[OPE-L] What a whacky debate

From: Jurriaan Bendien (adsl675281@TISCALI.NL)
Date: Sun Oct 28 2007 - 07:39:20 EDT

Hi Philip,

You are correct in a sense, and I agree Marx aims to explain the origin of
the surplus value initially on the basis that equal values trade for equal
values, i.e. M and C in the M-C transaction are equivalents and C' and M' in
the C'-M' transaction are equivalents.

He aims to explain very clearly why owners of capital would be motivated to
invest directly in production at all, rather than simply trade in assets.
Purely from the point of view of the creation of net new value, he argues,
it does not matter a hoot whether commodities happen to be traded above or
below their value.

In practice, however, it does matter very much, for Marx's further argument,
insofar as (1) beyond some limit, means of production and labour-power
bought above their value cannot result in capital accumulation, (2) if the
valorised capital is not realised, the owner of capital has lost capital, by
investing it in production rather than something else (3) owners of capital
aim to buy below value, ideally sell above value and realise an adequate or
maximum profit, under the constraint that all competitors have the same

I was using unequal exchange in the more general, loose sense of "getting
something for nothing" in a trading relationship. If hypothetically I buy
e.g. a goose that can really lay gold eggs (okay, I don't believe that, but
for the sake of argument) for the average, normal price of any goose in the
market, I could of course argue that an exchange of equivalents has
occurred, the normal price for a goose, but in fact I've got myself a
bargain, since as soon as the goose has laid a gold egg, I have gained much
more than I paid for it. That gold egg is not subjective, it is a really
existing object which I can use in subsequent trading activities. Although
formally speaking the exchange may therefore seem equal, "in substance" it
is an unequal exchange.

Most trade in capitalist society in reality involves unequal exchange to
some extent or other, but insofar as all competing market actors are
motivated to get their money's worth in a developed, open market, this
narrows or constrains the differential between exchange-values and
labour-values, such that labour-values regulate exchange-values, at least in
the long haul. At least that is how I understand Marx's theoretical
argument, abstractly speaking, assuming a MELT. If market actors discover
that their trading activity means, that they continually perform more labour
to obtain less product in return, they are motivated to change their trading
activity, or change their labour activity. As they adjust their trading and
labour activity, they effectively implement the rule of the law of value,
even although they may not be aware of it.

To put the same thing differently: it is quite possible to trade commodities
representing more labour for commodities representing less labour, and
indeed commerce aims to do just that, but in the normal situation the
differential will not be so great nor enduring, since at a very great
differential, trading parties would simply refuse to trade, or be motivated
to seek an alternative source of supply.

To use a simplified example, if product A takes 100 average labour-hours to
produce and product B takes 10 hours to produce, a normal trading ratio
between A and B would be (ceteris paribus) 1:10. If you can trade at 1:11 or
1:12  then the owner of A has the advantage, if you can trade at 1:9 or 1:8
then the owner of B has an advantage. If the trade was in terms of 1:5 or
5:1 then there would obviously be a very great trading advantage. In
commerce, you aim precisely to realise that advantage, if you can, and as
much as you can. Hence "globalisation", meaning the maximum exploitation of
unequal exchange (more labour exchanging for less labour, i.e. the
exploitation of the differential).

But what you also have to explain is, why the trading ratio is rarely if
ever 1:100 or 500:1 or something like that, i.e. the regularities of trade,
rather than their irregularities.

This sparks among other things the notion of "equilibrium price", and the
theory of a system of equilibrium prices which ensure that all markets are

But this doesn't yet explain why the trading ratio consistently happens to
settle at "somewhere near" 1:10, rather than 1:100 or 500:1, at least in the
normal or "natural" situation (Smith and Ricardo indeed refer to "natural
prices"). Nor does it explain, why the normal trading ratio might shift
gradually in favour of A or B, in the course of time.

All we can really say in equilibrium theory is, that at a ratio of (say)
around 1:10, supply and demand are observed to remain rather constant, and
therefore that this ratio must reflect equilibrium (we have no other
evidence for it). If it does not remain constant, but shifts gradually in
favour of A or B, then either there is no equilibrium yet, or, we have to
say something like that one state of equilibrium "is followed by another
state of equilibrium" after a market adjustment in which disequilibrium is
restored to equilibrium.

Indeed, this is exactly what Fed chairman Alan Greenspan argues:
"Globalization has altered the economic frameworks of both developed and
developing nations in ways that are difficult to fully comprehend.
Nonetheless, the largely unregulated global markets do clear, and, with rare
exceptions, appear to move effortlessly from one state of equilibrium to
another. It is as though an international version of Adam Smith's "invisible
hand" is at work." (Bundesbank speech on January 13, 2004).

Marx's theory aims to make Smith's "invisible hand" visible. Once we are no
longer blind, we comprehend that global markets are not largely unregulated,
that they do not always clear, that labour-effort is involved rather than
mystical "effortlessness", and that the "invisible hand" is the
flesh-and-blood hand of the worker producing the product.


This archive was generated by hypermail 2.1.5 : Wed Oct 31 2007 - 00:00:20 EDT