Ecologically Unequal Exchange and the Value of Money

Ecologically Unequal Exchange and the Value of Money Andrea Ricci University of Urbino, Urbino (PU), Italy. Email: [email protected] Abstract: Unequal exchange is a common theme in two major global issues, uneven economic development and the environmental crisis. Ecologically unequal exchange is usually derived from the product composition of international trade as an opposition between extractive and industrial economies. However, this explanation fails to capture asymmetric flows of biophysical resources in the new international division of labour. Inspired by an Eco-Marxist approach, a consistent account of the ecologically unequal exchange is presented based on the different value of money between countries. An econometric test confirms the theoretical hypothesis. Unequal exchange emerges as a structural manifestation of the uneven development of capitalism, which exacerbates the global environmental crisis and pre-existing power imbalances by reproducing global economic and ecological hierarchies. Keywords: ecologically unequal exchange; international trade; value theory; uneven development. This is an original manuscript of an article published online by Taylor & Francis in Capitalism Nature Socialism on 29 March 2023, available at: http://www.tandfonline.com/doi.org/10.1080/10455752.2023.2195673. Introduction Ecologically unequal exchange (EUE) refers to the net transfers of natural resources from poorer to richer countries occurring through international trade. This asymmetric relationship has important global ecological and social consequences. It compounds the global ecological crisis by boosting the irrational use of biophysical resources through environmental load displacement (Givens and Huang 2021). Further, it perpetuates world development gaps by depriving poor economies of material resources for the benefit of rich ones. Based on a vast amount of historical and empirical evidence, the EUE theory aims to explain how and why international trade results in asymmetric ecological flows. In this respect, it intersects with the theory of Unequal Economic Exchange (UEE), which claims that parallel net transfers of economic value occur in the same direction, exacerbating global social inequalities (Ricci 2022). Both contradict mainstream economics, which argues that free trade provides universal benefit by promoting comparative advantages. However, despite this common ground, EUE and UEE theories developed in mutual isolation, lacking a coherent theoretical framework to account for the uneven global distribution of both ecological and economic resources. On the one hand, UEE focused only on the international net flows of economic value, while ignoring their biophysical counterpart. On the other hand, EUE, which developed later, assimilated only selected aspects of the original UEE theory, while ignoring further crucial advances. The failure to integrate economic and ecological critiques of neoliberal globalization has important political implications at both institutional and activist levels. In the official international arena, negotiations on climate change, poverty and global inequality tend to be parallel and unconnected. In social movements, ecological mobilisations and class conflicts are rarely linked in a common project of political transformation, and labour and environmental demands sometimes appear contradictory. This state of affairs undermines the quest for global environmental and social justice. International trade results from a voluntary agreement between parties on the monetary equivalence of exchange fixed by price. Asserting unequal exchange requires a definition of real value distinct from price and why real non-equivalence takes the opposite form of monetary equivalence. On the first point, EUE theory proposes the notion of ecological value, variously defined, as an alternative or complement to the economic value 2 envisaged by UEE theory. The second point, however, is barely addressed, leaving EUE open to criticism as to its theoretical coherence. EUE is usually presented as the result of the antagonism between the technical process of production and the laws of nature, rather than as the way a historically determined socio-economic system interacts with the natural environment. It ultimately stems from the product composition of international trade flows between backward extractive and developed industrial economies. Through foreign direct investment, however, corporate-driven globalisation has re-allocated production with high environmental impacts (Faber 2008). New patterns of ecological exploitation of the Global South have thus emerged. As a result, EUE theory struggles to account for persistent ecological asymmetries in trade in the new international division of labour. This paper aims to show that the shortcomings of EUE analysis arise from the poor or missing integration between the two aspects of unequal exchange, largely due to the ambiguity surrounding the notions of economic and ecological value and their relation to money. Moving from a pioneering but unfinished attempt to integrate Marx's theory and Odum’s ecological accounting (Foster and Holleman 2014), the argument is that UEE and EUE make up