Foreign trade and the sale of commodities at prices of production deviating from values

Among the simplifying assumptions of the reproduction scheme an especially important role is played by the assumption that commodities exchange at value; that is, that their prices coincide with their values. This is only possible if we abstract from competition and suppose that all that happens in circulation is that one commodity of a given value is exchanged against another of the same value. But in reality commodities do not exchange at their values. Such an assumption has to be dropped and the conclusions established on that basis further modified.

What sort of modifications are required? Up to now this problem has always been examined from the standpoint of the transfer of value among capitalists — a social process in which the prices of production of individual commodities differ from their values but on the basis of total price remaining equal to total value. No one has systematically tackled the problem of the deviation of prices from values in international exchange or related this problem to the overall structure of Marx’s system. For instance Hilferding and the followers of Kautsky were in no position to grasp the elements of novelty in Marx’s treatment of this problem as long as they were mainly interested in rejecting the theory of breakdown. This likewise precluded any deeper analysis of the function of foreign trade under capitalism.

If like Ricardo, we suppose that the law of value is directly applicable to international trade then the question of foreign trade has no bearing on the problem of value and accumulation. On this assumption foreign trade simply mediates the exchange of use values while the magnitude of value and profit remains unaltered. In contrast Marx draws out the role of competition in international exchange.

If we look at the sphere of production it follows that the economically backward countries have a higher rate of profit, due to their lower organic composition of capital, than the advanced countries. This is despite the fact that the rate of surplus value is much higher in the advanced countries and increases even more with the general development of capitalism and the productivity of labour. Marx (1959, pp. 150—1) gives an example where the rate of surplus value is 100 per cent in Europe and 25 per cent in Asia while the composition of the respective national capitals is 84c +16v for Europe and 16c + 84v for Asia. We get the following results for the value of the product

Asia

16c + 84v + 21s = 121. Rate of profit 21/100 = 21 per cent

Europe

84c + 16v + 16s = 116. Rate of profit 16/100 = 16 per cent

International trade is not based on an exchange of equivalents because, as on the national market, there is a tendency for rates of profit to be equalised. The commodities of the advanced capitalist country with the higher organic composition will therefore be sold at prices of production higher than value; those of the backward country at prices of production lower than value. This would mean the formation of an average rate of profit of 18.5 per cent so that European commodities will sell for a price of 118.5 instead of 116. In this way circulation on the world market involves transfers of surplus value from the less developed to the more developed capitalist countries because the distribution of surplus value is determined not by the number of workers employed in each country but by the size of the functioning capital. Marx slates that through foreign trade:

three days of labour of one country can be exchanged against one of another country ... Here the law of value undergoes essential modification ... The relationship between labour days of different countries may be similar to that existing between skilled, complex labour and unskilled simple labour within a country. In this case, the richer country exploits the poorer one, even where the latter gains by the exchange. (1972, pp. 105—6)

In effect price formation on the world market is governed by the same principles that apply under a conceptually isolated capitalism. The latter anyway is merely a theoretical model; the world market, as a unity of specific national economies, is something real and concrete. Today the prices of the most important raw materials and final products are determined internationally, in the world market. We are no longer confronted by a national level of prices but a level determined on the world market. In a conceptually isolated capitalism entrepreneurs with an above average technology make a surplus profit (a rate of profit above the average) when they sell their commodities at socially average prices. Likewise on the world market, the technologically advanced countries make a surplus profit at the cost of the technologically less developed ones. Marx repeatedly draws out the international effects of the law of value. For instance he says, ‘most agricultural peoples are forced to sell their product below its value whereas in countries with advanced capitalist production the agricultural product rises to its value’ (1969, p. 475). In Chapter 22 of Capital Volume One entitled ‘national differences in wages’, Marx writes:

the law of value in its international application is ... modified by this, that on the world market the more productive national labour reckons also as more intense, so long as the more productive nation is not compelled by competition to lower the selling price of its commodities to the level of their value. (1954, p. 525)

With the development of capitalist production in a given country therefore, the national intensity and productivity of labour rise above the international average level.

