price is divided between constant capital and variable capital is of no interest to the capitalist either. Marx writes in the third book of Capital:

In its assumed capacity of offspring of the aggregate advanced capital, surplus-value takes the converted form of profit. (Marx 1883b; Ibid.)

The relation between the surplus-value and the total capital used for production defines the profit rate, as shown in the formula:
$$ \mathrm{The}\ \mathrm{rate}\ \mathrm{of}\ \mathrm{profit}=\frac{\mathrm{surplus}-\mathrm{value}}{\mathrm{aggregate}\ \mathrm{capital}}$$
$$\quad\quad\quad {\mathrm{p}}^{\prime }=\mathrm{s}/\mathrm{C} $$

The profit rate depends both on the rate of surplus-value and on the relation between constant and variable capital. A rise in surplus-value brings a rise in the profit rate. The relation between constant and variable capital is called capital’s organic composition. It is dependent on the relationship between labor-power and the means of production. This relationship varies from industry to industry. Capital has low organic composition if variable capital makes up a large part of total capital, and high organic composition of constant capital makes up a large part of total capital. An example for an industry with a high organic composition of capital is the petrochemical industry, which relies largely on constant capital. An example of an industry with a low organic composition of capital is the textile industry, which relies largely on variable capital.

The following table illustrates the immediate relation between capital’s organic composition and the profit rate. The higher the organic composition, the lower the profit rate; the lower the organic composition, the higher the profit rate (Marx 1883a: 155) (Table 1).
Table 1

Influence of organic composition on the profit rate

Aggregate capitals

Rate of surplus-value, %

Surplus-value

Value of product

Rate of profit, %

C = c + v

s/v

S

V = c + v + s

p′ = s/C

I

80c + 20v

100

20

120

20

II

70c + 30v

100

30

130

30

III

60c + 40v

100

40

140

40

IV

85c + 15v

100

15

115

15

V

95c + 5v

100

5

105

5

Formation of the Average Rate of Profit

As the table above shows, capitals of the same size but with different organic compositions can, in theory, generate very different rates of surplus-value and, therefore, very different profit rates. This, however, is not what happens in practice. Otherwise, capital would flock to industries with a low organic composition, yet this is not the case. We know that the average, long-term profit rates of different industries are very similar. But why? Capital always drifts toward those industries promising the highest profits. If there is increased demand for the products of a certain industry, their prices will rise and so, in turn, will the profit rate. This attracts capital formerly invested in other industries and leads to a growth of this particular industry. Often the consequence is overproduction and oversupply, falling prices, a lower profit rate, and capital moving elsewhere. Unequal profit rates between different industries cause the constant movement of capital and balance out the industries’ average rates of profit. In other words, competing capitals ensure that the average, long-term profit rates of different industries are very similar. This also means that a given amount of capital will, in the long run, create similar profits, no matter what industries it is invested in or how it is divided between constant and variable capital.

This can be explained through the first step of the transformation of value into price. The original value of commodities is converted into a price of production. The price of production of a commodity consists of the cost price (used variable and constant capital) plus the average profit in relation to the total capital used in its production. This can be summarized in the following formula:
$$ \mathrm{Price}\ \mathrm{of}\ \mathrm{production}=\mathrm{cost}\ \mathrm{price}\times \mathrm{average}\ \mathrm{rate}\ \mathrm{of}\ \mathrm{profit} $$

Therefore, the price of production of a particular commodity is not the same as its value. The cost price is equivalent to the quantity of labor time that is needed in order to ensure that a specific commodity can be reproduced in the context of reproduction of all commodities. At first glance, these two categories might seem the same. However, in a capitalist economy, where profit enters the equation, due to the different compositions of variable and constant capital reproduction, prices normally deviate from values. A certain transfer of value takes place via the formation of average profits. However, the combined price of production of all commodities is the same as the combined value of all commodities. In addition, combined profits are the same as the combined surplus-value created in production.

