14 Trade

Reinert

In a speech to Belgian workers in 1848, Karl Marx was pleased with Ricardo’s free trade theory because premature trade liberalization would create poverty and hastening revolution. Warlords in the world periphery may appreciate free trade for the same reason Marx did: premature trade liberalization locks a nation in a pre-capitalist and backward economic structure that prevents democracy. A nation without a large division of labour and a web of increasing returns’ industries is unlikely to be able to support a democratic system.

Reinert (2011) The terrible simplifiers (pdf)

14.1 Unequal Exchange (UE)

Carchedi and Roberts

Unequal Exchange and Exchange Rates

Exchange rate movements are another source of surplus value appropriation specific to capitalism. In conventional economics there are basically three theories of exchange rates. The balance of payments theory states that if a country’s balance of payments has a surplus, the greater demand for its cur- rency causes its appreciation, and vice versa for a deficit. Exchange rates tend towards the point at which the balance of payments is in equilibrium. The pur- chasing power parity theory holds that exchange rates tend towards the level at which the purchasing power between two countries is equalised. This is the quantities of the countries’ currencies that can buy the same basket of goods in both countries. At that point, exchange rates have reached their equilibrium level. The monetary theory postulates that the exchange rates are determined through the balancing of the total demand and supply of the national currency in each country. These and other similar theories have been subjected to criticism on a number of grounds. They will not be reviewed here because, whatever their differences, they share a common matrix, the fundamental, empirically unproven, internally inconsistent and ideologically-laden postulate that the capitalist economy tends towards equilibrium, however defined. Yet it is for all to see, except for equilibrium economics, that the capitalist economy is a non-equilibrium system. It tends not to equilibrium, but to crises. Besides conventional economics’ theories of UE, there are also Marxist stud- ies. In the 1970s, a number of authors36 produced important studies, which, however, have been superseded on account of their being based on the assump- tion of capital immobility. More recently, Shaikh and Antonopoulos have sub- mitted that ‘the sustainable real exchange rate is that which corresponds to the relative competitive position of a nation, as measured by its relative real unit labor costs’. The advantage of this approach is that it relates competitivity to the exchange rates (henceforth, XR). Broadly speaking, the authors reckon that the DC improve their profitability (competitive position) by lowering their labour costs while the IC do that by raising their productivity. This is correct. But the DC lower their wage levels because of their lower productivity. So the exchange rates should ‘correspond’ to productivity differentials rather than to wage differentials.

Carchedi and Roberts (2021) The Economics of Modern Imperialism (pdf) (pdf)