Marx’s Value Theory at the Frontiers
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Marx’s Value Theory at the Frontiers
by Güney Işıkara and Patrick Mokre
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In our new book Marx’s Theory of Value at the Frontiers we provide a coherent value-theoretical foundation to study capitalist competition at the international level, and present empirical evidence demonstrating that international trade in this context is inherently polarising, where structural transfers of value from peripheral to core countries constitute a prominent aspect of imperialism. In investigating the law of value at its own frontiers, we believe our book reaffirms Marx’s theory of value as an indispensable framework for understanding capitalism’s evolving frontiers and enduring contradictions.
Studying capitalism from a systemic perspective is nothing new. Neither is arguing Marx’s own work as well as the broader Marxist theory are fundamental to its understanding. Nevertheless, we think that our new approach contributes to the understanding of capitalism through a consistent, operationalisable theory of value, applied at two frontiers of the law of value: imperialism and ecological breakdown.
Our core argument is that Marx’s theory of value offers the theoretical basis for understanding capitalism’s core contradictions that get us all riled up these days, especially once we start looking where the law is modified, but not negated. That means looking at the empirical deviations between direct prices (which are prices proportional to labour values) and market prices for insights as fundamental as those manifested in their regular relationship. In this blog post, we focus on international transfers of value, which constitute a crucial economic aspect of imperialism.
Marx’s theory of value is concerned, among other things, with the social forms regulating human working activity, and the resulting ceaseless adjustment of the social division of labour. This perspective is powerful: understanding in which regions and sectors capital will be employed, and consequently, people will (have to) work, is the key for understanding the accumulation-driven destruction of non-human nature as well as one economic core of deepening international inequalities.
Capitalism is a mode of production where the means of production are concentrated in the hands of a few while the rest have no means to subsist but through wage labour. In the absence of (planning) structures regulating the social division of labour, the allocation of capital and labour to different branches of production is established with references to market prices, just like the proportions in which commodities are exchanged are determined. However, a closer look reveals that such observable prices are ultimately regulated by prices proportional to labour values, that is, the socially necessary labour time required for the reproduction of commodities.
Capital owners encounter each other as competitors for market shares and profit, and since profits determine each capital’s rate of expansion, maximising profits becomes a condition of survival. Anwar Shaikh’s theory of real competition likens these antagonistic encounters to war (rather than a state of harmony as pictured by perfect competition and its various satellites), characterised by a dynamic process of steering investment (capital accumulation) to the highest expected profit rates.
The relentless search for above-average profit rates intensifies cost cutting behaviour, and brings about a ceaseless movement of prices and profit rate in a process of turbulent equalisation. A general profit rate forms as the center of gravitation, which is added to socially necessary labour time in every step along the production chain to form what Marx calls prices of production.
These production prices have a remarkably strong predictive power over market prices, tying together aspects of order and disorder, equally real and relevant, resulting from turbulent fluctuations characterising capitalist competition.
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Figure 1: Left panel shows the almost linear relationship between market prices (MP) and production prices (PP), while the right panel shows the same relation between market prices (MP) and direct prices (DP).
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The path from labour values through production prices to market prices contains modifications that generate seeming contradictions. These modifications pertain to what we call the frontiers of the law of value: domains where the theory of value could either lose its explanatory power or gain new dimensions of it. In the book, we examine international transfers of value brought about by cross-country-cross-industry differences in the proportions capital and labour are employed as well as persistent differences in wage levels, and ground rents when land is used as non-reproducible capital.
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Limits to frontiers
It is important to clarify one point: we do not conceptualise non-human nature or international exchange as frontiers in a geographical sense, or as frontiers of capitalism itself. International value transfers (through various channels) were constitutive in generalising commodity production and establishing capitalism as the dominant mode of production. Merchant profits and colonial spoils built the financial foundations for productive capital in England and Europe. The even more inhumane economic practices of trading humans, enslaved labour and expelling native populations were no remnants of earlier modes of production either, but significant drivers of accumulation under capitalism.
With ground rent the picture is similar. The enclosure of agricultural land, its usage as capital, and the extraction of surplus profits by landlords is a cornerstone of any historiography of capitalism. Ground rents on fossil and post-fossil extraction did not only gain importance in the past decades, as debates on the reliance on coal meandering through the political economy of the 19th century demonstrate. We only use the term frontiers with regards to the body of theory we work in and hope to expand: domains where the functioning of the law of value is modified, and consequently, Marx’s theory of value, too, is either modified or loses its relevance. Unsurprisingly, when it comes to the relationship between competition, transfers of value as one instance of economic imperialism, and ground rent in the context of the ecological breakdown, we opt for modification.