The price of production must not be confused with the market price, to which it is only coincidentally equal. The market price is the price a commodity is actually sold for on the market. Market prices are adjusted by supply and demand, the existence of monopoly, and so on. The goal for each commodity is to reach a market price that consists of its production cost plus the average rate of profit. This allows production, and therefore the accumulation of capital, to continue. Let us see how the average rate of profit affects the numbers in the table above. If we put a total capital at 100 and the rate of surplus-value consistently at 100% and we assume that the whole capital turns over in one circulation, then the new numbers indicate the formation of the average rate of profit (Table 2):
$$ \left(20\%+30\%+40\%+15\%+5\%\right)/5=22\%. $$
Table 2

Creation of average rate of profit

Total capital

Surplus-value

Value

Average profit rate, %

Price of production

Deviation of PP from value

C

S

V

P′

PP

I

80c + 20v

20

120

22

122

+2

II

70c + 30v

30

130

22

122

−8

III

60c + 40v

40

140

22

122

−18

IV

85c + 15v

15

115

22

122

+7

V

95c + 5v

5

105

22

122

+17

As the table indicates, the amount of labor-power required in different industries and therefore the organic composition of capitals as well as surplus-value differ widely. When profits are distributed, surplus-value is transferred from industries with a low organic composition to industries with a high organic composition. As stated above, this is of no relevance for capitalists. However, for a Marxist analysis of capitalism, it is important to account for this transfer. Some economists have called this transfer “unequal exchange,” but this must not be confused with Emmanuel’s use of the term (which we will consider below). To speak of unequal exchange in this context can be misleading. The value transfer described above is inherent in the logic of capital. The fact that the profit rate is distributed among all industries, so that capitalists can make profits in each of them, is a key aspect of capitalist production. It allows capitalists to compete on the market and to develop the productive forces. If commodities were priced according to their value, instead of according to the price of production, investments in mechanization would come to a halt. Capitalists would only invest in labor-intensive industries with much variable capital and a low organic composition. The pharmaceutical industry would disappear, and woodcutting would prosper. In a developed capitalist country, labor is mobile enough to guarantee that the rate of surplus-value will be similar across different industries. Market prices of commodities depend on the price of production, not their value or cost price. However, I would like to draw attention to an important deviation from average rate of profit of capitalism cause by the development of monopoly capitalism – super-profit.

Super-Profits

In his writings on imperialism in 1916, Lenin spoke of super-profits, meaning profits substantially over the average profit in a given time period. The basis for this divergence is monopoly capitalism. Monopoly takes different forms. One has to do with the production sphere and monopolistic ownership of a certain technology that produces a commodity more efficiently than others do. One has to do with the circulation sphere: branding, a certain privileged access to a market or raw material that others do not have. Monopolists get super-profits by selling commodities for more than their prices of production (i.e., prices that equalize the rate of profit) at the expense of lower profits for the other capitalists. Already English capital with its monopoly on industrial production and monopoly on colonial trade in many regions of the world in the second half of the nineteenth century gained super-profits. Lenin observed that:

Superprofits have not disappeared; they still remain. The exploitation of all other countries by one privileged, financially wealthy country remains and has become more intense. A handful of wealthy countries – there are only four of them, if we mean independent, really gigantic, “modern” wealth: England, France, the United States and Germany – have developed monopoly to vast proportions, they obtain superprofits running into hundreds, if not thousands, of millions, they “ride on the backs” of hundreds and hundreds of millions of people in other countries and fight among themselves for the division of the particularly rich, particularly fat and particularly easy spoils. (Lenin 1916: 105)

In the Second Congress of the Communist International (Comintern) in 1920, Lenin went as far as to state: “Super-profit gained in the colonies is the mainstay of modern capitalism” (Lenin 1920).

Samir Amin speaks of “generalized monopoly capitalism” when referring to capitalism’s current phase. When he speak of monopolies, it is not just corporations dominating industries. It means networks that dominate the entire productive system. Small- and medium-sized firms serve as suppliers to the monopolized productions chains, which take a significant share of their profits. This means that the latter make a super-profit. So-called intellectual property rights constitute a new dimension of capitalist monopolization. The Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS) is meant to protect the super-profits of the monopolies based in the North.

The entire transformation from value into market price can be summarized in the following figure:
Fig. 1

The transformation from value to price

Let us now return to how this all works out at the global level.