The different quantities of commodities of the same kind, produced in different countries in the same working time, have, therefore, unequal international values, which are expressed in different prices, ie, in sums of money varying according to international values. The relative value of money will, therefore, be less in the nation with a more developed capitalist mode of production, than in the nation with a less developed. (p. 525)

Likewise in Chapter 17:

the intensity of labour would be different in different countries, and would modify the international application of the law of value. The more intense working day of one nation would be represented by a greater sum of money than the less intense day of another nation. (p.492)

Finally in Capital Volume Three:

Capitals invested in foreign trade can yield a higher rate of profit, because, in the first place, there is competition with commodities produced in other countries with inferior production facilities, so that the more advanced country sells its goods above their value even though cheaper than the competing countries. In so far as the labour of the more advanced country is here realised as labour of a higher specific weight, the rate of profit rises, because labour which has not been paid as being of a higher quality, is sold as such ... As regards capitals invested in colonies, etc, on the other hand, they may yield higher rates of profit for the simple reason that the rate of profit there is higher due to backward development, and likewise the exploitation of labour, because of the use of slaves, coolies, etc. (1959, p. 238)

In the examples cited above the gain of the more advanced capitalist countries consists in a transfer of profit from the less developed countries. it is irrelevant whether the latter are capitalist or non-capitalist. It is not a question of the realisation of surplus value but of additional surplus value which is obtained through competition on the world market through unequal exchange, or exchange of non-equivalents.

The enormous significance of this transfer process and the function of imperialist expansion are only explicable in terms of the theory of breakdown developed earlier. I have already shown that capitalism does not suffer from a hyperproduction of surplus value but, on the contrary, from insufficient valorisation. This produces a tendency towards breakdown which is expressed in periodic crises and which in the further course of accumulation necessarily leads to a final collapse.

Under these circumstances an injection of surplus value by means of foreign trade would raise the rate of profit and reduce the severity of the breakdown tendency. According to the conception I have developed and which, I believe, is also Marx’s conception, the original surplus value expands by means of transfers from abroad. At advanced stages of accumulation, when it becomes more and more difficult to valorise the enormously accumulated capital, such transfers become a matter of life and death for capitalism. This explains the virulence of imperialist expansion in the late stage of capital accumulation. Because it is irrelevant whether the exploited countries are capitalist or non-capitalist — and because the latter can in turn exploit other less developed countries by means of foreign trade — accumulation of capital at a late stage entails intensified competition of all capitalist countries on the world market. The drive to neutralise the breakdown tendency through increased valorisation takes place at the cost of other capitalist states. The accumulation of capital produces an ever more destructive struggle among capitalist states, a continuous revolutionisation of technology, rationalisation, Taylorisation or Fordisation of the economy — all of which is intended to create the kind of technology and organisation that can preserve competitive superiority on the world market. On the other side accumulation intensifies the drift to protectionism in the economically backward countries.

Kautsky sees the essence of imperialism in a striving to conquer the non-capitalist agrarian parts of the world. He therefore sees imperialism as merely an episode in the history of capitalism that will pass with the industrialisation of those parts of the world. This conception is totally false. Imperialism must be understood in the specific form that Luxemburg gives to it in her theory of the role of the non-capitalist countries. Imperialist antagonisms subsist even among the capitalist states in their relations to one another. Far from being merely an episode that belongs to the past, imperialism is rooted in the essence of capitalism at advanced stages of accumulation. Imperialist tendencies become stronger in the course of accumulation, and only the overthrow of capitalism will abolish them altogether.

The argument developed here shows how foreign trade can function as a means of surmounting crises. While commodity exports are not confined to periods of crisis or depression it is a fact that in boom periods, when the level of domestic prices is high and shows an upward trend, accumulation in individual spheres of industry creates a market for industry as a whole, and industry works mainly for the national market. Foreign trade gains importance in periods of internal saturation, when valorisation disappears due to overaccumulation and there is a declining demand for investment goods. The drive to export in a period of depression acts as a valve for overproduction on the domestic market. In Germany after the boom year of 1927 there was a tapering off early in 1928. Although a depression has still to come there was, in the first four months of 1928, a retreat in domestic demand practically all along the line. At the same time however, exports provided a compensation. From January to April 1928 exports were around 18.5 per cent higher than in the corresponding part of the previous year. Thus here we have a means of partially offsetting a crisis of valorisation in the domestic economy.