The Roots of Capitalist Crisis - Part 5:
The Law of Value on the World Market

Crisis? What crisis? The present state of the economy in the west may seem to mock everything weíve written before in this series about the inevitability of the collapse of the capitalist world economy. Capitalism, at least in the most developed countries, does not seem to be doing so badly. Huge profits are being made and some sectors are growing so fast that they canít find enough workers. Driven by information technology, a "new economy" appears to be booming. Globalization opens new markets which have, according to the business press, a very promising growth potential. As they say: if every Chinese buys but one can of coke a year, Coca Cola will be very happy. And if every Chinese buys a car, that may spell a global ecological catastrophe, but also big profits for the auto-industry.

We think that the analysis that we developed in this series, is not only not disproven by the present economic growth in the West, but also shows why the overall deepening of the crisis of the capitalist economy, goes, at this time, hand in hand with increased prosperity in its most developed part, which rises momentarily higher above the water, while the rest of the ship is sinking.

This series of texts has attempted to show the dramatic changes in the operation of the capitalist law of value globally, as well as how these changes have affected the actual operation of the global capitalist economy. So it has moved from the high level of abstraction, necessary to grasp the immanent tendencies of value production, to the way in which these tendencies actually manifest themselves in a specific economic conjuncture and unleash crises. In analyzing the operation of the law of value, it is important to remember that one cannot simply transpose an analysis of the immanent tendencies of value production on the global level to a prognosis for the time and place of the outbreak of a conjunctural crisis, which would ignore the role of contingency in history and the complex ways in which political and cultural factors intervene in, and can modify, the way in which the tendencies of value production actually unfold, especially since the law of value has invaded every sphere of social life, thereby exploding the very categories of base and superstructure. Like Marx's old mole, the tendencies that we have analyzed shape and reshape the landscape of social life, even as bourgeois economists proclaim their new economic paradigms.

However, there was a weakness in our analysis: its assumption that the law of value, and the laws of motion of capital, operate on the world market in the same way as on a national market. That is not the case and itís important to see the difference in order to understand the present state of affairs. The following text attempts to do that. The analysis it develops, provides answers to two essential questions on the world economy and its future. The first is about the source of profits. Huge profits are being made in the "new economy" which attracts capital from all over the world. Marxís analysis shows that all profits are surplus value, unpaid labor time, in origin. Is this surplus value extracted in the Ďnew economyí itself or does the latter obtain most of it on the market? In other words, is technology-induced productivity-growth the direct source of this increase in surplus value or does the profit come from the globalization of the market, and the advantageous market-position of the new economy, which allows it to sell its commodities above their value and buy others below their value? The answer to that question has great implications. If the first hypothesis is correct, than capitalismís future lies in the hands of the goddess of technology. If the second is true, if the increased profitability of western capital is the result of an increased transfer of surplus value, then the health of developed capital depends on the participation of less developed capitals in global trade.

That brings us to the second question. Can globalization create a horizontal development of capitalism and so expand the global market? Industrialized capitalism did follow a pattern of horizontal development until the early 20th century, spreading from England to the European continent, North America, JapanÖ But since then, very few countries have joined the ranks of the developed ones. Despite the obvious advantage horizontal development would have for the market-expansion of developed capital, it hasnít happened. We must understand why, in order to know whether it is possible today. So far, Marxists havenít adequately answered these questions. We hope this text does.

"Öfrom no source do so many errors and so much differences in opinion in that science proceed, as from the vague ideas which are attached to the word value."

--- David Ricardo


In my presentation for the discussion on the economic foundations of capitalist decadence at the IP-conference in May 1999, I emphasized the role of surplus profits as a motor of capitalist accumulation, shaping the specific dynamic of capitalismís history. In capitalismís ascendant period, industrial capitals obtained enormous surplus profits within the sectors in which they grew, by producing commodities whose individual value was much lower than the market value at which they could be sold and pocketing the difference; and by unequal exchange with sectors not yet or barely touched by industrialization, exchanging less value for more, thanks to their great advantage in productivity-growth. It was the heterogeneity of the conditions of production that made the surplus profits of industry possible, but as industrialization proceeded, these conditions became more homogenous. I pointed out that, in the second half of the 19th century, this led to a (tendential) equalization of the rate of profit in the developed capitalist countries, which spread the (tendential) fall of the rate of profit that resulted from the steady rise of the organic composition of capital (the relative decrease of living labor in the production process), horizontally within the national economies. In the same period, the scale-enhancement of the means of production, entering the era of mass-production, made the prospect of a structural imbalance between the productive forces of developed capitalism and the market which it could generate within the restrictions of its relations of production, inevitable. So in this period (the end of the 19th and the beginning of the 20th century), developed capitalism greatly expanded its foreign trade, in search of surplus profits which were disappearing on their domestic markets. This led to increased international competition and uniform world prices. With this, so I claimed, the same tendency as the one which had created a general rate of profit on a national scale, began to operate internationally, so that internationally also, this had to lead to a tendential disappearance of surplus profits. This then exacerbated for the total capital the decline of the rate of profit and the market-contradiction which appeared earlier on a national scale. This seemed crucial to me to understand the qualitative change in the overall context of capitalism, and explained why it entered a period of convulsions in which the growth of its destruction would be as impressive as its productive development, in other words, why it became decadent.

However, the latter part of this reasoning was misleading, in that it made it seem that the equalization of the rate of profit could proceed internationally as it had done on a national scale. Manifestly, it didnít. If it had, not only would we not see the enormous difference between the profit-rate in advanced and backward countries which we see today, but we also would see a (tendential) equalization of real wages, of the rate of exploitation, of the organic composition of capitals, of prices, in short, a homogenization of the conditions of production. What we have seen in this century is the opposite, a widening of the gap. The history of capitalism canít be understood if one ignores the obstacles to an international equalization of the rate of profit. In my text on "The roots of the crisisÖ", there are several formulations that betray that mistake. In Revue Internationale du Mouvement Communiste #14, Communisme ou Civilisation (CouC) criticizes us (and others) on this (1) . I must concede that on this point CouC is right and I was wrong. In this text, I want to examine this issue -how does the law of value operate in the world market- and its implications for our understanding of capitalism and its crisis.

The passage from our crisis-series which CouC specifically criticizes, is in the first part, in which I wrote:

On this, CouC writes that no worse example could have been chosen than England, because its productivity-advantage was not only overcome by other nations at the end of the 19th and beginning of the 20th century, but, during the course of what we call Ďdecadenceí (a concept which CouC considers "history-fiction"), many other countries bypassed England in productivity. (This, in my view, does not answer the argument. It is not because there was a further relative decline of English capital over the course of the 20th century, that it is false that the crucial reason why Englandís productivity-lead was overcome by others at the end of the ascendant period, was the relative separation of national markets, reinforced by walls of tariffs, specific to that period). CouC further takes us to task for the last sentence of that quote, which, it says "turns its back to revolutionary theory" because "it is not in the backward countries, but in the most advanced ones, that the highest rate of exploitation prevails."