Unequal Exchange in International Trade

As mentioned above, Marx never properly outlined theories of the world market and international trade. The first theory of the world market in the spirit of Capital was formulated 100 years later by Arghiri Emmanuel. Emmanuel referred to value transfer from one country to another as unequal exchange. The basis of unequal exchange is the historically constituted different wage levels in the imperialist countries and those of the Third World (Emmanuel 1972).

Let us see what different wage levels mean for Marx’s theory of the formation of prices of production, using Tables 3(a) and (b). In Table 3 we have two countries with identical rates of surplus-value, identical profit rates, and identical organic composition of industries. Unequal organic composition can therefore not be the cause for a possible value transfer. Value and price of production are the same. Capital also circulates at the same rate in both countries. In Table 3(a), the rate of surplus-value and the profit rate are equal. Both countries are at the same level of development.
Table 3

The consequence of unequal exchange on price of production

 

Constant capital

Variable capital

Surplus-value

Cost price

Value

Rate of profit, %

Average rate of profit, %

Price of production

C

v

S

c + v

c + v + s

s/C

P′

(c + v) + P′ x C

(a) Two countries with the same wage level

Country A

100

100

100

200

300

20

50

300

Country B

100

100

100

200

300

50

50

300

    

600

  

600

(b) Two countries with different wage levels

Country A

100

150

50

250

300

20

33.33

333.33

Country B

100

100

100

200

300

50

33.33

266.67

    

600

  

600.00

On Table 3(b), however, wages in country A have risen by 50%, which leads to less exploitation and less surplus-value. This has consequences for the exchange of commodities between the two countries. The labor-power used is still the same, as is the value of production, but the price of labor-power has changed. This changes the rate of surplus-value in country A, as well as the prices of production. Where commodities with a value of 300 points each are to be exchanged between the two countries, the wage difference of 50% (which, compared with actual differences in wages, is very modest) leads to unequal exchange. Instead of 300:300, we have \( 333{1}\left/ {3}\right.:266{2}\left/ {3}\right. \). Country B loses \( 33{1}\left/ {3}\right. \) value points, while country A gains them. The exchange puts country A ahead of country B by \( 66{2}\left/ {3}\right. \) value points. The rise in wages by 50% in country A means that the profit rate falls from 50% to \( 33{1}\left/ {3}\right. \)%. In this way, value is transferred from low-wage countries to high-wage countries according to Emmanuel (1972).

The Happy Smiley

Emmanuel’s theory of unequal exchange was a critique of David Ricardo’s classic comparative cost theory of foreign trade. However, the export-oriented industrialization of the Global South and the creation of global chains of production have brought new forms of unequal exchange. These are more intricate than swapping raw materials for industrial products, which characterized unequal exchange until the end of the 1980s and still characterizes relations between the more agrarian countries of the South and the industrialized countries today.

The theory of unequal exchange, as based on the difference in wage levels between the global North and South, is not only a critique of economists who advocate liberal foreign trade but also of those who adhere to the neoliberal theory of price formation.

In neoliberal economic theory, the formation of the market price, for example, of a computer, is described as a chain in which each step adds “value” to the product. The chain typically starts in the North, from where it heads South before returning to the North and its consumers. A curve illustrating “value added” along this chain looks like a happy-face smiley (Dedrick et al. 1999: 156). In the beginning, when financing, management, development, and design are handled in the North, there is much “value” added; hence, the curve starts at the high end. Then the chain of production moves to the South, where low-wage labor actually produces the product; hence little “value” is added, and the curve falls. Finally, when the product returns to the North and requires branding and marketing to be sold, there is again much “value added” (Fig. 2).
Fig. 2

The smiley curve (Mudambi 2008, P. 707)

A characteristic feature of global chains of production is that they pass through very different labor markets. According to the happy smiley curve, the biggest part of the product’s “value” is created in the North – but in fact, it is the difference in wages – and not value in a Marxist sense, along the chain of production that shapes the curve.

The Sad Smiley

Even if there are many disagreements among economists of different stripes, they all seem to agree that production costs entail two main elements: raw materials, machines, factories, etc. are what Marx calls constant capital and wages called variable capital. However, what determines the price of all these elements? Here, economists begin to disagree. As mentioned above neoliberal market theory simply states that the prices of goods and services are determined by what consumers are willing to pay. If a product can be sold for a price that is higher than the production costs, someone makes a profit. For Marxists, on the other hand, it is not the market that determines the price, but the cost of production (also referred to as the cost price). This is the first step in the transformation of value into price.

