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2.3.2 The Law of value and the development of unequal exchange

What follows is our attempt to present the history of the operation of the law of value in relation to forms or stages of capital, but especially in relation to merchant capital. Our presentation is roughly similar to that of Kay (1975) up to the period of 'colonial imperialism'.

First let us look at the operation of the law of value in the period of commodity production preceding capitalist production. It is known that at a very low level of production, all products are consumed by the producers themselves. Such a society knows no exchange. At a later time in its development, there begins to appear a surplus product in society. The surplus product then becomes a basis for exchange. Historically, the first act of exchange therefore occurred between two or more self sufficient communities, and what was exchanged was only that product which was practically superfluous to each of them. What is noteworthy at this point is

that exchange took place between units of production that were

independent, and made up of independent producers, each of

whom engaged in, and had knowledge of, many activities. The exchange of products superfluous to their needs therefore was for obtaining what they could not find time to produce. Due to this non-specialization in a peasant 'natural economy' the amount of labour-time required to produce an article or articles could be clearly known or closely estimated. This and the fact that exchange was barter made it possible for goods to exchange at or close to value (what can be regarded as the pure form of the operation of the law of value relating to prices).

Even when the division of social labour developed much higher, such as when towns came into being (while exchange was still barter), exchange between town artisans and peasants could only be on the basis of the centrality of labour (Engels, 1976a: 106-125).

Known history shows that as society's 'forces of production' developed further, an enlargement of the surplus product occurred, necessitating a further development of the division of labour. In addition, at a point in this development of the division of labour, there was a discovery of precious metals, and their use as the universal exchange equivalent. Since this money form was a special commodity whose conditions of production was known only to a few people in areas distant to those which did not produce it, and since specialization meant that distant lands could now supply commodities whose conditions of production could not be fully ascertained, independent producers began to lose the ability to exchange at or close to value. Prices now tended to be only reflective of value.

merchants appeared. Corresponding to the closed and proscriptive nature of society then, which in Europe was predominantly feudal, merchant trade associations with closed membership were formed. One of the advantages of the associations for merchants was their ability to guarantee equalized rates of profit for members, since they could compel members to sell or buy in accordance with prices fixed by the associations. It appears also that at this time the proportion of the surplus product extracted from independent producers and kept by merchants was very high. The reason for this, of course, is that exchange became a monopoly in many of its aspects. In addition the possession of vast sums of money by merchants made it possible for them to acquire influence and privilege in society. However, this was also the time when the state was being strengthened and centralized, and therefore requiring large sums of money for maintenance. In order to trade in alien estates or monopolies, merchants had to pay taxes and trade duties to ruling princes. Also, some of the merchants were likely to borrow heavily, in conditions of generally high-interest usury. This atmosphere of insecurity regarding their financial future contributed to the maintenance of a high rate of extraction of the surplus product.

The insecurity points to the limit of the power of merchants as a social grouping at that time, but the ability to determine prices almost at will made it a very privileged one indeed. Of particular theoretical interest is the point that, seen as a grouping able to 'subdue' different producers at the level of exchange, merchants can be said to have engaged in unequal exchange with them, and that the unequal exchange 'objectively' being established at the economic level due to specialization and the coming into being of rare commodities was soon supported by the extra- economic

organisation of merchants. This is the first instance of unequal exchange that can be said to have modified the pure operation of the law of value regarding prices (Engels, 1976a).

We have seen that the monopoly position of merchants engendered by strong associations or guilds ensured an equalization of the rate of profit for its members. However, a particular rate for each merchant guild or a group of them depended on the particular community or nation (i.e., the market) remaining closed, as it did for a while. This meant that although within the same guild or market merchants had an equal rate of profit, each market area had its own special rate of profit. The logical thing to follow from this situation would be that trade would tend to withdraw from an area with a lower rate of profit to where it is higher, provided the markets opened up and allowed competition, which they did later. The competition among different associations and among different nationalities that followed realized an equalization of profit by economic means alone. This competition inevitably put more money into the hands of single merchants, some of the competitors were squeezed out of action, and the guilds gradually became superfluous.