We will come back to this point later on. The main bone of contention is the claim of a "global equalization of the general rate of profit". CouC attacks this position, focusing on a quote from Grossmann who was commenting on an example Marx gives in Capital, volume 3, which showed that the value of the product of an Asian country contains a higher rate of profit than the value of the product of a European country, despite the fact that the rate of exploitation is higher in the latter. This is because the lower organic composition (C/V) of the Asian capital implies that more living labor, and therefore also more unpaid labor power has been used in its production, so that the Asian product contains more surplus value, even though a greater fraction of the labor power that went into the manufacturing of the European product is unpaid. Grossmannís comment to that is (I paraphrase): yes, but commodities are not exchanged value for equal value. As on the domestic market, there is a tendential equalization of the rate of profit in international trade. Through the constant movement of capitals (expanding the most profitable production to the point of overaccumulation and starving less profitable sectors until underaccumulation raises their prices), values are transformed into prices of production which (tendentially) contain the same rate of profit. This average rate will be in between the rates of profit contained in the values of the Asian and the European products and be lower than the first and higher than the second. Thus, international trade causes a transfer of surplus value from the first to the second.

The implications of this position, says CouC, is that, the more the advanced countries (the "imperialist countries", since they benefit from the transfer of surplus value) develop, the greater the gap between the rate of profit contained in their high C/V-production and the rate of profit of the low C/V "non-imperialist countries", and thus the higher the rate of transfer of surplus value. On the other hand, the more they develop, the more of the worldís production is based on their high C/V production process, the more also the average rate of profit will be determined by, and thus be closer to, their original rate of profit, and thus the less surplus value is transferred. So "the relative importance (of the surplus value-transfer) diminishes when its absolute importance increases". "Thatís the magnificent result Grossmannís theory leads to", CouC sneers.

Marx, on the other hand wrote (in Theories of Surplus Value) that, "the equalization of values through labor time, and even less of production prices through a general rate of profit, does not exist in this immediate form between different countries." According to CouC, there is no such transfer of surplus value in international trade, although it recognizes the role of transfers of capitals in the repartition of capital (seeking a higher profit) and it also recognizes that for interest rates, there is a tendency towards international equalization. The reason for that is that financial capital is much more mobile than constant and variable capital. For the latter two, there are formidable obstacles, which prevent the movement of capitals from accomplishing internationally what occurred on a national scale: the establishment, through constant fluctuations of capital, of a general, average rate of profit and the homogenization of the conditions of production in the process.


Commodities are not exchanged internationally on the basis of prices of production, CouC says. On what basis then are they exchanged? I must admit I find the explanations of CouC at times hard to follow, which may be due either to my limited grasp of the language of Voltaire or to CouCís writing style or both. The best is, of course, to read the article yourself, but I shall do my best to summarize its analysis fairly while commenting upon it. The conditions of exchange on the world market, CouC says, "suppose the formation of an international value in a different way from the formation of production prices. The establishment of an international value, while taking in account the particularities of the world market, rather follows the constitutive logic of the market value within a sector"(3). If the formation of international values, upon which the uniform world market prices are based, follow the logic of the formation of national market values (which, historically and logically, preceded the formation of prices of production), they must be an average value, somewhere in between the (low) value of the most productive country and the (high) value of the least productive country, and closer to one or the other, depending on their respective weight in the market.

CouC stresses the following quote from Capital, Volume 1 ( chapter 22 , where Marx is explaining national differences in wages):

More on that last part later. The key phrase is "on the world market, national labour which is more productive, also counts as more intensive". More intensive labor creates more value. If for Marx more productive labor counts as more intensive on the world market, does that mean that, in his view, productivity directly creates more value, a view which he explicitly rejected when he was analyzing capitalism in general, explaining that an increase in productivity, all other factors remaining equal, only means that the same value is spread over a greater quantity of commodities, so that their individual value drops accordingly. (5) Is it possible that he would have held such a different and fundamentally contradictory position on the law of value in its national and international application?

CouC confesses that it thought so initially, that the above quote meant "that the value created by a worker of a country where productivity is higher, really is higher". (6) But later it concluded that "this is not necessarily the case, if it is a social phenomenon which translates into the establishment of what Marx calls "a false social value" (without further explaining this). To some extent, the value created by the worker in the more productive country is higher because the higher intensity of labor process, but that alone canít explain why the international value created by the worker of the developed country is that much greater. Productivity counts, but not because it is, like intensity, directly responsible for the creation of more value in production but because of competition in the sphere of circulation. I assume CouC would agree with that, since it writes that the phenomenon is "de nature comptable" and is situated "on the level of the relative value of currencies." Indeed, the establishment of exchange-rates must be understood to grasp it. If the process of the formation of international values (and thus prices) is following the logic of the process of formation of market values in a national economy, there are nevertheless differences. Both processes result from competition, but a key-difference is that in the first case, this competition is mediated by the same currency and in the second, different currencies are involved. Within nations, competition has already led, first to the formation of market values and prices and later to their transformation into prices of production which are specific to the conditions of production (the degree of development) of each country. Then, competition intervenes a third time, to establish international values, uniform prices on the world market. These international values result from comparing different sets of production prices, each one as a sum equal to the commodity-value of a country (within which capital has moved around and established more or less homogeneous production conditions, including organic composition and productivity, rates of surplus value and of profit). The price of a commodity on the world market is thus a value-measure of something that has very different values, depending on where it is made.

That would be impossible if that price had the same meaning in all countries. Therefore the same price must express different values, different quantities of labor-time, depending on the level of productivity and of labor-intensity of each country. It can only do so if the differences in the levels of productivity and labor-intensity of the different countries are reflected in the exchange-rates, which Ďtranslateí international values into the currency of each country. So the relative value of a currency "is in reverse correlation with the level of development of its productivity and labor-intensity", CouC writes. Obviously, there are many other factors influencing exchange-rates, in particular all those that shape the supply of and demand for a particular currency: financial policies (restricting or expanding the money-supply) trade-imbalances, differences in profit-rates etc. But the relative level of productivity and labor-intensity is the base-line upon which these other factors act.

This has many implications. One, mentioned by Marx in the passage quoted above, is that the general level of prices is normally higher in a country with above average-productivity and labor-intensity. If a commodity has a world market price of $50 and contains 1 hour of labor in country A and 2 in B, that $50 expresses less value in A than in B: so value will be expressed in a greater quantity of money in A than in B. This also means that nominal wages are higher in A than in B. From this in itself it does not follow that real wages are also higher in A, Marx points out. But he then observes that "it will frequently be found" that the real wage is higher in the more developed country, while "the relative price of labour, i.e. the price of labour as compared both with surplus-value and with the value of the product", is lower. The real wage is higher because in the more productive country the total value of a dayís work is spread over much more commodities. So even if a greater part of that working day is unpaid, the paid part still buys a greater quantity of commodities than in the less developed country. A greater part of the working day is unpaid in the first, for two reasons: with the growth of productivity, an ever smaller quantity of value is needed to produce the necessities of the worker (even though the social definition of these necessities expands as society develops and becomes more complex), and the intensity of labor tends to increase together with the development of the production process, while the resulting increase in the value of labor power is rarely accompanied by a proportionate wage-increase. So, the rate of surplus value tends to be higher in the more developed countries; the workers there are more exploited than in the underdeveloped countries, even though the living and working conditions of the latter are usually far worse. Or so it seems. We shall see further that it is a bit more complicated.

If the formation of international values according to the logic of market values makes the exchange-rate between currencies a function of their differences in productivity and labor-intensity then this also implies a tendency towards parity of the purchasing power of these currencies. As CouC explains it, if one hour of labor corresponds to one dollar in A and 1 franc in B, the exchange-rate would be 1 dollar for 1 franc, if value would be exchanged for equal value on the world market. But in A, one hour of labor results in 50 % more production. The same production will fetch the same price on the world market if the exchange-rate of the dollar takes into account Aís 50 % productivity-advantage and becomes, instead of 1 franc, 1,5 francs. One dollar exchanged for 1,5 francs would then buy the same quantity of commodities in B as in A.