So, what determines cost of production? To simply add up the costs of raw materials, wages, etc. is not an answer, because we want to understand why they cost what they cost. As mentioned above, what all the necessary parts in the production process have in common is that they can be traced back to the consumption of labor-power. (I am aware of the so-called transformation problem which consists in the assertion that Marx “failed” in his explanation of prices of production to transform the inputs (c + v) into prices of production. However, I do not think there is a problem. To transform inputs into prices would have been to explain prices in terms of prices. Instead Marx sticks to the concept of value (average socially necessary labor time) in the formation of prices of production.) We also explained above that labor-power is a very peculiar commodity; although it has a globalized value, its price – the specific wage – is determined by class struggles, historical and current on both the national and the international level. These struggles cause huge variations in global wage.

If the question of surplus-value is not particularly important to capital, wages and working hours certainly are. Capital understands that long and intensive working hours and low wages are sources of profit. Furthermore, as we noted concerning capital’s organic composition, what matters to the capitalist are the overall production costs, not the ratio between constant and variable capital and thereby surplus-value. A sweatshop in Bangladesh does not necessarily generate more profit than an automated electronics factory. It is not the raison d’être of capitalism to squeeze surplus-value out of workers. This is, under the given circumstances, simply a consequence of all that really matters to the capitalist, namely, to sell something for more than what it costs to make it. This is where profit comes from in the mind of the capitalist.

From a Marxist perspective, however, price is not the same as value. Some commodities are sold for less than their value and others for more. Price determines the profit rate but also the distribution of value and surplus-value, both between capital and labor (in the form of profits for the former and wages for the latter) and between fractions of capital with different organic compositions (via the average profit rate). The transformation of value into price is therefore highly dependent on the political relationship between capital and labor as well as between different fractions of capital. The redistribution of value and surplus-value through market prices not only occurs between workers and fractions of capital within a single country but also globally, as a result of transnational movements of capital, trade, and production.

Marx’s theory about the transformation of value into price assumed an integrated market for goods, capital, and labor. Such markets tend to form a single price for a single commodity, balance out profit rates, and pay the same wage for the same kind of labor. This is what we see in the USA, the EU, and Japan. The global market is different: it is an integrated market with respect to the movement of capital and goods, but not with respect to labor. Therefore, the wages paid for the same kind of labor can differ widely. This also applies to global chains of production. Depending on where labor is carried out, its impact on the price of a product is very different. The surplus-value of labor in one part of the world (the Global South) raises profits and consumption ability (via cheap prices) in another part of the world (the Global North). The “value added” in the happy-face smiley’s curve includes not only the value created by a company in its home country but also the value created elsewhere and usurped by capital via the price for which a commodity is sold on the global market. “Value added” is in reality value captured. In short, the basis for the profits made by companies in the North are created in the South.

In neoliberal economic theory, this fact is not recognized; on the contrary, lower wages mean less “value added.” Therefore the “value added” curve in a global production chain running from North to South and back again has the shape of a happy smiley. However it is not a curve of “value added” in Marxist terms but a curve illustrating the formation of prices of production.

If we apply Marx’s conception of value, the curve looks different. If you draw a curve for value added during the production of a computer or a pair of sneakers following Marx’s theory, it will look like a sad-face smiley, the exact opposite of the curve drawn by neoliberal economists. This does not mean that their curve is “wrong.” It simply illustrates the creation of price, while the sad-face smiley illustrates the creation of value. The reason for labor in the Global South being much cheaper than labor in the Global North is not that labor in the South creates less value. The reason is that laborers in the South are more oppressed and exploited (Fig. 3).
Fig. 3

The happy and sad Smiley curve. (Lauesen and Cope 2016, p. 59)

The Global Distribution of Value

A theory of value entails a theory of price formation. The transformation of value into price occurs on the market; in other words, in exchange. If we look at value only in the realm of production, we turn value into an essence that flows from the minds and bodies of workers into the commodities they produce. But, as we have seen, value is the result of social relationships. Exploitation occurs throughout the entire circulation of capital, that is, during the production of commodities as much as during their exchange. Surplus-value is created in production, but it is acquired and distributed in exchange.

