HUNGARIAN'S VIEW OF MARXLAN THEORY OF FOREIGN TRADE

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• Publication Date: April 23, 1956
• Content Type: REPORT

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HUNGARIAN'S VIEW OF MARXIAN TfiEORY OF FOREIGN TRADE
IC0LEa-zdasa{=i Szeml e, Vol II, No 11
Budapest, Nov 55
Marx intended to supplement his economic theory with a theory of
foreign trade but, for lack of time, never did so. This circumstance fails,
however, to Justify attempts simply to substitute the Ricardian scheme for
the Marxian theory of foreign trade -- as if Marx did not have a view of
his own on this matter and as if, in criticizing ti.e Ricardian system, Marx
had considered a special critique of Ricardo's theory of foreign trade
unnecessary.
Marx's works contain numerous references to foreign trade in general and
to the inanity of the Ricardian theory in particular. It may be noted that
the problem does not concern an isolated part of economic theory. Ricardo's
as well as Marx's views on foreign trade are organic parts of their respective
systems. In fact, the problem concerns the international validity of the
theory of value. What are the principal characteristics of the fundamental
difference between Ricardo and Marx in reference to international economic
relations; what are the historical background and class interests from which
these theories stemmed?
Adam Smith and Ricardo broke a lance against mercantilism. The principle
of comparative costs is, as to its point of departure and intent, definitely
and antimercantilistic theory. The British mercantilists, the directors of
the East India Company, were pioneers in the fight for British world trade
monopoly and in establishing this fight in theory. The classical economists
considered it their aim to prove the permanence of Britian's world trade
monopoly. However, they attempted to prove, from the viewpoint of industrial
capital, the limited nature of the methods of commercial capital in establishing
market monopoly. Marx furnishes a critique of the classical economists.
Critique of the Principles of Comparative Costs
The principle of comparative costs, in an oversimplified formulation,
is as follows: 0.' two industrial branches the one operating with the greater
productivity presumably becomes an export industry. This development satisfies,
it was claimed, both the interests of the country in question and the optimum
international division of labor.
The theorem, as stated, is logically unassailable. However, as will be
seen, the premises are troublesome. Moreover, the Ricardo-Mill theorem was
calcualted to serve as a theoretical basis of the international division of
labor, which is an untenable assumption. What are the premises!
1. To begin v'th, the principle of comparative costs disregards the
market problems of capitalism entirely. Ricardo does not even mention the
need of a capitalistic country for foreign markets. ,that Marx called
"Ricardo's dogma," namely, that no amount of capital exists that could not be
profitable invested domestically, is a crucial, tacit preuase of the 1;r.nciplo
of comparative costs.
According to Marx, the expansion of foreign trade, which had
been a basis of capitalistic production in the latter's infancy, became
an internal necessity and a concomitant of capitalisitc production. Ricardo
completely ignored this aspect of foreign trade."
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2. This is closely related to what Marx called "Ricardo's false
theory of money." Money according to Ricardo is merely a means of ex-
change of products. Product is exchanged for product, malting supply equal
demand and eliminating the problem of market. In Marx's words, how
ridiculously Ricardo confuses money and product, as well as money and
currency, is shown by his statement: 'If it could be assumed that England,
after a crop failure, needed grain import, while another country had a
grain surplus but did not need other products, it follows logically that the
latter country would refuse to export grain either for other products or
for money, because money is a product which is not needed absolutely but
only relatively"'. Ricardo's ridiculous statement expresses concisely his
false theory of money and the fact that he considers the problem of markets
nonexistent.
3. Ricardo, guided by antimercantilistic prejudices and objectives,
assumed that international trade balances are necessarily in equilibrium.
There is no need to explain that this essur;ption is closely related to his
false theory of money.
e Both Adam Smith and Ricardo, in arguing against the mercantilists,
endeavored to prove that the advantage derived from foreign trade cannot be
measured by foreign trade balance. They claimed on the contrary, that
foreign trade produces the general advantages of the international division
of labor.
This theory, of course, contains a good deal of truth. It goes
beyond the mercantilistic viewpoint and reflects the actual historical
progress from the era of commercial capitalism to that of industrial
capitalism. However, in contrast to the mercantilists, who had overemphasized
the market problem and restricted it to the problem of foreign markets, Smith
and Ricardo completely ignored it. Although the principle of comparative
costs claims to replace the mercantilistic theory of international trade
balances, it is valid only on the a priori assumption of the equilibrium of
trade balances. In the case of completely free trade the trade balances are
automatically in equilibrium, according to the classical economists. The
principle of comparative costs itself postulates the equilibrium of trade
balances. This however, is not a realistic postulate. It is based on
Ricardo's assumption, ridiculed by Marx, which ignores the marketing problem
and minimizes the role of money in international trade.