However, in reality, there is no equalization of purchasing power. More often than not, the exchange-rate is such that the currency of the developed country A buys a substantially greater quantity of commodities in B. "How is that possible on the base of the law of value?" CouC asks. Its answer: "To the effect of productivity, we must add the effect of labor-intensity which also increases with the development of the productive forces of labor." (7) Thatís all. But itís not very convincing. When you consider the effect of productivity, the effect of labor-intensity is already included. Increasing the intensity of labor is one way to increase productivity, to create more commodities with less labor-time. The reasons to distinguish it from productivity-growth in general, is that it creates more surplus-value, while the productivity-increase which results from technological change does not; it does not add value to the commodities produced, but lowers their individual value. However on the market, competition establishes one price for commodities of the same kind, regardless of their differing conditions of production and thus their diverging values, so that a commodity produced with greater productivity than average (with less value) is counted as having the same value as a commodity produced with average productivity, as if productivity in itself would create surplus value. This is true on the national market as well. But on a national market, the surplus profit resulting from greater productivity is highly unstable, because of the mobility of capital in all its forms. Methods of production homogenize and a new average market value coalesces at a lower level, while between sectors, the movement of capital tends to equalize the rate of profit. This does not happen on the international market, or at least much less, in the first place because of the huge obstacles to the mobility of capital which prevent a homogenization of the conditions of production.

The reason why Marx did not explain all this in the chapter from which CouC takes this quote, is that his purpose there was limited to explaining national wage differences. A thorough exposition of the question would have involved explaining the formation of market-values, of the tendential equalization of the rate of profit; matters that belong to the third volume of Capital, where he analyses the laws of movement of capital. In volume one, which is the source of this quotation, he analyses capitalist production in general, ignores competition and assumes (for methodological purposes) that commodities are sold at their value. So to stick to his approach and to avoid having to enter a whole other aspect of his theory prematurely, he simply writes, productivity is counted as intensity, and since he already has explained that intensity adds value, he can continue under his theoretical assumption that commodities are sold at their value.

For the creation of surplus value, productivity and intensity are not the same, neither nationally nor internationally. But on the surface, on the market, there is no difference. When competition enforces one price, the owner of the commodity made with greater productivity gets the same price as the owner of a commodity made with less productivity, so the first one makes a higher profit, regardless of whether his productivity-advantage is due to a higher intensity of labor or to labor-saving technology. So the difference of intensity is already accounted for, when you measure the difference in productivity. You canít count it again. You canít explain a phenomenon (exchange-rates which establish a parity of purchasing power) and the deviation from it by the same cause. So CouCís explanation of this deviation really isnít one. Whatís its mistake?

The whole difficulty arises from the fact that we have two sets of values (in fact many more but we follow CouCís simplification into two categories, the developed A-countries and the backward B-countries), one determined by what constitutes socially necessary labor-time in A, the other by what this means in B. How do these two sets of value determine international market values? What constitutes socially necessary labor for global capital? On CouCís assumption, the formation of exchange-rates solves the whole problem. The two sets of values are compared, and since productivity counts as intensity, the values of A are counted to the same degree higher as its productivity is higher. That would imply purchasing power parity and, as weíve seen, CouC canít really explain why that isnít the case. In reality, it is not the values of the two countries in general that are compared, but the prices of the commodities that are offered for sale on the world market. Exchange-rates do not serve to make abstract comparisons but to permit the exchange of commodities on the world market. The world market establishes the same price for the same commodity, therefore, for internationally traded commodities, there is at least tendential purchasing power parity. Steel of a given quality, for instance, will tend to be sold for the same price, whether in dollars or yen or rubles. That does not mean that the exchange-rates between the dollar and yen and ruble simply reflect the general productivity-differences between the American, Japanese and Russian economies.

In CouCís reasoning, both A and B offer their commodities at their national values (or more precisely, prices of production) on the world market. There is therefore unequal exchange (B exchanges more labor hours for less labor hours), but no transfer of surplus value, as Grossmann thought. A gets on the international market the same price for its value as it would have had it sold these commodities on its domestic market. It gets more value from B, but that value represents the same amount of commodities at the same price as if the commodities bought from B would have been produced in A. So while there is an unequal exchange of value, there is not much benefit for A in the transaction, although CouC claims that there is, without specifying how. One implication of its assumption -that both A and B sell their commodities at their national values on the world market- is that production for the world market would yield a higher rate of profit in B than in A, since Bís organic composition is so much lower than Aís, so the same amount of capital invested would yield more surplus value, no matter how large the difference in intensity would be (surplus value is always but a part of the working day). If that were the case, a huge stream of capital would flow to the B-countries to take advantage of that higher rate of profit. There would still be obstacles that would limit the stream, but it would undoubtedly be much greater than has been the case. Indeed, the opposite has occurred: weíve seen a steady flight of capital from B to A to take advantage of the higher rate of profit in A. This clearly shows that commodities are not exchanged at their national value on the world market.


CouC assumes that both A and B realize the full (national) value of their commodities on the world market, yet if international values are formed according to the same mechanism as national market values, as CouC recognizes, than the international values are averages, so that, as Marx explained, the most productive capital sells its commodities above their individual value and obtains a surplus profit, and the least productive capital must sell its commodities under their value and therefore cannot realize all the value they contain. On the national market, the consequence of this is that the least productive capital either upgrades its technology or goes bankrupt, but it doesnít happen that way internationally, at least not in such an immediate way, because of the obstacles to an international equalization of the rate of profit. The least productive capital must therefore sell its commodities more or less permanently under their value on the world market, while the most productive capital tends to sell them above it.

The average is of course weighted. Since the A-countries constitute a much larger part of the world market (as buyers as well as sellers) than the B-countries, whose part in world trade has more or less steadily declined in the 20th century, A sells less above value than B sells under it. If an international value is entirely formed through competition between A-countries, than it will be equal to the production-price of A, and in that case, Aís greater productivity no longer counts as extra-value.

Such commodities are of course not cheaper in the B-countries. A computer costs as much in Bangladesh as in the US, even though its price represents in the first the equivalent of 8 years of an average wage and of just one monthís wage in the second. Because computers are more or less made only in A-countries, competition between them tends to lower their price to the production price of the A-countries. That is what Marx had in mind when he wrote that "more productive labour counts as more intensive, as 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". This qualification, which Couc doesnít understand (see p.68) clearly shows that in Marxís view, the formation of international values usually allows A to sell its commodities above their value, as he explicitly stated elsewhere: "Öthere is competition with commodities produced in other countries with inferior production facilities, so that the more advanced country sells its goods above their value." (8)

The growth of the technological gap between the A- and B-countries has reduced the capacity of the latter to produce commodities that still have use value in the highly technified world of the former, while Aís commodities have continued their conquest of Bís markets. Thus, more and more international values are determined only by the conditions of production of A. Much rarer is the case in which an international value is determined by the least favorable conditions of production, those of B. That would require that global demand continuously outstrips supply, which was not unusual for most of the ascendant period but cannot last in the era of mass-production.

If a certain commodity is produced in B-countries only, it would seem that its international value would be determined only by the conditions of production of B. But that is not necessarily so, because more often than not, this is the result of an unfavorable division of labor, a forced specialization created by colonial history (9) and by the weak competitive position of the B-countries which leaves them few options. A country engaged in monocultural production for export is likely to have a rate of productivity below the international average. Even if this country were the only one where a particular commodity is produced, global capital could always start up the production of that commodity elsewhere, should the need arise. Therefore, the international value of that commodity will not be determined by the conditions of production of that country (by the amount of labor power used in production in that country) but by an hypothetical average (by the amount of labor power that would be required for its production on the basis of an international average productivity).

