Saturday, June 6, 2015

Lord Keynes — Fiat Money Destroys the Labour Theory of Value

Simple reflection on how Marx understood the nature of money as embedded in his labour theory of value in Part 1 of volume 1 of Capital leads to this conclusion. 
Marx’s whole explanation of the emergence of money in Chapter 2 of Capital assumes that money must be a commodity. For Marx, as commodity exchange becomes developed and people produce things specifically for exchange, socially necessary labour time comes to determine exchange values (Marx 1990: 183–184), and the real value of commodity money arises not in the process of exchange but in the human labour expended in producing it (Marx 1990: 184–185). 
In Chapter 3 of Capital Marx argues that money can only be a commodity that is the product of labour with an abstract socially necessary labour value so that it can be equated with labour values of other commodities in exchange:
Social Democracy For The 21St Century: A Post Keynesian Perspective
Fiat Money Destroys the Labour Theory of Value
Lord Keynes


Magpie said...

Does it really destroy the Labour Theory of Value?

I can't say: I'm just a boorish proletarian.

Maybe "Lord Keynes" (or our Lord's Second Coming, at any event) should ask someone better qualified. How about Bill Mitchell?

Or maybe Randall Wray?

Or perhaps Peter Cooper?


Of course, he can always ask for CardiffKook's opinion

Or maybe the Wikipedia's editor's opinion


What do you think, Tom?

NeilW said...

Marxist types dogmatic love of the Labour Theory of Value is as dangerously misguided as the right's love of Free Market Dogma.

Picking words out of the middle of people's sentences and curve fitting to a pre-held belief does nothing to advance welfare at all.

Seriously get a grip here. It's an obsolete Victorian philosophy, much as a lot of Keynes work is obsolete 1920s philosophy.

This need for Group Identity above everything gets in the way of working out what fixes things in practice. That's why the left ends up completely Degenerate. They just can't let go of their Neat, Plausible and Wrong 'Big Ideas' and get down to the messy engineering of something real.

Magpie said...

Sure it is, Neil, if you say so. I'm just a boorish proletarian, you know better.

However, why don't you ask Bill Mitchell, Randall Wray or Peter Cooper?

Magpie said...

By the way, I'm still waiting for your answer, Tom.

Mind you, tomorrow is a public holiday in Ozland and by now I'm already drunk, like all good boorish proletarians.

PS: Make it short. I'm drunk.

John said...

But doesn't Marx in Capital Volume 3 move away from commodity money and develop a credit based fiat money? Marx must have dealt with a LTV within his newly developed theory of credit money.

Whether the LTV is right or wrong is immaterial to the argument about fiat money disproving the LTV because Marx had developed a theory of such credit money!

Magpie said...

Frankly, John, I don't really care. This is class war. One side must and will win.

Pick your side.

One rule: No quarter will be asked... no quarter will be given.

John said...


I'm not defending the system. My class is losing and I'd like for it to be otherwise. But an analysis of where we go is important. Would a job guarantee be sufficient? How about a land value tax? How about the abolishing of banks and replaced by not for profit cooperative credit unions? The list is almost endless. Is Scandinavian-style social democracy the best than can be obtained? Or syndicalism? These are important questions and without a better understanding of economics, then it's pointless and probably dangerous. We need a plan and we need to be organised! As great as Occupy! was, it had some terrible flaws: it was incoherent and inarticulate in what it wanted, it wasn't well organised, it didn't have a plan. I think a happy medium of Occupy-style hippy politics with an organised leftwing populist party (Syriza, Die Linke, Podemos, etc) is something we should be looking at.

I was merely remarking that Marx had seemingly developed a far more sophisticated analysis than he has been given credit. If Marx's critics are going to dismiss his ideas, they should at least do it with facts, not with misunderstanding, just in the same way that MMTers and PKers in general don't take too kindly to the way Keynes and his followers ideas have been traduced. Anyway, it surely matters whether the LTV is right or wrong? Either way a different conception of the economy may necessarily follow.

It's curious, though, that Wray and Mitchell do not seemingly dismiss a LTV? If these two great economists think there's something to it, then I'm happy to listen. But just as curious is that they mention it only vaguely in passing? Do they fear for their careers or is it they can't see a way of developing it into a more coherent theory.

Magpie said...
This comment has been removed by the author.
Magpie said...

I'm fucking drunk.

This is the last comment (less the mistakes)

Ooh! No answer, Tom, hey?

Never mind, mah man. We knew we were alone, all along!