an entanglement, which finds its consistent explanation in Marx's theory of value. This mechanism operates through a hierarchical international monetary system, arising from the international law of value that governs the world capitalist market. It takes the form of a global currency pyramid, with at the top the strong currencies of developed countries having greater international purchasing power than the weak currencies of the less developed countries at the bottom. The resulting drain on material resources in turn reinforces the productive and technological imbalances by reproducing the uneven development of the world capitalist economy. Recognising the common roots of global ecological and economic inequality fosters awareness of the inextricable link between global environmental and social justice for more effective institutional and social action. Ecologically Unequal Exchange and the International Division of Labour The notion of EUE inductively emerged from factual observation, rather than an a priori theoretical construct. The ecological plunder perpetrated by the dominant powers of the Center on the Periphery dates back to the dawn of the capitalist world economy. What has changed in the different historical phases, from the early mercantilist era to the current 3 age of globalisation, is the form in which it occurs. During colonialism, the drain of natural resources occurred through direct political and military domination of the mother country over the subjugated territories (Moore 2003; Ross 2017), whereas in the postcolonial era through trade and foreign capital investments in the context of the neoliberalization of peripheral resources (Bond 2006; Frame 2016). International trade engenders a twofold exchange pattern involving two distinct flows moving in opposite directions, one monetary and the other material. Material flows indicate the contribution of international trade to the social metabolism of national economies, defined as the exchange of matter and energy between the socio-economic system and the natural environment (Fischer-Kowalski and Haberl 1998). In analogy to monetary accounting, social metabolism analysis developed a set of biophysical accounting tools (Martinez-Alier 2009). The net balance between domestic production and consumption of natural resources can be represented in an ecological or biophysical trade balance that complements the official monetary trade balance (Røpke 2001). When biophysical balances are out of equilibrium, the net importers displace domestic environmental pressures on the net exporters, which suffer from the depletion of the domestic resources (Weisz 2007; Mayer and Haas 2016). The accumulation of unbalanced biophysical flows has given rise to the concept of ecological debt incurred by the Global North over a long period of environmental exploitation and sinking of the Global South, which counterbalances financial debt running in the opposite direction (Martinez-Alier 2002; Warlenius et al. 2015). The underlying argument is that market prices do not include compensation for local externalities resulting from environmental degradation and natural resource exhaustion. The notion of environmental or ecological terms of trade has been planned as the ratio between the average environmental intensity of imports and exports. It complements the economic notion, expressed by the ratio between import and export price indices, by showing the relative ecological burden of a country's trade (Muradian et al. 2002). A growing body of empirical research, based on a plurality of ecological accounting methodologies, provided extensive evidence of asymmetric extraction, use and consumption of natural resources among different areas of the global economy (Andersson and Lindroth 2001; Jorgenson and Clark 2009; Givens 2018; Dorninger et alt. 2021; Hickel et alt. 2022). These studies all agree that the richer 4 economies of the Global North are net consumers and the poorer economies of the Global South are net producers of biophysical resources. The EUE account directly refers to the original structuralist approach to UEE, which ascribed uneven trade to the different product composition of exports and imports. In the middle of the last century, Prebisch (1950) and Singer (1950) identified the then prevailing international division of labour between less developed countries, exporters of raw materials and agricultural goods, and developed countries, exporters of manufacturing goods, as the source of UEE. The different international specialisations led to a progressive deterioration of the economic terms of trade for the Periphery because of the different competition and income elasticities of demand between the primary and secondary sectors. This hypothesis was later incorporated into dependency theory and world-system analysis. The EUE is rooted in this theoretical tradition (Hornborg 2009; Jorgenson and Rice 2012). By combining Prebisch-Singer's hypothesis with the analysis of international biophysical flows, EUE theory attributes the uneven net flows of natural resources to the divide between extractive economies exporting primary commodities with low value added, and industrial economies exporting manufactures with high value added (Bunker 1984; Muradian