So, many international values are averages that are above the national values in the A-countries and under the national values of the B-countries and international trade creates a transfer of surplus value from B to A, and thus a surplus profit for A, just as market-values in a national economy imply a transfer of surplus value from those capitals producing at below average productivity to those whose productivity is above average. There are some who think that market-values, in contrast to production prices, do not imply a transfer of surplus value. That view is in contradiction with the logic of Marxís value-theory. Where Marx writes "If the ordinary demand is satisfied by the supply of commodities of average value, hence a value midway between the two extremes, then the commodities whose individual value is below the market-value realise an extra surplus-value, of surplus-profit, while those, whose individual value exceeds the market-value, are unable to realise a portion of the surplus-value contained in them," (10) they conclude that the portion of the value which exceeds the market-value is not transferred, but simply wasted. It is, for the capitalist who has extracted it but canít realize it, but not for capital. Otherwise, how can the origin of the surplus profit of the capitalist whose commodities contain less value than the market-value be explained? Marxís value-theory shows that all value is created in production. The surplus value that becomes surplus profit is redistributed in the circulation process but does not originate in it. Since the individual value of the commodities of the most productive capital is smaller than the market-value, the difference, the value it realizes above it, must necessarily come from its less efficient competitors.

But what about the possibility that the less efficient capitalist cannot realize a portion of this surplus-value because the labor-time in which it was extracted, exceeded the socially necessary labor-time, so that part of that labor created no exchange value, and, therefore, neither any value that could be transferred? After all, value is by definition social value, determined by the quantum of labor-time recognized by society (by the market) as necessary; it doesnít recognize wasted time as value. But the fact that a part of the labor power that is expended to meet social demand is less productive than average, does not necessarily mean that a portion of it is socially unnecessary and did not create any exchange-value. Letís suppose a sector whose production meets social demand precisely and in such a way that 50% of the demand is met by products of average productivity, 25 % by producers of less than average productivity and 25 % by producers with above average productivity. Despite the difference in productivity, all of the labor power expended in this sector is socially necessary, since the absence of any part of it would mean that part of the social demand would not be met. If we further assume that the average organic composition of that sector is the same as that of the economy in general and the rate of surplus value too, then there is no transfer of surplus value between this sector and the rest of the economy (as would otherwise occur because of the tendential equalization of the rate of profit). Then the total mass of surplus value extracted in that sector would be identical to its total mass of profit. It would then be quite impossible, at least without leaving the terrain of Marxís value theory, to explain the surplus profit of the companies with a higher than average productivity in any other way than as a result of a transfer, on the market, of surplus value from the companies whose productivity is below average.

It is clear that the meaning of "socially necessary labor" changes with society itself. The continuous growth in productivity constantly tends to push the labor-time required for the production of most commodities to a lower level (despite the -also continuous- development of new, more complex commodities). The limits imposed by capitalismís relations of production on social demand also determine how much labor is socially necessary. Not the general needs of society but those of the market as it emanates from the capitalist relations of production define what is "socially necessary". When the output of the productive forces grows beyond what the market can absorb, the least productive labor becomes socially unnecessary. This obviously has an impact on the market value: since the least productive labor is no longer socially necessary, it is no longer taken into account in the formation of the market value and there is no transfer of surplus value from it to other capitals. As Marx explained, (11) under conditions of overproduction, the market-value tends to be regulated by the value of commodities produced under the most favorable conditions (with the highest productivity). Only they can be sold at their individual value (or approximately) while all other commodities in that saturated sector must be sold below value, if they can be sold at all, so a greater or lesser portion of labor time used in their production is socially unnecessary (and does not yield any surplus value that can be realized or transferred).

Those capitals producing with less productivity, which are unable to upgrade their production, must sacrifice most of their profit and drive wages under the value of labor power; but even that may not be enough to survive, if the market value falls below their cost price. The capitals with the lowest productivity can realize the full value of their output, and avoid a loss of surplus value on the market, only in the opposite situation: when, in their sector, demand outstrips supply in a sustained way. Then, even the least productive labor is socially necessary and the least favorable conditions regulate the market-value. There is no transfer of surplus value within that sector, since even the least productive capital realizes the full value of its product, but there is between it and the rest of the economy, fueling a surplus profit for the producers with above average productivity of that sector. When the bulk of the demand is met by production in the most favorable conditions, they regulate the market-value, so the market-value does not imply any transfer of surplus value from less productive capital in the same sector. There may however be a transfer of surplus value from the rest of the economy to that sector, if this sector has a higher rate of productivity-growth (and product development) than average.

To summarize this part:


Let's take steel as a stand-in for all commodities subject to trade on the world market. We assume that the production of steel in country A requires 60 hours, and that these 60 hours consist of 30 hours (constant capital) + 10 hours (variable capital) + 20 hours (surplus value). In country B, 1 ton of steel requires 120 hours (15 in constant capital + 65 in variable capital + 50 surplus value). The international average C is 1 ton of steel = 80 hours (25 hours constant capital + 25 hours variable capital + 30 hours surplus value). These figures are arbitrary, except that they must reflect the higher organic composition (C/V) of A, a higher rate of surplus value (S/V) in A, a higher rate of profit (S/C + V) in B and an average that is in all these aspects in between A and B but closer to (the more dominant) A. On the world market, 1 ton of steel = 1 ton of steel. Does this mean that A can sell its steel as if it had the same value as that of the average producer C, 80 instead of 60, and pocket a surplus profit of 20? And that B must sell at 80 instead of 120 and see its profit shrink from 50 to 10? No, because that would assume that the value of labor power would be the same everywhere. It isn't it. Everywhere, the value of labor power is determined by the value of the commodities that are seen as necessary for its reproduction and maintenance. On the one hand, the necessities of life are produced with less labor power, and therefore have less value, in A. But on the other hand, A is the more developed and technified society, which implies more complex and extensive needs. "... the number and extent of (a worker's) necessary requirements, as also the manner in which they are satisfied, are themselves product of history, and depend therefore to a great extent on the level of civilisation attained by a country; in particular they depend on the conditions in which, and consequently on the habits and expectations with which, the class of free workers has been formed. In contrast, therefore, with the case of other commodities, the determination of the value of labour-power contains a historical and moral element." (12)

This quote also implies that the historical differences in strength of the working class in various countries have an impact on the value (not just the price) of labor-power. The weight of the working class in the economy, its tradition (or lack of it) of combativity, all affect its "habits and expectations" and therefore also the value of its labor-power. For these reasons, despite the lower value-content of consumer goods in A, the value of labor power is considerably higher in the (highly developed) A-countries then in the backward B-countries.

Therefore, to compare the values of the commodities of different countries as they are traded on the world market, we must take into account that the value of labor-power is higher in A than in average C and lower in B than in C. Let's assume it is 1/4 higher in A than in C and 1/3 lower in B than in C. Expressed in the (average) labor quanta of C, the value of A is then: 37,5 + 12,5 + 25 = 75; while the value of 1 ton steel of B becomes 15 + 41,5 + 31,5 = 88 (we haven't changed the value of B's constant capital since we can't assume that is produced locally, so we assume that it is produced with internationally average labor-power, which is 'generous' in not assuming that B must buy it at A-value). The international value of 1 ton of steel is 80 C-hours. A produces 1 ton steel in 75 C-hours and B in 88. In the value of A, the price at which A can sell 1 ton of steel is 60 (its A-value) plus a surplus profit, which, in this case, is 80 (the international value) minus 75 (the value of A's ton of steel in C-value) or 5 C-hours, whose value is 1/4 less than A-hours, so the surplus profit is 3,75. (This is, of course, rather small but the proportions are irrelevant since our figures are arbitrary). A's profit is 20 (the surplus value it extracted) + 3,75 (its surplus profit) and it sells at 63,75. For B, the same goes in the other direction: it sells at 120 B-hours minus what it loses on the market: 88-80 = 8 + 1/3 of this = 10,5. Its profit is the surplus value it extracted minus what it can't realize itself, because the value of its product is higher than the international value. That part of 'its' surplus value is (indirectly) realized by A. As a result of the transfer, the rate of profit, which would otherwise be higher in B, becomes higher in A.