What about you, M'Lord? (Yes, you, the shitty copy of a failed original)

And you, TheIllusionist, CardiffKooK?

Matt Franko said...

Mag Ha! (We have to tie one on every now and then or we'd never get thru it!) (hope you are not hungover!)

Marx was writing under gold and was probably 100% correct for that eras arrangements when we put ourselves under the metals...

But I agree with Warren that these days out from under the metals "all prices are necessarily a function of what the govt pays for things or what they let their fiscal agents lend against things"

But "things" are made via labor so imo the "labor theory" Still somewhat applies but today it is not the metals people setting the price it is the govt.. Today govt/govt agents sets the price of labor or its derivatives... And I can't think of anything that is not a derivative of labor...

NeilW said...

"It's curious, though, that Wray and Mitchell do not seemingly dismiss a LTV? "

They don't dismiss it in the same way that they don't dismiss liquidity preference. There is elements of truth in it. The problem is when people take it to the nth degree and think that is all that matters - including cherry picking words out of the middle of sentences to justify a pre-conceived belief in an all conquering theory.

The desire to fit everything to labour output is the same as wanting to just pay people some money or wanting to jiggle interest rates around to make everything nice and fluffy. They fall into the Neat, Plausible and Wrong category of excessive simplification. The real world is more complicated than that and requires ugly engineering and political compromises. Sitting around endlessly discussing what the nature of 'value' is doesn't stop people on the streets drinking themselves to death.

What is the simplest thing that will work given where we are and the actual nature of the people currently in power - which largely means working out how you can get the almost-very-rich on side.

John said...


I think that's a sensible way of approaching economics: no one thing explains everything. Economists are in the wrong business if they want a theory of everything? Physicists are on their own wild goose chase with whatever theory of everything is currently fashionable, but that's a different matter.

It doesn't seem reasonable to suppose that labour is irrelevant to value. A theory of value isn't an absurd proposition (if so, Smith, Ricardo, Mill and Marx were all fools, and they were anything but fools), and given that it seems a plausible idea then it must surely include labour in some fashion. What that theory is, I have absolutely no idea but it's worth investigating as part of economic understanding, not as the theory of economics.

Tom Hickey said...

Being trained in philosophy rather than economics, I approach Marx from that angle. Marx himself was a philosopher and only entered economics as seriously as he did in order to express his philosophy.

Most people think of Marx as opposed to liberalism and for collectivism, which is antithetical to individual freedom. Nothing could be further from the truth. Marx was a dyed in the wool liberal who opposed what he saw as naive liberalism, which is really just a justification of bourgeois philosophy allowing the haute bourgeoisie ("capitalists,' now called oligarchs) to control the means of production.

Marx's whole program is about creating free individuals in a free society. He must be read that way, or he will be completely misunderstood. One can disagree with his analysis and proposals but that is what he was aiming for at a time that no one else was, really. Naive liberalism was about setting the bourgeoisies free from the remnants of feudalism pre-WWI, which actually accomplished that job much better than Marx could have dreamed. Subsequently, the feudal remnant was mostly replace by oligarchic "democracy" of republics after the fashion of Rome.

Marx was writing in the context of the 19th century European world in which he lived. That context no longer exists. Therefore the specifics of Marx are only of historical interest. But many of the insights he had into social, political and economic institutions are still valuable and remains applicable.

In light of changing events, I suggest that the "labor" theory of value be changed to the "human" theory of value. Marx was thinking of class structure that now longer exists in that form, but class structure remains as just a powerful force nevertheless. In addition, Marxism is based on the changing economic infrastructure rather than natural laws of economics. That holds as true now as it did then and it is a key insight that neoclassical economics specifically denies. That infrastructure has shifted in important ways since Marx was writing.

Everyone agrees with the human theory of value since it is self-evident that technology is not a product of nature unless one includes everything that occurs in nature as a product of nature, which is true in a sense. But the distinction between what would come about without human ingenuity and work still holds, and it is evident that economic value arises from making use of "nature" artificially rather than arising from nature. This is especially obvious since traditonal agriculture was replace largely by industry.

That much is obvious but it is also trivial. What economic significance can be derived from it. Here the distinction between natural laws of economics and social, political and economic institutions comes into play. Conventional economics holds to the former view as necessary to enable economics to be scientific in a way similar to physics. Heterodox economics denies that. Marx can claim to the the first heterodox economist of note. That would be a matter of historical interest only, if he did not make some losing contributions. It is now being argued what they are.