and Martinez-Alier 2001). As a result, EUE would be driven by a biased international price structure that is favourable to the processed goods of more developed countries to the detriment of primary goods of poorer countries (PerezRincon 2006; Rivera-Basques, Duarte and Sánchez-Chóliz 2021; Alonso-Fernández and Regueiro-Ferreira 2022). However, the dichotomy between extractive and industrial economies provides an oversimplified account of the international division of labour. In recent decades, significant semi-peripheral areas, especially in Asia, experienced sped-up industrialisation within global value chains and production networks resulting from the offshoring and outsourcing of multinational firms. A new and more complex global division of labour arose, in which an emerging Periphery, specialising in labour-intensive stages of production, stands between a poor Periphery, specialising in primary stages, and a rich Center, specialising in capital and knowledge-intensive stages. In this new framework, the asymmetries in international ecological and economic flows acquire a more articulated and less linear configuration than that envisaged by the bipartition between extractive and industrial economies (Singh and Eisenmenger 2010; 5 Ciplet and Roberts 2017). Extensive empirical research widely confirmed this. While the higher relative ecological intensity of low-income countries' exports seems to be verified empirically, in absolute terms, high-income countries are net exporters of ecological resources (Moran et al. 2013). Recent empirical studies show that China (Yu et al. 2014; Shandra, Restivo and Sommer 2020) and India (Martinez-Alier et alt. 2016; Sommer et al. 2020) maintain a favourable ecological balance toward other low and middle-income countries through imports of food and raw materials and export of processed industrial goods. Both countries result as net exporters of CO2 emissions (Meng et al. 2018). Other studies of bilateral trade either are at odds with the typical framework envisioned by EUE theory (Huang et al. 2017; Tian et al. 2017) or show that the ecological balance of trade may depend on the type of product (Oulu 2015). In addition, dependence on primary commodities is not exclusive to peripheral countries, but also affects some high-income economies (Australia, New Zealand, Norway, Iceland, Greece) and over half of the upper middle-income countries (UNCTAD 2021). To sum up, the standard EUE assumption of the dichotomy between exporters of raw materials and industrial products looks too narrow to capture the complex ecological interactions involved in the new international division of labour. Explaining unequal exchange by the product nature of trade conflates the terms of trade between countries with the international exchange ratios between different classes of merchandise. In this way, asymmetries in trade flows are derived from market circulation. Following the pioneering contributions of Prebisch and Singer, UEE theory transcended the assumption of a dualistic, product-based international division of labour, recognizing other determinants of uneven trade flows resulting from production. Based on a Marxist approach, Emmanuel (1972) claimed that the cause of UEE is the wage gap between developed and developing countries, regardless of their sectoral specialisation. Amin (1976) emphasised in this respect the crucial role of the double factorial terms of trade, accounting also for labour productivity. Recent research has linked UEE to the structure of world money (Köhler 1998), persistent real currency misalignments between developed and developing countries (Ricci 2019, 2021a) and subordinate integration of the emerging periphery into global financial markets (Bonizzi et al. 2022). The new patterns of the international division of labour have prompted the investigation of intraindustry UEE within global value chains (Roy 2017; Suwandi 2019; Ricci 2021b). In 6 sum, UEE theory today considers different product specialisations as one - and not the most important - among the various causes of the economic transfers implicit in international trade. However, these developments have received little or no attention in EUE literature. The notion of EUE has thus been criticised for lacking a coherent theoretical framework that can explain, and not just describe, the structural underlying determinants of ecologically uneven trade (Warlenius 2016; Sommerville 2022a). In particular, the nexus between the economic and ecological dimensions of international trade is under-analysed because of the vagueness of the notions of economic and ecological value and their relation to money. Economic Value and Ecological Value The starting point of EUE theory is the recognition that market prices misrepresent the environmental costs and, therefore, monetary valuation does not correspond to the ecological content of commodities. From this common ground, there are distinct theoretical approaches to EUE that differ according to the underlying concept of economic value and its relation to ecological value. Following Hornborg (2014), four different schools of economic thought can be identified in EUE literature: Neoclassical environmental economics and Non-reductionist ecological economics, which adopt