If the exchange-rate between the currencies of A and B would only compare their productivity (incl. intensity), then 60 hours A would be 120 hours B and 1 (A) dollar would be 2 (B) francs. But the exchange-rate compares commodities that are sold above their value with commodities that are sold under their value. To obtain the equivalent of its 60 hours, A needs to pay only 110,5 B-hours, instead of 120. And to obtain the equivalent of its 120 hours, B needs to pay 63, 75 A-hours, instead of 60. The transfer thus pushes the exchange-rate of A-s currency up and that of B's currency down. This explains why the exchange-rates do not merely reflect the difference in productivity between A and B but also the fact that the market transfers purchasing power from B to A and therefore gives greater purchasing power to A's currency, making everything in B cheaper for its possessor.

Assuming that the conditions of production and the rate of productivity-growth of the steel sector as a whole are average, not higher or lower than for the rest of total capital, then there is no transfer of surplus value to the steel sector from the rest of the economy. Its customers pay the same price as if all steel would be produced in the (average) country C and this price implies a surplus profit for the steel producers of A and a lower than average profit for the steel producers of B.


However, the steel producers of A are not allowed to keep their surplus profit and those of B do not have to shoulder their loss alone. Because of the process of the equalization of the rate of profit within national economies, they share their wins and losses with the other capitals in their country. Because of the transfer, the exporting industries (symbolized by "steel" in our example) enjoy in A an initially higher rate of profit than the industries which produce only for the domestic market (for which we take "bread" as a stand-in). Its surplus profit attracts capital, so that accumulation increases in the steel sector until it becomes overaccumulation, and supply outstrips demand. We have emphasized before that market-limits are not static and they differ greatly from one sector/commodity to another. The more elastic a commodityís market limits are, the longer their producers can hold on to their surplus profits. (13)

It goes without saying that sectors with a greater than average market-elasticity (in the first place, those that affect the production methods of others) attract more capital, invite most technological innovation and thus are occupied by the A-countries. But sooner or later, there's only one way to expand the market-limit for a capital whose higher than average productivity yields a surplus profit, like steel-production in A in our example: It "makes room for itself forcibly by paring its price down to its individual value." (14) The surplus profit, which originated as surplus value in B, does not disappear but is transferred again, because A's steel capitalist "realize(s) a part of the surplus labour not for himself, but for those who buy from him." (15) In A, the price of steel falls until it yields the average rate of profit (and A-steel's value has become it's price of production). Actually, not quite, because since A-steel attracts more capital it undergoes more rapid technological change, so its higher rate of productivity- growth and the time-lag in the market's reaction to it, enables it "vis-a-vis the total capital ... to make an extra-profit." (16) This allows 'steel' to keep more of its surplus profit, but overall, the equalization of the rate of profit forces the price of 'steel' down and of 'bread' up in A, and has the opposite effect in B. 1 ton of steel remains 1 ton steel but is now exchanged for less bread in A and more bread in B. This shows why the higher the rate of transfer of surplus value from B to A, the more currency-exchange rates deviate from purchasing power parity.

The sharing of the loss of surplus value in the B-countries is not quite a parallel process to the sharing of the gains in the A-countries. Otherwise, capital would move away from the exporting sector in the B-economies. Generally, the opposite is true: most capital investment in the B-countries goes to the exporting sectors. It must be noted that the equalization of the rate of profit is more limited in the B-countries, because "this equilibration runs into greater obstacles, whenever numerous and large spheres of production not operated on a capitalist basis (such as soil cultivation by small farmers), filter in between the capitalist enterprises and become linked with them." (17) In the A-countries, this extra-capitalist production has been largely eliminated by the penetration of capital in its spheres. In the B-countries, that has not been the case, for the same reason as why capitalist production for the domestic market remained permanently starved for capital: the potential effective demand is too limited to justify mass-production and without mass production, investment in high C/V production methods cannot be profitable. We shall see further, when we return to the question of decadence, why this circle cannot be squared so that the B-countries depend on outside demand to find a market of a scale that allows them to enhance the scale of their production and thus their productivity. As a result of this, the organic composition of capital (C/V) and productivity-growth is much higher in the exporting sector than in the rest of the economy of the B-countries. The difference is not just marginal as in the A-countries where it results from the tendency of the exporting sectors to accumulate faster, but a huge and growing gap, which causes a continuous transfer of surplus value from the rest of the B-economies to their exporting sector. This is reinforced by the dependency of any capital from the B-countries on foreign currency to upgrade its production methods by importing constant capital. Only the exporting sector is paid in foreign currency; the rest of B's economy obtains it indirectly, in essence through trade with the exporting sector. Therefore, the fact that A's currency has more purchasing power, also benefits B's exporting sector in its trade with B's domestic sector. So despite the limitations to the process of equalization of the rate of profit in the B-countries, its exporting sector can pass on what it lost on the global market to the rest of the B-economy, and sometimes more. And in doing so, it lowers the price of 'bread' (relative to 'steel'), further accentuating the deviation from purchasing power parity between A in B's currencies.

The tendential equalization of the rates of profit within national economies in its turn changes international market values. As the surplus value transferred from B is spread from A's steel to the entire A-economy, steel is accounted for less value in A and is sold closer to, or at, its individual value; that is, under the international value of steel. Since the supply of A's steel at the same time expands because of its higher than average accumulation-rate, A's steel obtains a larger share of the world market. Therefore, since its weight in the average increases, the international value of steel declines, approaching closer to the individual value of A's steel. Since the international value is now more determined by the production by capital of a higher organic composition, and thus contains less V + S, the rate of profit falls, both in A and in B. A tries to escape from this through technical innovation to raise productivity or develop higher quality products, thereby obtaining a market-advantage and surplus profit, but also raising the average organic composition, cutting the growth of surplus value at its source.

For the B-countries, the decline of the international value of steel means that the price at which it used to sell steel is now too high and must be brought down. If it does not succeed in pushing the price of its exports deep enough under its value, it is forced to swallow the same "medicine" through devaluation and a general deflation of its assets, devalorizing everything, including its steel. Sometimes it might devalue prematurely, to obtain a competitive advantage. But such tactics are usually signs of desperation, because a capital that devalues, increases its debts and decreases its purchasing power. When a currency is devalued, it is usually forced to do so by the outflow of financial capital.


The more technological innovation occurs in A, the more pressure there is on B to lower the prices of its export commodities under their value. This is obvious when A and B compete in the same sector but is also true when they do not compete directly. We have seen before that when a B-country is forced to unfavorable specialization, the international value of its export products is determined by international average productivity. When average international productivity rises, the international value of its products declines too, even if productivity has not increased in that sector.

