An economy’s minimum wage equates a unit of the currency to an amount of labor time. For instance, in marxist terms, a minimum wage of $15/hour sets a dollar equal to 4 minutes of simple labor power. At a macro level, this enables currency value to be defined in terms of simple labor. There are, however, at least two ways in which this connection between currency value and labor could be drawn. One way would be to adopt a labor command theory of currency value. In effect, modern monetary theory (MMT) takes this approach. A second way would be to link the value of the currency to the commodity labor power. Adopting the second approach leads to a definition of currency value that is distinct from the MMT definition but closely (and simply) related to it. So far as policy implications go, especially in relation to MMT’s proposed job guarantee and prescriptions for price stability, there appear to be no important differences between the two approaches.Important now that we are getting into the nitty gritty stage of public debate on MMT.
To be clear, the purpose of the post is not to promote one approach over the other. So far as I can tell, on the question of currency value they are equally valid and fully compatible. The purpose is simply to consider, for readers who might be more inclined toward a commodity theory of money, how some form of commodity theory (though not a metalist one) might be reconcilable with MMT’s depiction of institutional realities and the opportunities open to monetarily sovereign societies, this understanding seeming, to me at least, both unassailable and fundamental to any worthwhile macroeconomics....
Peter Cooper is the preeminent authority on the relationship of Marx and MMT, and MMT JG opts for a labor theory of value by anchoring the value of the currency to an hour of unskilled labor. Peter explains this in terms of Marx's analysis. There is no comparable analysis in economics. Marx dug deep while marginalism — "vulgar economics" is Marx's terminology — takes only the surface into account.
heteconomist
Currency Value in Terms of Socially Necessary Labor
Peter Cooper
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It is why class (in Marx’s terms) has to be at the forefront of the analysis. Nothing in MMT denies that status!
Another way of thinking about this is that Marx lifted the veil of free market ideology to expose what is actually going on in the capital-labour exchange.
We should always being aware that these veils are often used to disguise power relations or other things that the elites do not want to be made transparent....Bill Mitchell – billy blog
Marxists getting all tied up on MMT
Bill Mitchell | Professor in Economics and Director of the Centre of Full Employment and Equity (CofFEE), at University of Newcastle, NSW, Australia
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Economics ― nothing but claptrap, twaddle, drivel, slip-slop, wish-wash, waffle, and proto-scientific garbage
Comment on Peter Cooper on ‘Currency Value in Terms of Socially Necessary Labor’
There is NOT ONE concept in economics that is clearly defined and consistently adhered to.#1 Because of this, every economic debate ends with karmic necessity in the swamp of cross-talk and interpretation and second-guessing of “what Keynes [or anybody else, for that matter] REALLY meant.”#2 One of the worst examples is the double-whopper Value of Money. In 200+ years economists have not made up their minds about what value and money is.
Peter Cooper, according to the preeminent philosopher Tom Hickey “the preeminent authority on the relationship of Marx and MMT”, has no scruples to again display his lamentable incompetence: “An economy’s minimum wage equates a unit of the currency to an amount of labor time. For instance, in marxist terms, a minimum wage of $15/hour sets a dollar equal to 4 minutes of simple labor power. At a macro level, this enables currency value to be defined in terms of simple labor. There are, however, at least two ways in which this connection between currency value and labor could be drawn. One way would be to adopt a labor command theory of currency value. In effect, modern monetary theory (MMT) takes this approach. A second way would be to link the value of the currency to the commodity labor power. Adopting the second approach leads to a definition of currency value that is distinct from the MMT definition but closely (and simply) related to it.”
Let us forget the blather and settle the matter here and now ― once and for all.
The elementary production-consumption economy is defined with this set of macroeconomic axioms: (A0) The economy consists of the household and the business sector which, in turn, consists initially of one giant fully integrated firm. (A1) Yw=WL wage income Yw is equal to wage rate W times working hours. L, (A2) O=RL output O is equal to productivity R times working hours L, (A3) C=PX consumption expenditure C is equal to price P times quantity bought/sold X.
Under the conditions of market clearing X=O and budget balancing C=Yw in each period, the price as the dependent variable is given by P=W/R (1a). The price is determined by the wage rate W, which takes the role of the nominal numéraire, and the productivity R. The elementary production-consumption economy is shown on Wikimedia.#3
What is needed for a start are two things (i) a central bank which creates money on its balance sheet in the form of deposits, and (ii), a legal system which declares the central bank’s deposits as legal tender.
Deposit money is needed by the business sector to pay the workers who receive the wage income Yw per period. The need is only temporary because the business sector gets the money back if the workers fully spend their income, i.e. if C=Yw. Overdrafts are needed by the household sector for consumption expenditures if the households want to spend before they get their income.
For the case of a balanced budget C=Yw, the idealized transaction pattern of deposits/overdrafts of the household sector at the Central Bank over the course of one period is shown on Wikimedia.#4
The household sector’s deposits/overdrafts are ZERO at the beginning and end of the period. Money is continually created and destroyed during the period under consideration. There is NO such thing as a fixed quantity of money. The central bank plays an accommodative role and supports the autonomous market transactions between the household and the business sector. From this follows the average amount of transaction money (commonly referred to as stock) as M=kYw, with k determined by the transaction pattern. If employment L is doubled, the average amount of transaction money M doubles. In a well-designed fiat money economy, growth is not hampered by a lack of the transaction medium. Money is endogenous and neutral.