a subjective concept of economic value coinciding with market price, and Neo-Physiocrat ecological economics and Eco-Marxist economics, which adopt an objective concept of economic value as distinct from market price. In the neoclassical approach, the economic value of all assets, including environmental ones, results from the subjective preferences of utility-maximising consumers and it is defined by the market price. Competitive free markets are considered the most efficient mechanism for allocating productive resources. Unequal exchange is an exceptional occurrence resulting from market failures due to imperfect competition or incompleteness. Any discrepancies between monetary valuation and ecological costs can be minimised through liberalisation policies and the allocation of property rights to internalise environmental externalities into prices (Baumol and Oates 1988). Non-reductionist ecological economics adopts a subjective approach to economic value, but it is in direct antithesis to neoclassical economics in the disavowal of the market and purely economic solutions to ecological problems. Economic value, defined as the 7 "enjoyment of life" (Georgescu-Roegen 1971; Daly 1996), is conceived as an individual psychic phenomenon, revealed by the willingness to pay the market price for the desired good. Because of subjective monetary valuation, the market price always ensures the economic equivalence of exchange, just as in neoclassical economics. The issue differs from the ecological perspective, because of the original incommensurability between subjective economic value and objective ecological value. The latter is defined as the productive potential in terms of energy and matter that can be extracted from a good. Economic value derives from the transformation of natural resources to satisfy human needs by technology. This process increases entropy and environmental degradation because of the dissipation of natural resources inevitably associated with human production. There is therefore an irreconcilable opposition between the Second Law of Thermodynamics and economic growth, as an inverse relationship between ecological value and price, because the productive potential steadily decreases as processing increases (Hornborg 1998). Against this background, EUE is derived from differences in the degree of technological development between countries. The complex technological infrastructure of developed countries requires greater input of raw materials and higher ecological waste so that they export more processed goods with higher entropy than import, and vice versa for developing countries. These differences in sectoral specialisation and technological level would imply net trade transfers of biophysical resources (Hornborg 2019). In the non-reductionist approach, EUE applies to any kind of exchange between goods with different productive potential, even within a community, regardless of historically determined social relations (Oulu 2016). However, if subjective monetary valuation ensures economic equivalence, the question arises as to why EUE should be perceived as a socially negative phenomenon, since it appears to be a mere technical circumstance. The irreversible increase in entropy depends on the environmental and social sustainability of an economic model based on unlimited consumption of non-renewable material resources, rather than on trade (Schwartzman and Engel-Di Mauro 2019). Establishing a social criterion of ecological inequality in trade requires decoupling economic value from subjective monetary valuation (Pirgmaier 2021; Sommerville 2022b). This is what EUE approaches based on an objective notion of economic value advocate. 8 Whereas in subjective approaches economic value is determined by market supply and demand, in objective approaches it is determined by the inputs used in production. NeoPhysiocrat approach converges with classical and Neo-Ricardian theories in deriving economic value from the real costs of production measured, however, by biophysical inputs rather than labour (Lonergan 1988; Judson 1989). On the view that all inputs, including human labour, ultimately derive from the natural metabolism, ecological value and economic value overlap in the notion of natural value. Natural value is expressed as energy directly consumed in production (Costanza 1980), or as emergy, keeping also the memory of dispersed and degraded energy (Odum 1996), both originating from solar radiation as the only net input to our biosphere. The concept of natural value has given rise to two opposing views regarding the relation to price. One interpretation, which converges with neoclassical findings, claims that, in perfectly competitive markets, monetary valuation correctly expresses natural value, so that EUE does not arise (Costanza and Herendeen 1984). According to another interpretation, real production costs diverge from market prices because natural inputs do not receive monetary compensation. As biophysical inputs are relatively more intensive in the production of raw materials and agricultural commodities, the monetary undervaluation would be greater in the primary sector than in the secondary and tertiary sectors (Giljum and Eisenmenger 2004). Market undervaluation of natural