The frontiers of value

Güney Işıkara and Patrick Mokre have published an insightful book that explains how Marx’s theory of value operates to explain the trends and fluctuations in modern capitalist economies. Called Marx’s Theory of Value at the Frontiers – Classical Political Economics, Imperialism  and Ecological Breakdown, the title tells the reader that the book is about taking Marx’s law of value towards what they call its ‘frontiers’, namely markets and trade; imperialism and the global environmental crisis.

This is an ambitious project, but the authors succeed with a high degree of clarity in explaining the way that value (as created by human labour power at the highest level of abstraction) is modified and mediated by competition between capitalists into what Marx called ‘prices of production’ (where individual capitals’ profit rates become equalised) and by market prices (where surplus profits drive capitalists into unceasing competition). 

The authors, as former students of Anwar Shaikh, adopt his theory of ‘real competition’  as opposed to the mainstream ‘perfect competition’.  The latter is based on a view of capitalist production based on harmony and equilibrium, while real competition is unceasing turbulence. That is real competition at work: “antagonistic by nature and turbulent in operation” (Shaikh). The authors argue that this real competition is the central regulating principle of capitalism, but that “any theory of competition, including real competition, must be underpinned by a value theory. Otherwise, the source of revenues accruing to different social classes (among many other things) will remain undetermined.”

Isikara and Mokre set out to show the logical (and historical) connection between value created by labour power and prices in the market place. They make the important distinction of ‘between-industry’ and ‘within industry’ competition.  Within industries, firms compete for shares of the same market; so prices tend to equalize within a given market. The firm that dominates that market will tend to set the price; the ‘regulating capital’.  Between industries, capitalists shift investments towards those sectors with the higher rates of profit and so there is tendency for profit rates to equalise across sectors.  As a result, the value incorporated in individual commodities is modified into ‘prices of production’ based on costs plus a general average rate of profit. Market prices that consumers and businesses pay move around these prices of production; which in turn are ultimately governed by the ‘direct prices’ of commodities ie the labour value contained. So deviations between direct prices and production prices, on the one hand, and between production prices and market prices on the other hand, follow from changes in value.

In these early theoretical chapters, Isikara and Mokre decisively deal with the mainstream and heterodox critiques of Marx’s value theory, although they wisely leave out the interminable debate on the so-called transformation problem of values into prices that has been resolved elsewhere. And in their empirical analysis, the authors provide yet more compelling evidence of the strongly positive relation between value and prices, using a new more wide-ranging input-output database.

Isikara and Mokre find that the deviations between market and direct prices (as a share of market prices) are in the range of 10–20 percent in almost all countries in the sample, while the deviations between market and production prices are slightly lower (by about 1–2 percentage points) for almost all countries. The deviations between direct and production prices are less than 5 percent in all countries. “This lends support to Ricardo’s view that complications brought about by capital accumulation (differences in capital–labor ratios, turnover times, durability of capital goods, and so forth) lead to deviations of relative natural prices (in our case, relative production prices) from the underlying magnitudes of embodied labor (in our case, direct prices), but these deviations are expected to be less than 7 percent.” The authors conclude that “our results confirm that direct prices constitute a powerful predictor of production and market prices, and, similarly, that production prices are a powerful predictor of market prices.”  Marx’s value theory has strong empirical backing.

The authors then take value onto another frontier: the transfer of value through international trade. They start by criticising dependency theory: “Marx’s approach centers on competition between capitals, within and beyond borders, in contrast to Emmanuel, who saw his subject as the exploitation of one nation by another.”  They conclude: “It would be correct to say that the capitalists of advanced countries gain from the opportunity to exploit not only domestic workers, but those who live in other countries. They are able to claim above-normal profits from the social surplus because of competition on the international level. However, a transfer of surplus value from the pockets of the capitalists in one country into the pockets of the capitalists in another country cannot be designated as the exploitation of the former country by thelatter. Similarly, industries cannot be said to exploit each other just because there is a transfer of value from one to another industry.”

On the other hand, Isikara and Mokre do not go down the road of David Harvey in dismissing unequal exchange of value in international trade as having any relevance for modern imperialism. “Harvey’s argument is in favor of abandoning the concept of imperialism and replacing it by a more fluid notion of shifting hegemonies within global capitalism.”  The authors reject Harvey’s conclusion both theoretically and empirically. They use their database to find that “international value transfers are substantial, corresponding to 5.9 percent of annual global output in production industries during the period 1990-2020, with a cumulative figure of a staggering $70trn.” Mexico, Indonesia, Russia, South Korea, and Brazil are the largest net givers of value, while the US, Japan and China are among the largest net gainers of value transfers in international trade.

