Unequal Exchange: Theoretical Issues and Empirical Findings

Recent critics of unequal exchange have argued that not only does the theory critically depend upon the unrealistic assumption of complete speciali zation (no nonspecific commodities) but also that unequal exchange tends to be self-cancelling and empirically insignificant. Each of these criticisms is examined and found to be lacking. The theory is first extricated from the confusing and ir relevant environment of the labor theory of value and a price-denominated fun damental theorem is stated and proved. Unequal exchange is then generalized to account for nonspecifics in a logically consistent way. Though the fundamental theorem does not hold for nonspecifics, a numerical example in which surplus is transferred shows that any criticism of unequal exchange based on its alleged in ability to handle nonspecifics must be empirical in nature rather than logical. It is next shown that while unequal exchange may indeed disappear in the long run for a variety of reasons, nothing in the theory itself implies that it is necessarily self- cancelling. It is argued that capitalists are not attracted to the periphery by low wages but by high profits which depend upon transportation costs and nontraded goods as much as low wages. Finally a 67-sector model of world trade is intro duced in an attempt to assess the empirical relevance of unequal exchange. It is shown that some 38% of the value of peripheral exports is required to equalize the rate of profit under existing wage differentials.