resources has thus been proposed as the cause of EUE (Bunker 1988). The thesis is that monetary equivalence of international trade is matched by an ecological non-equivalence leading to a transfer of unpaid biophysical resources from the extractive economies of the Periphery to the industrial economies of the Center. Apart from the static account of the international division of labour, the Neo-Physiocrat approach has been criticised for its normative character (Hornborg 2010). If natural resources do not concur in market price formation, natural value does not describe reality as it is, but as it ought to be. The NeoPhysiocrat approach then outlines what value should be in a hypothetical sustainable economy, rather than a scientific analysis of the actual world capitalist economy. The Eco-Marxist approach addresses these objections by an objective concept of economic value as separate from ecological value (Burkett 1999, 2006; Foster 2000; Moore 2015). This approach takes Marx's distinction between use value and exchange value as its starting point. Concrete labour and nature are the two original sources of 9 wealth, conceived as the available stock of use values for satisfying social needs. Exchange value, in turn, denotes the quantitative market exchange ratio between commodities. It is the product of abstract labour as the part of the total social labour devoted to the production of a commodity, and amounts to the average socially necessary labour time. Exchange value is a historically determined category of the capitalist mode of production, where the division of social labour is realised by the impersonal mechanism of market exchange between independent individual producers. It takes the form of money as the regulating price around which the current market price fluctuates. Use value is merely a prerequisite, but does not contribute to determining the exchange value of a commodity. As a result, nature's productive contribution does not reflect in pricing. In capitalism, natural resources are “free gifts” that capital appropriates without monetary compensation. Table 1 summarises the differences in the concept of value between the four schools of ecological economics. Table 1. The concept of value in the four schools of ecological economics Subjective approaches Neo-classical Non-reductionist Monetary value Objective approaches Neo-physiocrat Marxist Price Price Price Economic value Price Socially Natural value necessary labour (energy/emergy) Ecological value Entropy Use value Foster and Holleman (2014) have proposed an interpretation of the EUE based on a critical combination of Marx’s theory of value and Odum’s emergy analysis. In the latter, EUE occurs when the emergy/monetary ratio (EMR) differs between countries. EMR is defined as the ratio of total emergy to Gross Domestic Product (GDP) and shows the emergy embodied in one dollar of a country's exports. Countries with higher EMRs give for a dollar of exports a larger amount of emergy than countries with lower EMR, leading to net transfers of ecological resources from the former to the latter. Odum argues that developed economies normally have a lower EMR because they specialise in more processed industrial goods than developing economies, which rely more on the direct 10 extraction of uncompensated natural resources in mining and agricultural sectors (Odum and Arding 1991; Odum 2007). Foster and Holleman complement Odum's ecological accounting with the Marxian distinction between use value and exchange value. In their view, the notion of emergy allows for the commensurability of different use values, as opposed to money expressing exchange value. EUE would then occur because the monetary equivalence of exchange values conceals a material non-equivalence of use values shown by different EMRs. Foster and Holleman eschew the normative character of the Neo-Physiocrat approach through a clear conceptual separation between objective economic value and ecological value. However, a physiocratic remnant persists in attributing the EUE to differences in the material structure of trade between extractive and industrial economies. This is because they fall into a new contradiction by immediately relating, like Odum, emergy as an indicator of use value/ecological value with money, which instead measures exchange value (Hornborg 2016). In this way, they not only compare two mutually incommensurable quantities, but also implicitly retain the neoclassical assumption of balanced economic terms of trade resulting from an identical value of money for all countries. While this assumption is consistent with a subjective economic value, it is not well-founded in approaches based on an objective notion of economic value. Indeed, as Marx (1990, 702) noted, “the relative value of money will therefore be less in the nation with a more developed capitalist mode of production than in the nation with a less developed capitalism”. In such a case, the different value of money leads to important consequences on the unequal distribution of both economic and ecological resources through international trade, as the following section will discuss. Ecologically Unequal Exchange and the International Law of Value Trade always involves a monetary equivalence fixed by the international market price denominated in a common currency. Unequal exchange arises when the monetary equivalence does not reflect a real equivalence, thus giving rise to unbalanced terms of trade. Defining a criterion of real equivalence distinct from monetary equivalence requires turning outside the act of exchange to the sphere of production, seeking a common denominator between heterogeneous commodities. Economic production is the process of transformation of natural resources by labour through means of production. 