In the spirit of reproducibility and as a starting point for researchers pursuing similar questions, we make all our data and workflow available to anyone interested. In broad strokes, we use environmentally enhanced multiregional input-output tables (EE-MRIOTs) to estimate direct and indirect labour employed for the production of all industrial outputs. We also trace fixed capital use, profit and wage rate equalisation as well as land use and resource extraction. We construct a vector of industrial labour values (direct prices), another one for prices of production (which constitute a tendency reflecting a general profit rate), and a third one for market prices for the global economy, investigate the regular relationship between the three that Marxist value theory predicts, and then analyse the regularities of deviations, which partly result from processes at the frontiers of the law of value.
The EXIOBASE project gathered and harmonised input-output data for 44 countries (mostly from the OECD) and aggregated the rest of the world in five regions. The dataset covers the years 1995 – 2020 and is denoted in 163 industrial sectors. In addition, EXIOBASE satellite accounts cover land use, resource extraction and emissions. Some co-authors of the project also published extensions of the model, including estimations of fixed capital flows between industries at the same resolution.
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International Value Transfers
The notion that there are structural transfers of value between countries attracted the attention of Marxists like Otto Bauer and Henryk Grossman early in the 20th century, but it was not pursued in subsequent research within or outside of Marxist theory. Emmanuel’s Unequal Exchange (1972) revived this question in a context where dependency theory was flourishing. He first applied the channel of domestic value transfers between industries, namely differences between organic compositions of capital, to the international level. Crucially, Emmanuel argued that the tendency of profit rates to equalise internationally, combined with the relative immobility of labour, creates a second and more fundamental channel for flows of value from the periphery to the imperialist center.
We use the term “international transfers of value” to capture a well-defined, specific channel of transfers, which stem from two sources: differential value compositions of capital (VCC) and differential rates of surplus value (RSV). VCC-based transfers – which Emmanuel regarded as a structural component of capitalist competition and called unequal exchange in the broad sense – arise from the regular operation of the law of value, flowing from low to high capital composition industries during the turbulent equalisation of profit rates. RSV-based transfers – which Emmanuel regarded as an accidental (or political/institutional) feature of the system, and called unequal exchange in the strict sense – result from persistent cross-country wage disparities.
In our book, we measure the overall magnitude of international value transfers and estimate the relative importance of the two channels by isolating value transfers resulting from differential value compositions of capital (VCC) and differential rates of surplus value (RSV) as distinct channels, which are located within a coherent Marxist framework where these transfers are structurally manifested as deviations between price vectors.
We find that aggregate international value transfers are substantial, corresponding to roughly 5.9 percent of global gross production annually in production industries, amounting to over seventy trillion euros across the 1995–2020 period. These gains are very unequally distributed and concentrated in only a few countries. Japan and the United States are among the largest net recipients. Notably, China’s position qualitatively changed over the period, shifting from a net payer to a net recipient of value transfers around 2005–2010.
Transfers induced by value composition of capital and rate of surplus value point in the same direction in almost all cases, but magnitudes vary significantly between countries. The United States receives more than two times more transfers induced by rate of surplus value than value composition of capital, while China receives substantial transfers induced by value composition of capital but has a very small rate-of-surplus-value effect.
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Figure 2: Value transfers by country, computed as average yearly value transfers between 1995 and 2020.
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For some countries, value transfers are crucial: the biggest net recipients over the entire period 1995-2020 (Japan, the US, China, Italy and Great Britain) enjoy value inflows that amount to between 4.5 and 16.1 percent of their domestic gross production. At the other end of the spectrum, we found countries like Mexico and Indonesia who transfer out half of the value created in their domestic production industries.
It is worth emphasising that we use the term transfers of value only to capture the value flows between production industries, resulting from the emergence of international prices of production. This is an important channel of economic imperialism, yet it is not the only one. Non-production industries’ capture of value generated in domestic and foreign production industries is another important mechanism of economic imperialism, as are capital exports in commodity and productive capital form.
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Güney Işıkara is Clinical Associate Professor of Liberal Studies at New York University (NYU), USA.
Patrick Mokre is an economist at the Austrian Federal Chamber of Labor (AK) in Vienna, Austria.
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