The B-countries can push the prices of their export commodities deep under their value because they can push wages deep under the value of labor power and they can do that because of their underdevelopment. It's their underdevelopment which makes supply on the labor market so much larger than demand, which dictates that many workers are half proletarians who still have some direct source of food from the land and can thus be paid less than the cost of subsistence, and which implies that pre-capitalist farm production is still a great source of unpaid value.

The B-countries have no choice but to compete with ever lower wages against the ever more technologically advanced A-countries. Curiously, CouC thinks that the level of wages has no bearing on the relative competitiveness of nations. If wages go down, profit increases, but the value of the commodity remains the same, hence there's no competitive advantage, so it reasons. (18) As if the capitalist could not decide to forgo his profit-increase and to lower his price instead, to increase his market-share! Actually, it's not that curious that Couc takes that position, although it flies in the face of reality, since it is consistent with its mistaken view that commodities are traded internationally at their (national) values; that there is no transfer of surplus value involved.

Nevertheless, it is true that pushing wages down has its natural limits, while technological innovation does not, or at least not so rigidly. Therefore, it is an inevitable tendency that the world market is more and more occupied by the A-countries, which also means that the source of the transfer of surplus value from the B-countries dries up. But there is also a counter-tendency, which strengthens capitalism each time it can, for political or technological reasons, extend its playing field, widen its reach, increase its mobility. We analyzed this earlier in greater detail, in the chapter on globalization (19) in which we showed the obvious advantage for capital in combining the low wages of the B-countries with high-tech capital from A. The intensification of labor made possible by advanced technology, together with wage-levels far below the value of labor power, maximize the gap between the value of the product and the cost of production, i.e. profit. There is no question therefore that "the most extreme rate of exploitation" is indeed to be found in the B-countries, despite CouC's a-historical assertion that this observation "turns its back on revolutionary theory" (20)

If such a combination is so advantageous to capital, why is it not happening more? It is happening more and there has already been a huge shift of manufacturing from A to B, much more than can be derived from trade figures, because these figures already contain the transfer of value from B to A. It is still limited by all the factors that limit the mobility of capital, including those that make fixed capital and highly trained variable capital relatively static, and most of all the persistence of many trade barriers, despite all the hype about free trade.

So the overall trend remains towards a greater divide between A and B, an ever more lopsided development, even though it would seem to the obvious advantage of capital to grow in a more horizontal way in order to expand its global market. The more technology develops, the more the B-countries are forced, again and again, to devalorization, reducing all hopes that they will become one day a huge expanding market for the A-countries to mere pipe dreams.

Furthermore, since the transfer of surplus value increases the rate of profit in A and diminishes it in B, and since a higher rate of profit attracts capital, and a lower one repulses it, the greater the difference in productivity becomes, the greater the rate of transfer and the more B's currency loses purchasing power relative to A's. As a result, it becomes increasingly difficult for B's currency to function as a store of value and it suffers more and more a flight of capital, while the global demand for financial assets of A as a store of value is boosted to the same degree. This high demand for A's currency and low demand for B's, raises the price of the first and lowers the price of the second, accentuating the disparity of purchasing power.

However, between the most developed countries, there is a real tendential equalization of purchasing power. If, for instance, the exchange-rate of the US-dollar rises in such a way that its purchasing power falls substantially under the euro's, capital will rush to the euro to take advantage of the bargain (let's say that 1 dollar = 1 euro and buys, in each country, 10 y. If the dollar rises to 1,20 E, by exchanging dollars into euro, one can buy 20 % more y) so that the euro's relative value will rise until there is, more or less, a parity (again, we ignore other factors, such as disparity of interest rates, profit-rates and a currency's image as a store of value).

This occurs, because of intense competition, made possible by a great mobility of capital. Not only purchasing power tends towards a rough equalization between these countries. So do price-levels, wages, the organic composition of capital, surplus value-rates, in short, the conditions of production, and thus also profit-rates. They are not equal (but neither are they on the national scale, where they are only tendentially pulled to an equal level, the general rate of profit, from which every capital constantly tries to escape), but tend in that direction. The obstacles that prevent international market values from becoming production prices across national borders are neither absolute nor static. As Marx described them, (21) freedom of trade, development of credit, the absence of non-capitalist production, a dense population, subjugation of the worker to capitalism, including his readiness to move from one sector, one place to another- they all concern the mobility of capital, because it is through moving money, means of production and commodities around that capitalism, in its hunt for extra-profit, stimulates accumulation here and starves it there, expands a market here, and contracts it there, exhausts the potential for higher profit here and discovers it there, so that a general rate of profit is established. Obviously, the obstacles are much higher internationally than nationally. But it's also obvious that they have evolved over time and that some of them have sharply diminished, that they are not of equal weight between all countries. Between the most developed countries (roughly, those which industrialized in the 19th century), many trade barriers have fallen away; there is an intense interpenetration of each otherís markets, non-capitalist production has become marginal, there is merging of capitals and even some international mobility of labor. While there are still obstacles that limit the tendential equalization of profit-rates between them, that the tendency exists is undeniable and this implies also a tendency for the international values of commodities, which are determined by the conditions of production of those countries, to become production prices.

The situation is of course much different with respect to international values that are determined by the conditions of production of countries of greatly diverging levels of development, or of countries with low productivity. Here, the obstacles are still great, although some have diminished (transportation and communication costs have fallen steeply, tariffs have gone down, etc). There are fewer limits than ever to the global mobility of financial capital and this has an impact on where and what is produced, which in turn impacts international values.

Let's recapitulate. We agreed with CouC that we were wrong to assume that the tendency towards equalization of the rate of profit could proceed internationally as it had on the national level. When looking at the world market, we made the same mistake for which Marx reproached Ricardo in Theories of Surplus Value (22) : "Ricardo confuses the process of formation of the market value with that of the price of production". To understand how the value that is created in production is rerouted in the sphere of circulation, you need two laws, which express "a contradictory effect of competition. According to the first, the products of the same sphere sell at one and the same market-value; competition therefore enforces different rates of profit, i.e deviations from the general rate of profit. According to the second, the rate of profit must be the same for each capital investment; that is competition brings about a general rate of profit." Both cause a transfer of surplus value, a difference between the surplus value that the capitalist has extracted in the production process and the surplus value that he realizes on the market. The first causes a transfer of surplus value within a sector, from the less productive to the more productive capitals; the second from one sector to others. (23) A third intervention of competition, leading to the formation of international values, creates a third deviation, a third transfer. Like in the formation of market-values, it enforces again rates of profit that are different, this time between nations. No wonder that it's quite impossible, contrary to what Couc suggests, to recognize values in prices (even more so because there are further distortions created by fluctuations of supply and demand and by state-intervention in the distribution of S). Competition turns everything on its head, as Marx wrote, it hides value and yet it is value that in the last instance determines prices. Only Marxís value theory demystifies their formation process and shows the social relations on which they are based. Only by focusing on the changing conditions of the creation and distribution of value can we understand why capitalism has developed the way it has and why it has arrived at an impasse.


We know from our previous investigation that there was harmony between the law of value and capitalist development under capitalís formal domination, when the growth of exchange-value was primarily pursued through the inclusion in the production process of more labor power and the extension of the quantity of unpaid labor-time. We know that with real domination, industrial mass production, this harmony was shattered, because the creation of use value and of exchange value began to follow increasingly diverging paths. The massive introduction of technology which replaces human labor and raises productivity (creating an exponential growth of use values but also a relative decline of the growth of exchange value) rewarded the capitalist with a higher rate of profit and a larger market but punished capitalism with a lower general rate of profit and a global market shrinking in relation to global production capacity. This growing, insoluble contradiction between the interests of individual capitalists and those of capital as a whole, portended a fundamental, structural change in the conditions of accumulation. But this contradiction was softened, and the structural change postponed, as long as capitalists had the incentive to spread industrialization horizontally across borders, conquering markets and raking in surplus profits. Our analysis of the transfers of surplus value provides us with a better understanding of this process and its limits. Rather than debunking the concepts of capitalist ascendancy and decadence as Ďhistory-fictioní, as CouC would have it, it clarifies their validity, as we will explain here briefly (this will be treated more in depth in the next part of this text).