11 The product is what remains after the production activity has finished. It is the objectification of an action, which materialises in the transition from movement to rest. All commodities have in common that they, as products, are all the objectified result of the activities performed by the original sources of production. The original productive resources differ from the derived resources because they act in the production process without themselves resulting from a previous economic production, thus being a net input. The quantity of original productive resources objectified in commodities defines the real value of the exchange. What, then, are the original productive resources objectified in the commodities? A close examination reveals that the means of production do not make up an original productive resource because they are themselves products. The same applies to natural resources that are even partially processed and transformed into raw materials. What remains are labour and natural resources “at the cradle”, the latter being the resources existing in the pristine natural environment (Dewulf et al. 2015). Ultimately, the original sources of production comprise two forms of activity: the self-generated activity of the natural environment and the teleological activity of human labour. The quantities of these two primary sources of production are measured in terms of flows of energy and labour time, respectively. UEE considers real value in terms of labour, or economic value, and EUE in terms of biophysical resources, or ecological value. These two concepts relate to two quite different dimensions. Economic value refers to the relations between independent private producers in a historically determined community whose social reproduction occurs through market exchange. Ecological value refers to the metabolic exchange between human society and the natural environment. Behind the monetary equivalence, international trade can involve real non-equivalence in terms of economic or ecological value. Trade is really, and not only nominally, equivalent, provided that the value of money is the same for all countries. Because of its nature as a medium of exchange, the value of money corresponds to the amount of productive resources that a monetary unit gets in exchange in a market transaction. In an integrated domestic market, the value of money is the same for all players because there is a single equilibrium market price expressed in the national currency. The situation in the world market is different because the commodity exchange occurs between countries, each with its own national currency. Here, although there is a single international price 12 of competitive equilibrium denominated in international money, such as the US dollar, there can be unequal exchange if the current exchange rates diverge from purchasing power parity (PPP). As for the value of money, the two notions of economic and ecological value have a different status. In fact, in a capitalist economy, human labour is a remunerated activity supplied by the workers in return for a monetary wage to capitalist firms. By contrast, the activity of nature is freely available as the result of the physical and biological laws that govern the whole universe and, as part of it, the Earth. The net physical product results from the combination of human labour and natural resources, but the net monetary value of this product is determined entirely by the socially necessary labour time required for production, expressed in the monetary forms of wages, profit and rent. Labour is the only original resource involved in the production of both use value and exchange value, as concrete labour and abstract labour, respectively (Sommerville 2021). This implies that the value of money is ultimately determined by the only original resource, labour, which receives monetary remuneration. By contrast, in Odum’s emergy analysis, the value of money is directly expressed by the EMR in terms of the original biophysical resources consumed and dissipated in production. In algebraic terms, denoting by E the total emergy, Ync the GDP in national currency and e$ the current exchange rate between national currency and dollar, the EMR of each country i is defined as follows: 𝐸𝑀𝑅! = 𝐸! $ #$ 𝑒! 𝑌! (1) However, if the natural original sources out of which all emergy derives are freely available, this EMR definition is a fictitious construct because money never exchanges directly against natural resources “at the cradle”. A crucial mediating step between the ecological and the monetary value of production is omitted. This necessary mediation is the economic value of production, measured in terms of the other original source, labour, which is the only one that is monetarily remunerated. The relation between biophysical resources and money is a mediated relation consisting of two successive relations: between labour and biophysical resources in production, and between labour and money in circulation. 