Tom Hickey said...


Some hold that Marx made no lasting contributions and was wrong, because he failed to see that economics is a natural science. Others hold that Marx did make positive contributions but they disagree over what they are. A subset of these holds that Marx was correct in his analysis and that his work can be used as it stands as a textbook, so to speak. These are the Marxists. Those who think Marx had some valuable things to say but that he is not entirely applicable now are Marxians if they find it useful to remains close to Marx. Others are influenced by Marx but would not self-identify as Marxians. I would put myself in the latter category since I have never studied the economic aspect of Marx closely but have been influenced by his dialectical philosophy.

My view is that knowledge is whole and that all aspects of knowledge are interdependent. Therefore, it is not possible to develop a holistic economics in isolation, e.g., as an academic discipline. In my view the disciplinary approach is fatally flawed. Interdisciplinary is better but still flawed. Transdisciplinary is better yet but still i complete. What is required is a metadisciplinary approach that is based on a systems approach in which everything is viewed as integrated and interdependent. Being a Hegelian, Marx was a systems thinker in the methodology of his day. Marx accepted Hegel's dialectical approach derived from the ancient Greeks, but with a view to "standing Hegel on his head" by making materialism foundational rather than idealism. Marx was not anti-Hegelian but rather an adapter of Hegel.

This is what Marx thought he was doing and it is what he said he was doing. He did not start out writing about economics as we conceive the terms and modern economics didn't appear, really, until the time of Alfred Marshall. There was not even a clear distinction between science and philosophy then. Science was "natural philosophy." This is the context in which Marx was operating and I think it is actually closer to correct than the present context in which sharp divisions that divide reality where there are no natural division have been artificially erected to conform to the prevailing worldview.


John said...

Marx, the last liberal, perhaps the only true liberal, or at least honest and serious liberal.

One of the reasons Marx sound so strange to many people today is that he was is so vehemently humanistic, liberal and an uncompromising torchbearer of human freedom. We don't like the mirror he thrusts in our faces!

I suspect the reason economists don't like him is that his economics, as you say Tom, comes out of a philosophical way of viewing the world. It's an intellectually deep and sophisticated way of thinking that incorporates history, sociology and politics, and modern economists don't like that sort of thing.

When that doesn't work, and people get attracted to his thought, the Leninist menace and capitalist class distort his writings to make him out to be the founder of North Korea, the mastermind behind the Cultural Revolution and the architect of the gulags.

I remember reading somewhere the ultra conservative economic historian Mark Blaug saying "It is a dull mind that fails to be inspired by Marx's heroic attempt to project a systematic general account of the 'laws of motion' of capitalism." A "dull mind" indeed! Now, that's how we should remember Marx, but his thought so dangerously perceptive that it has to be kept from safely away or made to appear a blueprint for mass murder.

LK said...

The belief that Marx was a liberal is a very peculiar interpretation.

This is how Engels -- no doubt reflecting Marx's own views -- described the communist transitional dictatorship of the proletariat state:

"A revolution is certainly the most authoritarian thing there is; it is the act whereby one part of the population imposes its will upon the other part by means of rifles, bayonets and cannon — authoritarian means, if such there be at all; and if the victorious party does not want to have fought in vain, it must maintain this rule by means of the terror which its arms inspire in the reactionists. Would the Paris Commune have lasted a single day if it had not made use of this authority of the armed people against the bourgeois? Should we not, on the contrary, reproach it for not having used it freely enough?

Therefore, either one of two things: either the anti-authoritarians don’t know what they’re talking about, in which case they are creating nothing but confusion; or they do know, and in that case they are betraying the movement of the proletariat. In either case they serve the reaction.”

Friedrich Engels, “On Authority,” 1874
That is hardly a liberal vision of society in any sense I can see.

LK said...

"the Leninist menace and capitalist class distort his writings to make him out to be the founder of North Korea, the mastermind behind the Cultural Revolution and the architect of the gulags."

The Cultural Revolution may well have been far from Marx's thinking, but just reflect on that last quotation from Engels and it is quite absurd to deny that Marx's ideas have no relationship to Stalinism or the gulag. Obviously, he wasn't personally responsible; he does, however, bear an indirect moral responsibility through the power of his ideas: he was advocate of "dictatorship of the proletariat". Anyone who fails to see that practically all authoritarian regimes tend to be nightmares has serious thinking to do.

Tom Hickey said...