The difference between capitalismís ascendant period and its decadent period is not one between growth and non-growth, development of the productive forces and stagnation. Capitalism is synonymous with the extraction of surplus value, the creation of new value, and therefore is always growing, except for temporary episodes of open crisis. Moreover, capitalismís structural crisis only heightens the incentive for individual capitalists to escape from the falling rate of profit through productivity-raising technological innovation. Hence, the continuing development of the productive forces can in no way be construed as a proof of the absence of decadence.

We know that the development of capitalismís fundamental contradictions must be understood in a dynamic, dialectical way. There is no "point X" at which capitalismís market becomes irrevocably saturated, as Luxemburg thought, or at which the decline of the rate of profit makes accumulation impossible, as Grossmann claimed. Both the 19th century (the peak of ascendant capitalism) and the 20th were periods of rapid growth compared to earlier centuries. But in the 19th century, this growth was steady, following an almost straight line despite numerous, relatively small crises, while the growth rate of the 20th shows much higher peaks and much deeper valleys. The main limitation to growth in the 19th century was still technological, the insufficient development of the productive forces, while in the 20th century, it was the conflict between the productive forces and the straightjacket of capitalist relations of production. So rather than in a contrast between growth and stagnation, the difference between ascendance and decadence reveals itself in how capitalism grows. Relatively harmonious steady growth on the one hand and on the other fast growth leading to crisis, forcing capital to massive devalorization, causing immense destruction in the process. Growth that tends to spread and homogenize the industrial mode of production on the one hand, growth that is increasingly unbalanced and heterogeneous on the other.

Capital grows when and where it has an incentive to grow, which means, where it can at least obtain the general rate of profit, and if possible rise above it, since the continuous rise of capitalís organic composition condemns the general rate of profit historically to a downward trend. Thatís why capital is constantly seeking a surplus profit on the market, a transfer of surplus value, above the surplus value contained in its own commodities.

Thatís why the specifically capitalist form of production, machine-based industry, the real subsumption of labor to capital, tended to develop vertically, at first almost exclusively in the production of textiles. The reasons for this include of course the limited stage of development of the productive forces and of accumulation, preventing simultaneous development everywhere, and the specific historical reasons why the market for this sector could expand so fast, but also a rate of profit fattened by surplus profits, resulting from a double transfer of surplus value. One within the sector, because of the ability of industrial capital to produce below the market-value. "This first period, during which machinery conquers its field of operations, is of decisive importance, owing to the extra-ordinary profits it helps to produce. These profits not only form a source of accelerated accumulation, they also attract into the favored sphere of production a large part of the additional social capital that is constantly being created, and is always seeking out new areas of investment". (24) A second one, from other sectors of the economy to the industrializing one, because of the unequal exchange of value between sectors that is caused by the delay in the marketís reaction to the productivity-growth and the resulting decline in the value of industrially produced commodities. (This surplus profit diminishes to the degree that the increasing mobility of capital diminishes the time-lag, but it never disappears, which is why a sector which reduces the value of its production faster than average, is always rewarded with a surplus profit). When overproduction imposed a provisional limit to expansion in one sector, industrialization spread to others. But long before this could lead to industrialization and creation of homogeneous conditions of production on a national scale, capital began to spread industrialization internationally, across borders.

The reason for this must be sought in the process of equalization of the rate of profit on a national scale. This is a process, not a static situation, not only continuously but also historically. CouC confounds the results of its genesis with its conditions when it writes that this equalization "supposes a similar productivity and intensity of labor between the branches and components of capital". (25) First there is a unified capital market, then the growing mobility of capital leads to unified prices, including the price of labor power, then to a leveling of the rate of profit. But this neither supposes, nor immediately leads, to a homogenization of the conditions of production (quite apart from the fact that there will always be differences due to the inherent characteristics of different sectors). Because the equalization occured before a homogenization on a national scale had taken place, it initially prevented it. Sectors that had a lower than average organic composition and therefore a higher than average Ďnaturalí rate of profit now had part of its surplus value transferred to the rest of the economy through the equalization of the rate of profit. Capital therefore had less incentive to develop those sectors than it did to invest in industrialization abroad.

Thatís why the most developed capital, especially in Britain, decreased its relative investment in domestic industrialization (from 1873 to 1913, the rate of productivity growth in Britain was zero< a href="#note-26"> (26) ) and invested more and more abroad. Because of the lower organic composition of capitalist production abroad and the absence of a process of equalization of profit-rates internationally, foreign investment yielded a higher than average rate of profit. This strong incentive to spread industrialization across borders, led to an international homogenization in capitalist development in countries where the basic conditions for such development were present, and it was made possible by conditions specific to capitalist ascendance:

1) Limited global competition: because of the limited overall development of the productive forces, because of international specialization and a lack of mobility of capital (except financial capital), competition on the world market remained so limited that uniform world market prices for the same commodities only became the rule at the turn of the century (and even then, there were many exceptions). Of course there were more or less uniform world market prices much earlier for some commodities that were made in several countries for export. To the degree that there was real competition between them, the international value of these commodities was already established on the base of the weighted international average of the value that went into their production. But most commodities were made only for the domestic market. Accumulation in their production yielded a rate of profit that was determined only by local conditions of production and that was not brought down by a transfer of surplus value to more developed foreign competitors. The same was true for many exported commodities, as the absence of uniform world prices indicates. How were prices in international trade determined if they were not an average? Often, the more developed capital had a monopoly position or quasi-monopoly position, as buyer as well as seller, which yielded a monopoly-profit (a transfer of surplus value). When industrialized capital exported textiles or other goods to lesser developed countries, it could sell at a price determined by the value-structure of the importing country, i.e. for the equivalent of the value that the commodity would have contained if it were made locally, or widen its market by selling under that value. That made exports very profitable and they were consequently growing faster than production in the 19th century, but they were limited by various obstacles, in the first place transportation-costs. This limitation did not exist for financial capital, therefore its export was even more profitable and growing even faster, mobilizing productive forces elsewhere and thereby fostering international capitalist development. But with the increase of capitalís mobility and scale of production, international competition lead to the formation of world market values based on international averages (and thus to uniform prices on the world market) which in turn impacted national market values and production prices. As we saw before, this means that the lower organic composition of the less developed country, in stead of yielding a higher than average rate of profit, now yields a lower one, because of the transfer of surplus value. As a result, the incentive for the most developed capital to invest in the industrialization of others sharply declined.

2) A low threshold of capital formation: The smaller gap between industrialized and industrializing nations and the relatively low organic composition of early industry (the relative cheapness of the required constant capital), meant that the industrial take-off was within reach of many. The most important conditions were the availability of workers and a flow of profit from production under formal domination of capital (whose low organic composition and high rate of absolute surplus value yielded a high Ďnaturalí rate of profit) and from primitive accumulation to the expanding industry.