The so-called BRICS, as the largest representatives of the periphery in world capitalism, are the biggest losers, with the exception of China. Their result for China “is qualitatively different from the established position in the literature, according to which China is among the dominated countries or suffers from value drain in international trade.”  But they add caveats.  First, China only became a net gainer in the last ten years since the Great Recession, after which global trade growth weakened.  And their result “only pertains to value transfers in production industries (omitting other economic aspects of imperialism), and, accordingly, it is in itself not evidence that China is now an imperialist power.”

Importantly, Isikara and Mokre decompose the contribution to the transfer of value due to a higher value composition of capital (suggesting technological superiority) and a higher rate of surplus value (suggesting a higher exploitation of labour).  They find that the contributions of each are pretty evenly divided.

This result is very similar to the result that Guglielmo Carchedi and I found for the contributions of capital composition and the rate of exploitation in our own study of unequal exchange in trade between the imperialist core and the peripheral economies. It is notable in authors’ results that China’s net value gains from trade is almost entirely due to its technological superiority over other countries, while for the US and the UK, it is mainly due to higher rates of exploitation of other countries.

But these results are based only on production industries; the flow of value through nonproduction industries like finance and insurance activities in transferring surplus value from one country to another in the form of profits, fees and interest is not covered.  The authors attempt an estimate of ‘nonproduction value capture’ and find value transfer there is pretty small compared to value transfer in the production sectors of economies. But they recognise that nonproduction value capture in their input-output tables is probably underestimated. Indeed, other work on this by Thomas Rotta, incorporating production and non production sectors, finds that China is the largest giver of value while the US is the largest capturer of value in the world economy.  The US share of ‘captured value’ per employee continues to rise at the expense of peripheral countries like India and China, although, as in Mokre and Isikara’s analysis, Rotta finds that China’s annual loss has narrowed significantly since the Great Recession.

There are other ways to look at the transfer of income from the peripheral countries to the imperialist core using net primary  income transfers and ‘excess yield’ on foreign investment.  I discuss these in an unpublished paper.  When it comes to cross-border income flows from trade and investments, the imperialist core visibly gains while the BRICS including China are net losers.

Source: IMF

And Piketty et al have also found that when returns on net foreign assets are calculated, again the imperialist core has positive gains while the BRICS (including China) are net losers.

In their final chapters, Isikara and Mokre take Marx’s value theory to the frontiers of nature ie land and the ecology of the planet. They argue that rent as a general category modifies the law of value, but does not eliminate it. Land ownership does not do away with the operation of the law of value. “The tendential equalization of profit rates is still the beating heart of capitalist competition, encompassing all sectors, including those where rent must be paid to the monopoly owners of relevant resources. No capitalist would invest in the latter if they were not to expect normal profits after paying rent.” 

However, they offer the interesting observation that ‘fictitious capital’ does boost current revenues by “securitizing prospective revenues and labor, and through the transformation formerly public domains (privatization of pension and welfare rights, housing, urban spaces; land grabs)”.  So financialization is a modern form of value accumulation.  I would add that even though that is true, the surplus value that is extracted by the buying and selling of financial assets ultimately comes from the value of productive assets – finance does not create new value, but merely redistributes it. 

Isikara and Mokre critique the increasingly popular view that nature creates value and that the unequal exchange of raw materials, energy, land etc in global trade flows is unaccounted for by value theory. The point here is that “theories of ecologically unequal exchange are chiefly concerned with outcomes in the domain of use values.”  And the danger here is that in “failing to grasp the distinction between doing useful labor and the specifically capitalist social form of value creation, you can end up thinking that nonhuman work (for instance, work done by horses, bees, fossil fuels, and so forth) is as much constitutive of value as human work.” I would add that the ‘work of nature or other species’ is only turned into value in capitalism by human labour power (collecting the honey for sale; pumping up the oil and gas; working the horses and oxen etc).

In their book, Isikara and Mokre have shown how Marx’s value theory is essential to understanding the key issues facing the world in the 21st century. It argues powerfully that deviations between market prices, production prices, and labour values are central to understanding international value transfers due to differential capital compositions and rates of exploitation, as well as explaining the central role of rent and accumulation in the capitalist-induced ecological crisis.  As such, the book is “a handbook for Marxist practitioners”.