Actually, the principle of comparative costs is valid only if the
automatic equilibrium of trade balances is postulated. Such automatic
equilibrium can be assumed, however, only by ignoring the market problem
and accepting Ricardo's impossible viewpoint. This is the logical stumpling
block of the principle of comparative costs.
4. The principle of comparative costs fails to throw light on the
competitive and progressive capabilit.12s of the national economy as a whole
and on the relationship between export industry and total output. In contrast
thereto, Marx's analysis based an examination of the factors of the average
rate of profit explains both the disproportionate growth of export industries
and the capitalistic tendency of stimulating other industrial branches to
approximate the productivity of export industries.
The so-called underdeveloped countries are characterized by the
very fact that their export industries are isolated from the national economy
as a whole. For example, oil production in Venezuela or copper mining in
Chile is much more an organic component of the national economy of the US
than of Venezuela and Chile, respectively. The other industrial branches
in these countries, therefore, cannot advance to the level of productivity of
the export industry, and this failure prevents the national economy as a
whole from attaining a higher level of productivity.
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5. In the concept of the classical economists, international division
of labor is patterned on the domestic division of labor, and the adherents
of free trade represent extreme individualism. Specifically, the problem
may be stated as follows: in practice, international trade is conducted
bet- ~n individual persons or films; actually, however, it is trade between
rat.LO,,;. Smith and Ricardo attempted to overcome this difficulty by assuming
that foreign trade as a whole is governed by the same rules as the economic
actions of the individual merchandise owners.
To what extent can the principle of comparative costs be considered
a basis for the international division of labor?
ltic,,rdo di:rcgr-rde c1:, di.otingui3hing characteristics u: the
capitalistic world market. According to iiarx, on the other hand, industrial
capitalism is characterized by "division of labor according to the location
of manufacturing industry," and this new kind of international division of
labor forms the basis of the capitalistic -rorld
the a in this connection,
nter-
question, also stressed by Marx and ~r:;;els, ;irises: whet is the Inter-
relation between foreign trade, production, and investments? In the 19th
century, this query was tantamount to the question of whether kngland should
forever remain the center of manufacture^, industry, to which international
division of labor must always adjust itself. The answ?, would have been
an unqualified "yes" on the basis of the principle of comparative costs.
Yet the development of the forces of production on a world-wide scale beyond
a certain level would thereby have been handicapped rather than advanced.
Economic backwardness can be overcome only by swimming against the current
by the contravention of the so-called law of comparative costs.
The principle of comparative costs is a static principle. hence, the
preregiasites for economic progress are necessarily in conflict with it. The
crucial question r:ay be formulated as follows: That sacrifice can be con-
sidered greater from the viewpoints. of nationl and world econor.r; -- surrender
or economic develo n:ent for the advantages which may be derived from the
principle of comparative costs, or surrender of these advantages to gain
economic advances?
Marx ridiculed the thesis of classical political economy which slates
that "free trade creates international division
to each or labor and thereby assigns
the U?~r,ctt ui' ~ gns
odic ion w.lci! its
natural resources." itable for
l-? at,
in India who, in the terse of uh rirci.a_ cu;,i,at?c: : cuss
evidently "predestined 1'ra; beginning of ?_._ to Uz ''.and
InL ,to,i.b nr.i cu,!.e ,.tCOr, bak:ec,n cupxi:a], :'ends er+?;.:`.us at,
.ui.irely
ciifi'ereri; or.: Incuru;.ct_cool c1 _?salon rte' lobo:? :.iu:n ,: r:;L?-:ioned ct'
h.s ever:; ._u. a..i.i.icd l.i `..
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u bl?t!,. 'r.ccrr Lw d,. uu c-' luto t ;,~1 l) :, .? t
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wit:l accords lice
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ret.ive cusLs in a nanr r which - n urns :.hr.
1:ro,r s of cr-al-proauclr.;; countries. The n drr i..;. cus u ptc,.? , h; n,: c ty n
... L... rc ?? t,c, ;_cn - ;cu Lo(
s ,_c
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Ricardo does not even raise the question of competition in the world
market, The principle of comparative costs demands only that a country
should not prcduce commodities in which it is not competitive. He
excludes the intensity and productivity of the national labor from the
scope of his investigation. According to Marx, "To the extent of the
anddevelopment
tioftcaitii surpass in a country, the national intensity
productivity of labor rpass the inter.-ational level. Different
amounts of a commodity produced in different countries during the same
length of work time possess, therefore, une4ual international values
expressed in different prices. The relative value of money is, therefore,
less in economically more advanced cour.Iries than in retarded countries."