3) The domestic market sufficed for most capitals: A capitalist country is always a mix of exporting and non-exporting capitals, but only with the development of industrialization and thus of mass production, do the number of sectors whose scale of production is such that their value cannot be realized on the national market alone, reach critical mass. Yet at the time that this happened, the natural protection resulting from high transportation costs had broken down and most industrializing nations had erected walls of tariffs to defend their developing industries against foreign competition. Some of these policies were clearly counter-productive for all involved (such as the French-Italian tariff war) but others enabled countries such as Germany and the US to develop the strongest industries in the world, (an accumulation fed by the profitability of the lower than average organic composition of their economies and the influx of foreign capital) whereas without protection, their growth would have been stymied by British and other exports.

The essential factor causing the shift from ascendance to decadence is the collision between the growth of the productive forces and the limits imposed by the relations of production, or, the structural conflict caused by the gap between the exponential growth of use values, and the relative decline of the creation of exchange value, and thus of profit- and market-expansion. This conflict was felt in ascendancy as well, in a cyclical, short, uneven way and it had spurred on the horizontal spread of industrial capitalism, of capitalís real domination. Our analysis of the transfer of surplus value from what we called the B-countries to the A-countries, and of its effect on the rate of profit in the former and the resulting elimination (or at least sharp decrease) of the incentive for accumulation there, helps to understand the limits of capitalismís horizontal spread in decadence. The fundamental conflict between production forces and relations of production made a qualitative leap and destroyed the escape-valve, driving global capital towards massive devalorization. Propelled by its inherent logic, capitalism now would be forced to destroy what it had created.

The most developed capital, Britain, was the first to be confronted with this conflict in a chronic rather than cyclical way. It compensated for the stagnation of its market-expansion and profit-rate by investing in the industrialization of others. Other capitals followed in turn, industrialized and became capital-exporters. But opportunities for accumulation abroad dwindled, because the transfer of surplus value resulting from international competition depressed the rate of profit in the lesser developed countries and because the threshold for capital formation was rising quickly. Colonialism still offered (decreasing) opportunities to plunder, but this was no sufficient compensation, and the conditions for industrialization in the colonies were far from optimal anyway. And while the growing insufficiency of domestic markets spurred export-growth (and dumping-practices), tariffs were a big obstacle. It would have seemed to the advantage of the strongest capitals to return to free trade but they had good reason to be reluctant to give up protectionism, since it prevented international competition from driving their profit-rates down. But their decline became inevitable anyway, as a growing number of countries possessed too many large industries that had outgrown their domestic markets. To protect their profits, many sought refuge in the formation of cartels, agreements between big companies to fix prices, limit output and divide markets. In Germany, the number of cartels grew from 4 in 1875 to almost 1000 by 1914. (27) These were attempts by the most developed capitals to make the entire national economy pay for their growing difficulties, to organize a transfer of surplus value to the large industries, but they were in essence a play for time, an indication of the inevitability of the coming massive devalorization of capital.

The onset of decadence brought war followed by crisis, rather than crisis followed by war as would have been more Ďlogicalí. History is not a mechanical clockwork but a complex process in which contingent factors play a role. For epochal events such as this worldwide cataclysm to happen, there must be a more or less urgent underlying necessity, as described above, but also a possibility, shaped by a confluence of historic circumstances. The possibility of world war must in the first place be seen in light of illusions of capitals that they could, through an accumulation in military production as spectacular as they had achieved in their industrialization, be richly rewarded with the conquest of the markets they needed, and the dreams of the military to use industrial mass production and its mobilizing capacity to wage war as it had never before.

The economic significance of war in capitalist decadence will be discussed in the next (and hopefully last) chapter of this text. While war and other forms of destruction are the hallmark of decadence - itís no coincidence that more than three quarters of the war fatalities of the last 500 years occurred in the 20th century - its history cannot simply be boiled down to repeated cycles of crisis/war/reconstruction. We have argued before that the extension of capitalismís terrain of action is not a passive factor in its history. When the right political, economic and technological factors came together, the growth of capitalís playing field and mobility has been a powerful counterforce to its basic contradictions and spurred growth more spectacular than even the 19th century ever witnessed.

We are in such a period right now. We see at the moment this counterforce, the integration and growth it fosters. But we see at the same time the continuing underlying deepening of capitalismís basic contradictions, its growing demobilization and destruction of productive forces. I hope this text will help us to understand how these trends will play out in the years to come.


March 2000


Part 1 - The Inevitable Fall in the Rate of Profit

Part 2 - The Immanent Barrier to Market Expansion

Part 3 - From Decline to Collapse

Part 4 - The Impasse of Globalization

Part 5 - The Law of Value of the World Market


1. June 1998. Since then, CouC no longer exists as such; their political heirs can be contacted at their web site Robin Goodfellow or by email

2. Internationalist Perspective 30-31, p22.

3. Revue Internationale du Mouvement Communiste No. 14, p. 59.

4. Marx, Capital volume I, Penguin Edition, p. 702.

5. Capital volume I, p. 656 and many other places.

6. Revue Internationale du Mouvement Communiste No. 14, p. 53.

7. Revue Internationale du Mouvement Communiste No. 14, p. 67.

8. Capital volume III, p.238.

9. "By ruining handicraft production of finished articles in other countries, machinery forcibly converts them into fields for the production of its raw material...A new international division of labour springs up, one suited to the rquirements of the main industrial contries..." Marx, Capital volume I, pp. 579-580.

10. Marx, Capital volume III, International Publishers edition, p. 178.

11. Capital volume III, op. cit. p. 179.

12. Capital volume I, op. cit. p. 275.

13. In part 3 (IP 34) we have seen how this affects the accumulation rates and therefore the proportions of sectors and thereby condemns capital to structural overaccumulation and underaccumulation, which in turn affect the general rate of profit.

14. Capital volume III, op. cit p.184.

15. Marx, Grundrisse, Penguin edition, p. 435.

16. Capital volume III, op. cit. p.198.

17. Capital volume III, op. cit. p. 196.

18. Revue Internationale du Mouvement Communiste No. 14, p. 56.

19. Internationalist Perspective No. 34. 20. I admit that there are other passages in the "Crisis" text, particularly IP 30-31 p. 27, that create the impression that the degree of exploitation is now higher in the B-countries in general, not just in its foreign-owned, export-oriented modern plant, which isn't the case as we saw earlier.

21. Capital volume III, op. cit. p. 196.

22. Part II, Progress Edition, Moscow, 1963, p. 206.

23. This transfer of S occurs like in the example of the steel industry given above. To explain this a little more: if, in a given country, a sector as a lowever C/V than average, a given quantum of capital (C+V) invested in this sector yields more S than an equal quantum of capital invested in other sectors. If capital can move freely in that economy, it invades that sector to obtain its higher than average rate of profit. The capital-influx expands the output of that sector so that its market expands correspondingly. But soon the sector produces more than can be sold at market-value. To widen its market sufficiently, the sector must then sell below market-value, so that part of its surplus value is realized for its customers. When that part becomes equal to the part of its surplus value that is above the average yield of S in that economy, the rate of profit is equalized and capital no longer has a special incentive to move to that sector. (Of course, capital continues to look for sectors which offer an escape from the general rate of profit and finds them where new products, and thus a new scarcity, are created, or where the rate of productivty-grwoth is higher than average, because of the time-lag in which market-prices follow declining market-values. Both these cases also imply a transfer of surplus value on the market).

24. Capital volume I, op. cit. p. 578.

25. Revue Internationale du Mouvement Communiste No. 14, p. 59.

26. Cameron, History of the World, Oxford University Press, 1993, p. 226.

27. Cameron, op. cit., p. 248.

28. Ruth Ivard (ed.), World Military and Social Expenditures, Washington, 1996.

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