13 To measure the economic value, we have to define an international unit of labour to make the different national labours homogeneous, so that the economic value produced in a unit of labour time is the same for all countries. Following Ricci (2019), we define the international unit of labour as labour with the world average real productivity, which is measured in PPP units to sterilise the effects of real exchange rate misalignments. The quantity of homogeneous labour in each country (Li), showing the total economic value of national production, is thus determined as follows: 𝑒!%%% 𝑌!#$ 𝐿! = 𝐿& 𝑌& (2) where: 𝑒!""" is the PPP exchange rates between the national currency and the international dollar, 𝑌# is the world GDP in international dollars, and 𝐿# is the total world labour. Dividing the numerator and denominator of equation (1) by Li, we have: 𝐸! 𝑁𝐸𝐿𝑇! 𝐿 𝐸𝑀𝑅! = $ !#$ = 𝑀𝐸𝐿𝑇! 𝑒! 𝑌! 𝐿! (3) $ In equation (3), the numerator $ % ' % can be called as “natural expression of labour time” ' (NELT), representing the quantity of biophysical resources embodied in the material net &$ product of a unit of labour. The denominator & %' ' is the monetary expression of labour ' time (MELT), which shows the quantity of money representing the material net product of a unit of labour, equivalent to the inverse of the value of money (Foley 1982). Equation (3) reveals that differences in EMR between countries result from two distinct factors, regardless of the product composition of the country’s exports. The first factor in the numerator, NELT, relates to the technical process of production and measures physical labour productivity in terms of resource intensity per unit of labour. It shows how much ecological value is embodied in a unit of economic value. It is positively correlated with the level of economic development because technical progress and higher capital/labour ratio –the Marxian technical composition of capital– increase the amount of physical product produced per unit of labour time (Carchedi and Roberts 2021). This 14 parameter highlights the ecological contradiction of capitalism, where the endless increase in economic value can only be achieved through a disproportionate increase in ecological value. This leads to an escalation of the environmental crisis resulting from the overuse of limited natural resources. The second factor in the denominator, MELT, relates to the international purchasing power of the national currency and measures monetary labour productivity. It shows how much monetary value represents a unit of economic value. By substituting equation (2) into the denominator of the MELT, after some algebraic simplifications, we get: 𝑀𝐸𝐿𝑇! = 𝑒!$ 𝑌& = 𝐸𝑅𝐷𝐼! × 𝑀𝐸𝐿𝑇& 𝑒!%%% 𝐿& 𝑤𝑖𝑡ℎ: 𝐸𝑅𝐷𝐼 (𝐸𝑥𝑐ℎ𝑎𝑛𝑔𝑒 𝑅𝑎𝑡𝑒 𝐷𝑒𝑣𝑖𝑎𝑡𝑖𝑜𝑛 𝐼𝑛𝑑𝑒𝑥) = (4) 𝑒!$ ; 𝑒!%%% 𝑀𝐸𝐿𝑇( = 𝑤𝑜𝑟𝑙𝑑 𝑎𝑣𝑒𝑟𝑎𝑔𝑒 𝑀𝐸𝐿𝑇. From equation (4), we can see that the countries with an overvalued real exchange rate relative to PPP have a higher MELT than the world average, and vice versa for those with real undervaluation. According to the “Penn effect”, denoting the systematic and persistent positive gap between the average price levels of developed and developing countries (Kravis et al. 1978), the purchasing power of national currencies is positively correlated to the level of economic development measured by per capita GDP. The "Penn Effect", which is supported by extensive empirical evidence, finds its explanation in Marx's international law of value (Ricci 2021a). In the international market, the absence of a common world currency determines a fictitious price - the exchange rate - that does not refer to any particular commodity but to money as a general commodity. The exchange rate makes commodities expressed in domestic currency commensurable for international market exchange. This mediator between domestic and world prices entails the possibility of a divergence in the international purchasing power of different national currencies, giving rise to unequal exchange. This is because international differences in physical labour productivity resulting from capitalist uneven development act like differences in labour intensity, leading to real exchange rate adjustments rather than international commodity prices. The resulting real exchange rate misalignment implies that more developed countries have higher MELT than less developed countries. 