The gist of the entire line of thought is that an advanced country
produces a greater international value which is expressed in more money.
Put in another form, the international value of the total product of an
advanced country exceeds the domestic value, while the opposite is true
of an underdeveloped country. As a result, in the distribution of the
surplus value resulting from the international division of labor and from
international trade there is a shift in favor of the advanced countries.
The capitalists in these countries reap the fruits of the increase in their
own productivity and of the increased efforts of the underdeveloped countries.
Hence, the principle of comparative costs is replaced by the following
Marxian thesis: Since, in international relations, the law of value is
modified by the fact that I. the world market the productivity of labor
counts as much as the intensity of labor, the lion's share, or even the
total, of the profit derived from international trade is appropriated by
the advanced countries."
This thesis is proved by the terms of international trade between raw-
material-producing and industrial countries between 1876 and 1947. The
following table shows the amount of finished products which could be bought
for the proceeds of certain amounts of raw materials:
1876-1880
100.0
1911-1913
85.8
1881-1885
102.4
1,21-1;25
67.3
1896-18;0
6.3
1526-1930
73.3
18 1-18 5
.o,l
1,;31-1935
62,0
1896-1`.:0o
87,1
1936-].y38
64.1
1901-1905
84,6
1946-1947
68.7
(See "Postwar Price Relations Between Underdeveloped and Industrialized
Countries," UN, 1949.)
These dots are diametrically c.>tosed to the Ricardian princii,1e and
fully Justify Marx's thesis, The author:; or.' the UH study themselves were
forced to derive the following conclus_on (see cp, cit. _a 115-116):
"The long-range detcriorn?cion in the international rate of goods ex-
chang6 to the detriment of raw-uaterial-rroducing countries could be ex-
plaincd by the different rate o_ growth o productivity in the production
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of raw materials and finished products, respectively. By assuming that
productivity in the production oP raw materials grows faster than that of
finished products, the deterioration in the international rate of goods
exchange would, naturally, be less alarming. It would merely mean that,
to the extent of raw material exports, the benefits of the increased
productivity are surrendered to the purchasers of raw materials in the more
industrialized countries.
"Although statistical data on the change of productivity in raw-material
producing-countries and in countries producing finished goods are practically
nonexistent, the above explanation may be rejected. There is hardly any
doubt that productivity in industrialized countries is growing faster than
in the underdeveloped countries. This is borne out by the fact that the
standard of living in the industrialized countries rose faster during the
period under review, that is, from 1870 to the present. For this reason, the
changes in the terms of international goods exchange do not mean that the
benefits of increased productivity in raw-material production were surrendered
to the industrialized countries. On the contrary, they show that, through
the differential between the prices paid for imported finished products and
those received for their raw-material exports, the underdeveloped countries
contributed to the rise of the standard of living in the industrial countries
without receiving equivalent compensation for the enhancement of their own
standard of living."
The answer of the classical economists and their epigoni, the vulgar
economists, would be that the solution lies not in the industrization of the
underdeveloped areas (because they could import industrial finished products
cheaper than they could produce them) but in abandoning production for export
at increasingly larger losses.
In the mestic
roducers competition.doDemand isfiesatisfiedld,
inifinalpanalysis by prod cersd by
produce commodities with the amount of labor which is sociallycnecessary. A
producer who uses a greater amount of labor for a prolonged period cannot
operate profitably and is sooner or later forced out of business. This is
the pattern underlying the structure of capitalistic national economy and
modern social division of labor.
However, international division of labor came into being differently. The
deterioriation of the terms of international trade does not force a non-
competitive country to abandcn production. On the contrary, it is often
instrumental in increasing production and, therefore, leads to a further
detorioriation in the terms of international gad-_-.
country is snbecLeu by force to another country and itsetotulipr. is when a
production
is adapted to the industrial needs o the conqueror.