It is in exchange that human labor appears as the only possible measure of the different commodities, that is, as the basis of value. It is the sphere of circulation – the market – that distributes the value created by human labor between industries, countries, and individuals. Among capitalists, the average rate of profit balances out. Value is transferred from industries with low organic composition to industries with high organic composition. Finance and trade capital can acquire value without being involved in production at all. Between capitalists and workers, the distribution of value follows a simple principle: profit for the capitalists and wages for the workers. Value is moved and allocated because of competition and class struggle national and global.

Value-transfer from the global South to North in the form of profit is common knowledge in Marxist imperialism theory, yet value transfer in the form of consumption of commodities produced by low-wage labor by high-wage labor is controversial as it calls into question the unity and solidarity of the global working proletariat against global capitalism.

However, the fact that you are a wage earner does not necessarily mean that you are exploited when viewed in a global context. Some workers consume more value than they create. Due to the considerable difference in wages between North and South, the transformation of value into price, and the transfer of value through global production chains, it is quite possible for capital to employ labor with a relative high wage and get a profit out of it while, at the same time, this wage earner is able to consume more value than she or he creates. To be specific, the hidden value (in the relative cheap price) of the smartphone, the iPad, the sneakers, the t-shirt, the IKEA furniture, the chocolate bar, the bananas, and the coffee produced in the global South and consumed by workers in the global North may be greater than the value said wage earners in the North create. In a global perspective, the level of exploitation depends on the concrete relationship between the national price of labor-power (wage) and the global value of labor-power (global average wage).

Already in 1857, Marx discussed in Grundrisse that workers could draw an advantage from the work of other workers. This happens when the goods some workers produce are sold for less than their value and consumed by other workers who can afford them because of the wages they are paid:

As regards the other workers, the case is entirely the same; they gain from the depreciated commodity only in relation (1) as they consume it; (2) relative to the size of their wage, which is determined by necessary labour. (Marx 1857)

Therefore, a wage earner can consume more value than she or he produces. Whether someone earns a million dollars or 100,000 dollars a year changes the extent of the value transfer, but not its nature. It is not a matter of principle but calculation. I estimate that the breaking point – the point at which workers above that income threshold cease to be exploited – is between 10,000 and 25,000 dollars per year in income.

The Laws of Capitalism and Class Struggle

After this exercise in political economy, I feel the need to underline the dialectic relation between the economic laws that have to be fulfilled in order to keep accumulation running and class struggle. The capitalist mode of production has its laws; we can even express these laws in algebraic formulas. However, they are not laws of nature. The laws of capitalism are the result of national as well as global political struggles. An enormous political apparatus stand behind these laws, and if necessary, they are secured by military intervention. The capitalist mode of production is made by humans, it consists of human relations, and it can – and will – be altered by humans. Human need can be fulfilled by another mode of production than capitalism.