15 NELT and MELT act in opposite directions on the international differences in EMR, since both increase with the level of economic development. In an economically equivalent exchange, more developed countries would transfer more biophysical resources through international trade than they receive from less developed countries because they have a higher NELT for the same MELT. The EUE can thus only arise from an economically non-equivalent exchange, in which the differences between MELTs more than compensate for the differences in NELTs. The higher MELT of the more developed countries causes both dimensions of unequal exchange, the economic and the ecological. Therefore, the net transfer of natural resources from less developed to more developed countries through international trade arises from the global monetary hierarchy of a capitalist world economy. The higher international purchasing power of strong currencies simultaneously secures for richer countries a drain of economic and ecological resources to the detriment of poorer countries, which is reflected in unbalanced terms of trade in both economic and ecological terms. An Econometric Test To test the empirical validity of the theoretical hypotheses outlined above, we ran a crosscountry panel data fixed effects econometric analysis on a sample of 156 countries, accounting for over 97% of world GDP and world population, over the period 2001-2015. The source data are drawn from the following databases: IMF’s World Economic Outlook for GDP in current dollars and in PPP; World Bank’s World Development Indicators for country population and total world employment; National Environmental Accounting Database V2.0 for country total emergy1. The test checks the EUE’s hypothesis based on the dependence of the EMR on the level of economic development measured by PPP per capita GDP (𝑌'"( ), according to the following estimation model: 𝑙𝑜𝑔 𝐸𝑀𝑅!' = 𝛼 + 𝛽 𝑙𝑜𝑔 𝑌!'"( + 𝜀!' (5) Next, to determine the respective weights of the two components (NELT and MELT) that make up EMR, as shown in equation (3), we estimated the following two panel data regressions: 1 http://www.emergy-nead.com/home. On the methodology of the NEAD see Pan et al. (2017). 16 𝑙𝑜𝑔 𝑁𝐸𝐿𝑇!' = 𝛼) + 𝛽) 𝑙𝑜𝑔 𝑌!'"( + 𝜀)!' (6) 𝑙𝑜𝑔 𝑀𝐸𝐿𝑇!' = 𝛼* + 𝛽* 𝑙𝑜𝑔 𝑌!'"( + 𝜀*!' (7) Consequently, equation (5) can be decomposed as follows: 𝑙𝑜𝑔 𝐸𝑀𝑅!' = (𝛼) − 𝛼* ) + (𝛽) − 𝛽* ) 𝑙𝑜𝑔 𝑌!'"( + (𝜀)!' − 𝜀*!' ) (8) The results are shown in Table 2. Hausman's test confirms that the fixed-effects model is preferred to random effects. LSDV R-squared indicates that the regression model largely explains the overall observed variability of the dependent variables. The p-value shows that the coefficients are statistically significant at the highest degree above 99%. The sign of the beta coefficients is in line with theoretical predictions: EMR decreases as per capita income rises, but this effect is entirely driven by the growth in MELT at the denominator of the EMR ratio, which largely exceeds the simultaneous growth in NELT at the numerator. Table 2. Panel data fixed-effects model, using 2340 observations. Included 156 countries over 2001 to 2015. 𝐥𝐨𝐠 𝑬𝑴𝑹𝒊𝒕 coefficient const 𝒑𝒄 𝐥𝐨𝐠 𝒀𝒊𝒕 10.1205 −0.908493 p-value 𝐥𝐨𝐠 𝑵𝑬𝑳𝑻𝒊𝒕 coefficient 6.19e-243 p-value 4.80e-221 9.06874 *** 7.04e-163 *** 0.299465 *** 3.08e-24 *** 𝐥𝐨𝐠 𝑴𝑬𝑳𝑻𝒊𝒕 coefficient −0.999989 1.20171 p-value 3.40e-13 *** 0.0000 *** LSDV R-squared 0.853321 0.884577 0.795278 p-value Hausman test 2.73658e-20 0 2.29993e-285 The econometric analysis confirms that the higher EMR of the poorer countries is associated with a higher relative value of money –the inverse of MELT–, which gives rise to a systematic real undervaluation of their exchange rate, despite a higher resource intensity per unit of labour in richer countries. As with economic value transfers, the net transfers of ecological resources by international trade leading to EUE results from the 17 global monetary hierarchy established by the law of value operating in the capitalist world economy, rather than the product nature of countries' exports. Conclusions Building on an Eco-Marxist approach linking the production of material wealth and abstract value, this study finds a common origin of UEE and EUE in the global monetary hierarchy structuring the international monetary system. The higher international purchasing power of the currencies of rich countries than those of poor countries, as reflected in the real overvaluation of the former and undervaluation of the latter, is wellestablished empirical evidence, which neoclassical economics fails to account for. According to a Marxist approach, it rather results from the international law of value in a world market with several nation states, each with its own currency, marked by labour productivity gaps due to uneven development. The systematic real exchange rates misalignment causes the divergence between economic and ecological inputs captured and supplied on the world market through international trade. An econometric test has supported this theoretical hypothesis by showing that both UEE and EUE results from the different value of money between developed and developing countries. Unequal exchange is a unitary phenomenon with a dual economic and ecological dimension, involving the simultaneous drain of economic value and natural resources from the Global South by the Global North. It is the structural consequence of the formation of a world market shaped by the uneven development of capitalism on a global scale. An essential element of this historical articulation is a hierarchical international monetary system, in which the purchasing power of national currencies directly depends on the uneven development attained by countries. This currency hierarchy, which emerged as a historical product of colonialism and imperialism, is constantly reaffirmed by the operation of market forces. 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