In the first half of the 19th century, both India and the US were
cotton growers. According to the principle of comparative costs, it was
more reasonable for India to confine itself to cotton growing and export
and to receive in exchange the cheap cotton goods.which ruined the Indian
handicraft industry. The US gave up this advantage and abolished the so-
called law of comparative costs as it did so many other laws proclaimed by
England. India followed the example of the US only a century later, and
currently it seems as if, in the sense of the principle of comparative costs,
it were England's turn to abandon textile production for India's benefit. In
fact, the English economists are beginning to wonder whether the principle of
comparative costs is as valid as it was believed to be?for a century.
The situtation changes radically by the transition of the national
economy into monopolistic capitalism, when the problem concerns not only
capitalistic international trade but also goods exhort subject to capital
export, and when international economic relations are characterized not only
by the relationship between sellers and buyers but also by the debtor-
creditor relationship.
STAT
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At this stage, the capitalistic world market is no longer based on the
international division of labor according to-Industrial centers but rather
on a division of labor which best satisfies the interests and commercial
requirements of monopolistic capital, specifically of the monopolistic
capital which is the strongest in international relations.
It is impossible to speak of equivalent trade between an advanced
creditor and a backward debtor. The role of money in international trade
increases
vehicle of profit ebutcthat aof maxiumeprofit,taa circumstancelwhich ism
a not
only inconsistent with equivalent trade but directly postulates nonequivalent
trade.
In trade between an advanced creditor and a backward debtor the latter
needs money, a fact which, through the balance of payments and foreign ex-
change rates, affects the terms of international trade. In monopolistic
capitalism as a world economic system, the question concerns not merely the
modification of the law of value in the sense established by Marx but also
the efforts of the monopolies directed at preventing the law of value from
achieving international validity.
This is the fundamental reason why, in the current rotting stage of
capitalistic development, the capitalistic world market is becoming in-
creasingly incapable of functioning and the capitalistic world economic
system has begun to disintegrate.
At this stage, it is no longer a question of the capitalists of the
advanced countries reaping the benefits of increasing productivity through the
mechanism of international trade; the question now involves a ransom imposed
by noneconomical compulsion. This fact is reflected by the transfer
problem, which is becoming the central drawback of international trade.
The characteristics of monopolistic capitalism stem directly from the
international economic conditions which prevailed during the preceding era
of free trade. In other words, on the basis of Marx's analysis it is
possible to proceed io the analysis and understanding of the new conditions.
On the other hand, the Ricardian theory r:uus into a blind alley because, as
revealed by I'hrx's critique, it was too limited and superficial even in
analyzing the capitalism, of Tree trade.
Prerequlol.tes ',P Eccnc;nic Develenrnent and foreign Trade
The u:incioat. ;ie;ic'enc.er,
summarised as .e c,nc:e 2) be
i 11uvs: (1) t ui-r . d , he n ? b c or 1 t:, au(: (?) it
regards the problem :f ec n;
.) te s, spec ,f; c 1 y the b1ec: cf cvetc ., n,.
econnz;c bac};?ardness .C thin the of cepit; '
_li.~. If these trr? p:oble:.ts
are disregarded, the Rica-than the-) 'Y ? arrears very log;cal. Such disrer;arri, how-
ever, rakes the t:.,~ry t::. ].irti':ed, anerrtc an: 'm-eat.
TIC: L tZ JC C..rt 2n3 the in': -ef
The Ricardo- ;r.;: la-.; was d i ep--oved when the problem of markets assumed un-
precedented dimensions during the ,eneral crisis cf capitalism. The overthrow
of this century-cld false law is currently called by the vulgar economists the
"Keynesian revoiution."
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Attacks against the principle of comparative costs began in the second phase
of the general crisis of capitalism, when the problem of underdeveloped markets
became acute. Prebisch, the present Minister of Finance of Argentina, in his
work The Economic Development of Latin America and Its Main Problems," published
in 1950, made the following statement: "I
L
ti
n
a
n America, reality is undermin-
ing the absolute scheme of the international division of labor, which gained great
importance during the 19th century and, as a theory, exercized considerable in-
fluence until recently."
Currently, the foremost trend in capitalistic international trade is toward
an increase of the backwardness of underdeveloped countries and a growing Imbal-
ance of capitalistic world trade. Underdeveloped countries, therefore, cannot
look to capitalistic foreign trade for a rise in their national income and stand-
ard of living. Instead, they must enter the path of industrialization by over-
throwing the capitalistic economic trends unmasked by Marx and Lenin. Statistics
uncontrovertibly show that the principle of comparative costs as developed by
Ricardo and Mill is untenable.