One type of competition which hastened the deterioration of merchant associations was the inter-continental trade which now came into being. With this trade the associations receded further into the background; to the fore came the protection of single merchants by the state, and in some cases the state itself now actively traded through these single merchants (Engels, 1976a). In 'distant' lands the merchants traded with independent producers who obviously had no knowledge of most of the goods brought to them or of conditions of production elsewhere. They also

overwhelmed the independent producers, since they had powerful states to back them. This made it possible for merchants to have a dominant position in the determination of prices, and, in the historical sense, this is another instance of unequal exchange. This too constituted a modification of the law of value since the determination of prices was increasingly less reflective of the labour-time expended in production, and more of the privileged status of the merchant in the market, which was both economic and political.

What we have considered so far is that the development of commodity production necessitated the emergence of the merchant at some point, and with it unequal exchange, and the modification of the law of value. But it is important to emphasize that merchants did not overwhelm independent producers everywhere. This was not possible because the production process and the means of production were still in the hands of producers, thus permitting a large part of the domestic market of each m erchant's own community or nationality to remain outside the merchant circuit, and for exchange to continue to take place more or less at value in that market. As long as producers remained independent in the merchant's own community, the chief sources of profits for merchants were the foreign buyers of domestic products or the domestic buyers of foreign products.

Engels (1976a: 121) summed up the operation of the law of value in this period in the following terms:

"And thus we find here that commodities are sold at their values, on the average, in the domestic retail trade, but, for reasons given, not in international trade as a rule."

law of value, referred to as a reversal by Amin (1977), and considered a refutation of that law by Emmanuel (1972), occurred outside the domestic markets. The suggestion is also that in the original sense, for instance as understood by Engels, unequal exchange occurred at the 'rudimentary' stage of capital (or during the 'prehistory' of capital), as merchant capital, then the only form of capital, asserted itself over independent producers.

2.3.3 Merchant capital and the beginning of capitalist

production

As merchants acquired more capital and specialization intensified, it now became possible for some to employ people from the population of independent producers, a situation no doubt assisted into existence by, among other things, the emerging process of land alienation. It has been suggested by some that wage labour as a form of production first emerged in shipping and mining, controlled by richer merchants. Its characteristic was the payment for the workers in those activities of what we now describe as an amount enough for subsistence, and not necessarily the amount equivalent to the labour-time the labourer expended on the job. In this way a further increase in merchants' profits was possible: there was unequal exchange with distant independent producers, as well as outright plunder; and the merchants were also exploiting labourers on the basis of unpaid-for surplus labour, which is the definition of capitalist exploitation. Meanwhile, as production for exchange became generalized, greater amounts of capital as well as stable sources of raw materials were now required to maintain or step up levels of production. This need appears to have been felt especially by the exporting craftsmen. Initially, merchants were

well placed for this task of supplying large amounts of capital. They now bought raw materials which they brought to independent artisans and craftsmen, who worked them for a wage, to be sold as goods by merchants. This guaranteed a stable employment for the artisans, but it also accounted for a high rate of profit for merchants, since they were able to sell the products at an established mercantile rate of profit. The merchants who went into production in this limited way were therefore at an advantage in comparison with the merchants per excellence. This advantage soon afforded the former an opportunity to undersell the other merchants by reducing the price. In time, this forced other mercantile competitors to do the same, i.e., get involved in production to a degree, which tended to equalize the rate of profit, and, more importantly, led to the intensification of the exploitation of the labour of independent producers.

But merchant capital did not put back into production the surplus value so acquired; in effect it transferred value otherwise created in (the now increasingly capitalist) production to the sphere of circulation, where it was non-productive. It is true that through unequal exchange, plunder and later the exploitation of labour, the amount of wealth was increased, and these large amounts of wealth further spread and intensified trade, stimulating commodity production in every area they touched in turn. But merchant capital was now a fetter to the development of capitalist production, not only because it continued to draw out and away from production the value necessary for reploughing, but also because, having been brought up in the care of restrictive feudal guilds, it could not open the economy wide enough for capitalist production and exchange.

It was the independent producers, and some merchants, through the investment of large amounts of capital, who began to organize capitalist production away from the control of merchants. When manufacture started, and the technical production process was organized through 'co-operative' labour - the pre-cursor of large- scale industry, more commodities were produced and cheapened (Engels, 1976a: 124).