Political Economist

 3. Compare and contrast Smith’s and Marx’s treatment of the transformation of the labor process by capital. How does Smith’s description of the transformation of the pin factory compare to Marx’s analysis of the rise of modern manufacture? What are their differences, if any? What does this imply for issues of technical change in the modern world?

The division of labor is specialization of specific labor and skill. Smith regarded division of labor as being rooted in human nature. According to him, division of labor leaves people having different skill and resulting apparent different human talents. Historically, this division of labor has been limited by the extent of market (limits of sectors of market and limits of aggregate demand in the market). Thus the division of labor could be developed in accordance with the development of market.

Unlike Smith, Marx introduced the concept of the division of labor in much more specific context, the historical transformation of labor process by the capital accumulation. At the beginning of capitalist production, workers have their own craft and skill for labor. The combination of workers by capital is merely formal.

At this stage, the mode of production is not yet determined by capital but found on hand by it. As capitalist system develops, this initial stage of labor process transformed into labor for profit. Capitalist no longer employs workers as it finds them, but sets them work together. Capitalism appears as collective force of the workers. Initially it is simple cooperation of workers working together to produce the same sort of commodity. This leads to concentration of labor into one particular place under supervision. Under this system, workers placed in one place and forced to work in definite partial operations.

Factory and Modern industry: machine dominates production. Machine becomes the dominant factor in the labor process, and workers become inferior to machine. Every improvement of machinery spread rapidly among capitalists through competition.

It follows from this transformation of labor process under capitalism that the ratio between capital and labor, productivity also increase. Reserve army of labor is created by capitalist mechanization

Marx explains the capitalist population growth according to the ‘natural self-sustaining feedback rule. When capital grows faster than population, the rate of unemployment will shrink. If so the wage will rise  profit fall  growth rate of capital will decrease  labor market become tight.

Two factors which influence on the rate of unemployment are displacement rate of labor and the increasing growth rate of capital. Due to these two factors’ combination real unemployment rates are always oscillating around the normal rate of unemployment.

4. Contrast Ricardo’s theory of international trade with that derived from Smith and Marx. What are the specific points of departure within the general theory of competition? What are the differing implications for the opening up of trade between countries that are competitively unequal (as is currently proposed by the World Bank and the WTO)?

Ricardo’s theory of international trade is closely related to his labor theory of value, which can be summarized as the relative price of commodities is almost equal to the relative labor time for their production. He asked whether this principle can be applied to the realm of foreign trade. His answer is no.

Unlike Smith and Marx, he suggested that the ratio of exported price with imported price is not equal to the ratio of exported labor time with imported labor time. Ricardo asserted that the ratio between imported commodity price and the exported commodity price will determined in such a way as to make export equal to import.

To use his own example, if England and Portugal start to export their relatively advantageous commodities to each other, England gold money will be imported to Portugal and Portugal’s cheap exports will be introduced to England. This would cause affluence of gold money in Portugal and abundance of goods in England. Ricardo claims that this international exchange will lead to trade balance and specialization of industry in both countries.

* Both countries will gain mutual benefits from foreign trade

* Each countries will specialize industries so that each country will have comparative advantage in particular sectors which leads to optimal factor endowments.

* Ricardo’s version of foreign trade is based on the quantity theory of money which can be summarized by MV = PY formula where M is the quantity of money, V is velocity of money, P is price level and finally the Y is production condition in a given time. Ricardo argued that if two countries, i.e. England and Portugal start to import and export their respective comparative advantage goods, or lat least start to foreign trade, the outflow and inflow of gold money will affect the general price level and thus lead to mutual industrial specialization, optimal factor endowment in the long run.

Unlike this Ricardian notion of foreign trade, Marx started his approach from the perspective of competition among capitals. Capital is driven by profitability in the first place. In order to increase the rate of profit, every individual capital introduces new machinery and technologies. All of these processes are forced by real competition. In order to increase the rate of profit, in order to survive under fierce competition, individual capitalists move from one production sectors, regions, countries to another production sector, regions and countries. In this sense, the behind motive of the international trade lies in the capital accumulation and competition.

However, unlike competition among capital in an industry, or between industries, the effect of competition among regions and countries, especially among different countries does not bring about the full employment and trade deficit. There is no guarantee of the profit being equal to or across regions and countries. Because there are different technological development levels, competition among capitals does not equalize the same technology and wage level across the regions and countries.

Thus, from Marxian perspective, the competition of capital among nations and different regions leads to ‘unequal exchange’ among them. First of all there is no guarantee of full employment and effective factor endowments (specialization of capital). According to this logic, the Third World countries or underdeveloped capitalist regions will decline and lead to trade deficit if they are engaging in international trade. Gold money inflow from the TWC into NDC will be given to the hands of capitalists. The outflow of money from the UCR will lead to the increase of interest rate, and the money of capitalist can be reinvested on the TWC to buy bond and stock, etc. leading to the chronic crisis.

* In marx’s perspective, competition is described as a war against each other. Even though competition among capitals in an industry bring about the equalizing effect of the rate of profit, and force individual capitals to equip the same level of technologies, there is no guarantee the general increase of profitability. There is no optimal equilibrium, thus this process leads to constant expansion and conflicts among capitals.