A. According to the principle of comparative costs, a commodity which can
be imported advantageously is not worth producing in the importing country. On
the basis of this principle, an underdeveloped country can never improve its
supply of industrial articles. A statistical table published by the UN shows
that, in the period 1926-1929 in the US, per-capita production of finished goods
totaled 262 dollars [per year] and per-capita exports of finished goods were 8
dollars, leaving a per-capita supply of 254 dollars for the population. At the
same time, the per-capita supply of several industrial countries averaged 104
dollars. During the same period the per-capita supply o." industrial finished
goods in China and India amounted to 3 dollars, and In ?cll the underdeveloped
countries it averaged 13 dollars.
"A simple calculation shows why these areas cannot expect that foreign
trade will solve the problem of their supply in industrial products. Let us
assume that in these countries the per-capita supply of industrial products in-
creases to one half of that of industrialized countries, or 52 dollars. In such
case their imports of finished goods would have to increase i5 fold to a total
of 69 billion dollars, a sum equal to double the total international trade (raw
materials and industrial products together) or to the total [annual?] manufac-
tr:ed production of the industrialized countries in 1926-1929.
"It is difficult to imagine how t!:ese countries could increase their
raw material exports to an extent that would provide cover for such large-scale
imports. There is no need to analyze this comparison further. Clearly, in prac-
tice, it is impossible to bridge by international trade the huge differences in
the supply of manufactured products which exist in different countries." (Indus-
trialization and Foreign Trade, UN, New York, 1945, pp 22-23)
B. The 1954 annual report of GA'M' on International trade points out that,
during the period 1938-1952, food exports from industrialized to underdeveloped
countries more than doubled, while in the opposite direction they increased only
30 percent. "The per-capita food supply of industrialized areas during the same
period increased, in terms of 1950 prices, from 140 dollars to 160 dollars, while
in underdeveloped areas it remained virtually unchanged at 40 dollars." (Le Com-
merce International, Geneva, 1955) p 24)
C. From 193`s to 1952, trade increased by only 7.3 percent between indus-
trialized and nonindustrialized areas and by as much as 16.3 percent for the
world as a whole. (Ibid., p 29)
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D. Between 1938 and 1952, the bulk of the increase in international trade
fell to the share of industrialized countries. A recent study published by the
British Ministry of Finance states that, in the period of 1948-1954, commerce
between industrial and raw-material-producing countries increased by 38 percent
as compared with an increase of 57 percent between industrial countries. "It
is evident that the boom of recent years was not accompanied by a proportionate
growth in the demand for raw materials and, therefore, in the income of raw-
material-producing countries." (Bulletin for Industry, London, September 1955)
E. Louis H. Bean (International Industrialization and Per Capita Income,
National Economic Research Institute, New York, 1946, Vol VIII, p 123) arrived
at the conclusion that "if it were possible to change the distribution of the
population of the world from the present 60 percent in agriculture to 40 percent,
the general productivity, income, and standard of living would show a tremendous
rise."
In this statement the emphasis lies on industrialization, that is, on
the change of the domestic division of labor, regardless of the advantages which
presumably inhere in the international division of labor according to the prin-
ciple of comparative costs. For this reason, Professor Viner, in a series of
lectures given at the National University of Brazil, indignantly rejected Bean's
views, including the statement that "presumably, the small per-capita income of
China and India could be doubled by channeling 15 percent of their manpower away
from food production to other fields of production, while their national income
could be trebled by an additional shift of 10 percent." (Ibid., page 123.)
Foreign Trade and Socialist International Division of Labor
Since Ricardo's theory of foreign trade has, at the hands of certain econo-
mists, undergone an emphemeral renaissance, a few further comments appear to be
to the point.
A. Socialist industrialization cannot satisfy the principle of comparative
costs, unless the countries engaged in building socialism renounce their economic
independence, stop fighting for their emancipation from the influence of the cap-
italistic world market, and decide to continue paying a permanent and increasing
"ransom" in Lenin's sense. Lenin and Stalin clarified this problem in their fight
against rightist deviationism. Marx's theory was concisely expressed in Lenin's
work "The Importance of Gold at Present and After the Final Victory of Socialism,"
in which he advised that we "howl with the wolves" until we become stronger.
B. As to the socialist world market, the question may be asked why the
principle of comparative costs cannot become, theoritically, the regulator of
socialist international division of labor. The answer is that the socialist world
market is an organized market and that the principle of comparative costs has va-
lidity only within the framework of the anarchy of international production.
The new world market did not arise, and does not function, spontaneously
but as a product of planned cooperation between socialist countries through the
coordination of national economic plans, including plans governing foreign trade.
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