As I said, one can disagree with the means that Marx proposed but his aim is clear, the withering away of the state as separate from the people, which he believed to be the sine qua non of authoritarianism. Only then could there be government of the people, by the people and for the people rather than by the class that controlled the apparatus of the state.

Marx concluded from his analysis that this would require the abolition of private property since it is an ownership class that controls the state and furthermore that this could only be accomplished through the temporary transitional stage of the dictatorship of the proletariat.

Why I think that Marx is important in the development of liberalism is that he recognized that the homo economicus of naive liberalism was in reality a bourgeois construct that would result in the continuance of class control under the bourgeoisie as owners of the rising industrial means of productioin instead of the feudal landowners. This is pretty much borne out by economists operating in the classical liberal tradition, neoclassical economists and Austrian economists, who only disagree over details, and Austrian economists that embrace anarcho-capitalism are more straightforward about their attitude toward actual democracy.

Marx put forward a concept of homo socialis, which was in accord with classical Greek thought, e.g., man as zoon politikon, which most modern translators agree is best rendered as social animal rather than political animal. The ancient Greeks regarded human freedom as distinct from the natural freedom of animals as only achievable in a social structure under law, e.g., the Greek polis. Hegel adopted that view, and Marx followed him in it.

Therefore, for Hegel and Marx the issue becomes the ideal social environment for human freedom. Hegel had already established that it would be freedom not chiefly in the sense of freedom from constraint or freedom to choose as one wishes, which are incomplete forms of human freedom, but rather freedom for self-determination. For Hegel this was achieved in the Prussian state, which Marx, of course, rejected.

Then the question becomes what kind of political arrangement then. According to Marx's foundational assumption of both dialectical materialism in which society is built on and reflects its economic infrastructure, Marx's question then becomes what kind of economic infrastructure will support social freedom rather than the atomic or elemental "freedom" of assuming individualism in spite of the evidence that it results in class structure and state capture.


Tom Hickey said...


It's also significant to note that Marx was an internationalist. In this sense, he differed from the Greeks, who saw freedom under law occurring through a specific structure, Greek polis, since they were surrounded by barbarians on one hand and the Persian empire on the other. But the Communist Manifesto begins with "Workers of the world unite...."

This would be an attempt to create a utopian "free world" just as the US empire is striving to do now by imposing liberalism authoritatively and at the point of a missile or drone instead of a gun or bayonet. Again, the idea is that when utopia is secured, then the weapons can be converted to plowshares. And in this question, the US is now creating the same totalitarian type of total surveillance state and monitoring of acceptable behavior conducive to achieving the utopian ideal.

Karl Kautsky spoke in Marx's defense against the charge that Marx proposed a transitional dictatorship, such as resulted in Russia under Stalin, China under Mao, and other Communist countries. Marx advocated for the "dictatorship" of a class, the proletariat, the most numerous class by far and away, and only as long as class distinction prevailed. So one can say that Marx's program was hijacked subsequently.

However, I don't greatly blame either Stalin or Mao for this, in that they were faced with the entire capitalism world arrayed against them and their only hope was to raise Russia and China from pre-industrial countries to world powers as soon as possible. They were remarkably successful that this, although at great cost. But that cost pales in comparison of the cost of the losses of Russia in WWII and of China in the Japanese Occupation. It's not accidental that the Russian people and China people still give Stalin and Mao high marks for leadership in a difficult time in spite of their quirks, like Stalin's penchant for murdering people. Do Americans fault founding fathers like Washington and Jefferson for being slave owners and breeders of slaves for sale, or consider the policy of terror that enabled slavery as an institution? And are Americans concerned with he progeny of indigenous people and slaves that managed to survive, or what happened to them?

But was this so bad when placed next to Native American genocide and African slavery? The US has many more people per capita incarcerated, many in solitary, than Stalin sent to the gulags. I don't think this is false equivalence by any means. Read Howard Zinn's The People's History of the United States, for example. As I see it, the problem was not with Marx and Engels, or Lenin and Stalin, or Mao and Deng, but rather with all exceptionalisms and utopianisms that presume the end justifies the means.

I think that Marx's view of liberalism as essentially social and therefore institutional and systems-based was much closer to the mark than liberalisms founded on ontological individualism, like classical liberalism and neoliberalism and whose economics is therefore based on methodological individualism, like neoclassical economics and Austrian economics. Of course, Marx is hardly the only approach to social liberalism in contrast to individualistic liberalism. This is a reason I keep emphasizing the need to explore the meaning of living a good life in a good society in the context of the present time. then the question becomes how to get from here to there.