Cross-References

References

  1. Amin, S. (2010). The law of worldwide value. New York: Monthly Review Press.Google Scholar
  2. Brown, F. (2011). Summary and review: “Marx’s theory of price and its modern rivals” by Howard Nicholas. https://anti-imperialism.org/2014/01/25/summary-and-review-marxs-theory-of-price-and-its-modern-rivals-by-howard-nicholas-2011/
  3. Cope, Z. (2015). Divided World Divided Class. Global Political Economy and the Stratification of Labour under Capitalism. Montreal: Kersplebedeb 2015.Google Scholar
  4. Dedrick, J., Kraemer K. L., & Tsai T. (1999). ACER: An IT company learning to use information technology to compete. Center for Research on Information Technology and Organization, University of California. pcic.merage.uci.edu
  5. Emmanuel, A. (1972). Unequal exchange: A study of the imperialism of trade. New York: Monthly Review Press.Google Scholar
  6. Higginbottom, A. (2014). Imperialist rent in practice and theory. Glabalizations, 11(1), 23–33.CrossRefGoogle Scholar
  7. Lauesen, T. (2018). The global perspective, reflection on imperialism and resistance. Montreal: Kersplebedeb.Google Scholar
  8. Lauesen, T., & Cope, Z. (2015). Imperialism and the transformation of values into prices. Monthly Review, 67(3), 54–67.CrossRefGoogle Scholar
  9. Lenin (1916). Imperialism and the split in socialism. Lenin Collected Works (Vol. 23, pp. 105–120). Moscow: Progress Publishers, 1964. marxist.org
  10. Lenin (1920, July–August). “Supplementary Theses” (Attached to Lenin’s “Preliminary draft theses on the national and colonial questions”). marxist.org
  11. Manifest-Communist Working Group. (1986). Unequal exchange and the prospects for socialism in a divided world. Copenhagen: Publishing House Manifest. snylterstaten.dk.Google Scholar
  12. Marini, R. M. (1974). Dialéctica de la Dependencia (2nd ed.). Mexico: Ediciones Era.Google Scholar
  13. Marx, K. (1857). Grundrisse “Notebook IV – The chapter on capital, the general rate of profit. The section: The general rate of profit – If the capitalist merely sells at his own cost of production, then it is a transfer to another capitalist. Worker gains almost nothing thereby” (Grundrisse: Foundations of the critique of political economy (Rough draft)). Baltimore: Penguin. 1973; in association with New Left Review. marxists.org
  14. Marx, K. (1859). A contribution to the critique of political economy. Moscow: Preface Progress Publishers. 1977, with some notes by R. Rojas. marxists.org.Google Scholar
  15. Marx, K. (1865). Letter to Engels, dated July 31, 1865. In Karl Marx & Frederick Engels: Collected works, volume 42. Moscow: Progress Publishers. 1975: 172.Google Scholar
  16. Marx, K. (1867a). Capital, “Part I: Commodities and money, chapter one: Commodities, section 4: The fetishism of commodities and the secret thereof” (Capital, Volume I). Moscow: Progress Publishers. 1962. marxists.org
  17. Marx, K. (1867b). Capital, “Part II, chapter 5: Contradictions in the general formula” (Capital, Volume I). Moscow: Progress Publishers. 1962. marxists.org
  18. Marx, K. (1867c). Capital, “Part III. Chapter nine: The rate of surplus – value” (Vol. Capital, Volume I). Moscow: Progress Publishers. 1962. marxists.org.Google Scholar
  19. Marx, K. (1867d). Capital “Part II, chapter six: The buying and selling of labour – power” (Vol. Capital, Volume I). Moscow: Progress Publishers. 1962. marxists.org.Google Scholar
  20. Marx, K. (1867e). Part III, chapter eight: Constant capital and variable capital (Vol. Capital, Volume I). Moscow: Progress Publishers. 1962. marxists.org.Google Scholar
  21. Marx, K. (1867f). Part VII. Chapter twenty – four: Conversion of surplus – value into capital (Vol. Capital, Volume I). Moscow: Progress Publishers. 1962. marxists.org.Google Scholar
  22. Marx, K. (1883a). Part IV, chapter 20. Historical facts about Merchant’s capital (Vol. Capital, Volume III). Moscow: Progress Publishers. 1962. marxists.org.Google Scholar
  23. Marx, K. (1883b). Part II: Conversion of profit into average profit, chapter 9. Formation of a general rate of profit (Average rate of profit) and transformation of the values of commodities into prices of production (Vol. Capital, Volume III). Moscow: Progress Publishers. 1962. marxists.org.Google Scholar
  24. Mudambi, R. (2008). Page 707. Location, control and innovation in knowledge-intensive industries. Journal of Economic Geography, 8(5), 699–725.CrossRefGoogle Scholar
  25. Nicholas, H. (2011). Marx’s theory of price and its modern rivals. Houndsmills: Palgrave Macmillan.CrossRefGoogle Scholar
  26. Smith, J. (2016). Imperialism in the twenty- first century. New York: Monthly Review Press.Google Scholar

Copyright information

© The Author(s), under exclusive license to Springer Nature Switzerland AG 2019

Authors and Affiliations

  1. 1.IndependentCopenhagenDenmark