See part 2
Part 2
The macroeconomic Law of Supply and Demand (1a) implies W/P=R (1b), i.e. the real wage is always equal to the productivity no matter how the wage rate W is set. In other words, the real value of money is in the elementary production-consumption economy equal to the productivity and has NOTHING to do with “socially necessary labor”.
Ramifications: (i) The State is needed for the institutional setup of the monetary order, (ii) the State is NOT needed for injecting money into the economy, (iii) what is needed is an accommodative Central Bank, (iv) neither the State nor the Central Bank interferes with the autonomous transactions of the household and business sector, (v) money is a generalized IOU, (vi) money is created and destroyed by the transactions between the household and the business sector, (vii) the value of money is given by W/P=R (1b), i.e. is equal to the productivity, (viii) the value of money does NOT depend on the (average) amount of money M, (ix) the functionality of monetary institutions and the value of money does NOT depend on the taxing power of the State.
Bottom line, both Marx and MMT got the Value of Money wrong. Unfortunately, “the preeminent authority on the relationship of Marx and MMT” and the rest of the MMT crowd#5 lack the brain-power to grasp it. Fortunately, there is enough blather-power available to pollute the econoblogosphere.
Egmont Kakarot-Handtke
#1 Mad but true: 200+ years after Adam Smith economists still have no idea what profit is
https://axecorg.blogspot.com/2019/05/mad-but-true-200-years-after-adam-smith.html
#2 Marshall and the Cambridge School of plain economic gibberish
https://axecorg.blogspot.com/2016/09/marshall-and-cambridge-school-of-plain.html
#3 Wikimedia, Elementary production-consumption economy
https://commons.wikimedia.org/wiki/File:AXEC31.png
#4 Wikimedia, Idealized transaction pattern
https://commons.wikimedia.org/wiki/File:AXEC98.png
#5 Refuting MMT’s new Macroeconomics Textbook
https://axecorg.blogspot.com/2019/03/refuting-mmts-new-macroeconomics.html
"MMT JG opts for a labor theory of value by anchoring the value of the currency to an hour of unskilled labor"
I don't think that Warren Mosler or many MMT creators would put things like this (although maybe Bill Mitchell would).
MMT JG is not "opting" for a labor theory of value. It is "opting" for full employment and price stability.
As Mosler puts it, it is the government that defines the price of everything it buys, including labor, papers, bridges, etc, and the private sector is indirectly affected by that. If the government decides to double the wages of every public servant, then probably wages will double in most of the private sector too. So, as you can see, currency value is not directly related to the "social value" (whatever that means) of labor...
André: I don't think that Warren Mosler or many MMT creators would put things like this (although maybe Bill Mitchell would).
No, it's actually the other way around. Bill Mitchell explicitly disclaims the labor theory of value. While Wray more or less supports it, following the American Institutionalist tradition, Marx & Keynes (along with a liquidity preference theory). He has some paper that I should study more concerning Keynes, LP and LTV. Don't know about Mosler, I think that paper ties in with what you cite from him. But I think that the Kansas City school is mostly actually spiritually closer to Marx than the Australian. Philosophical versus empirical.
So I would say that the JG is "opting for a labor theory of value" in the philosophical, biological sense of things becoming what they always were. The LTV was always there, a JG will just make it explicit. Y'know, the flower refuting the bud, the essence which must appear (Hegel).
JG would be an infinite demand for unskilled job at a given wage. It would clear the unskilled job market. That's it.
Value would still be determined by supply and demand and all other complex factors we are aware of (power relations, transaction costs, information asymmetry, strategic behavior, imperfect markets, institutional arrangements, culture, and many many others).
What most MMTers recongize is that the government, with its currency issuance monopoly, is a big (the biggest?) player in the market, and hence the most important in many aspects.
I don't think that this interpretation means that they agree with the labor theory of value...
Interesting discussion, Calcagus and Andre. Thanks.
There are of course a lot of factors affecting prices, but labor considerations underlie most, IMO.
Detroit Dan
You say: “Interesting discussion, Calcagus and Andre. Thanks.”
Not so. The value of money is given by W/P=R as derived above for the most elementary case. The rest is uninteresting troll-talk, claptrap, twaddle, drivel, slip-slop, wish-wash, waffle, and proto-scientific garbage.
Both MMT and Marxianism are refuted on all counts.#1
Egmont Kakarot-Handtke
#1 For the detailed refutation of specific points go to the AXEC blog and search for ‘Peter Cooper’ (the preeminent authority on the relationship of Marx and MMT according to the preeminent philosopher Tom Hickey)
https://axecorg.blogspot.com/
Detroit Dan: There are of course a lot of factors affecting prices, but labor considerations underlie most, IMO.
Yup. Basically, I think everyone agrees with the labor theory of value. (Due originally to Sir William Petty or maybe some ancient Chinese.) I think empirical work shows that prices are explained by labor with correlation of 95% or something. Joan Robinson said something like- what other choice is there? The problem is formulating the labor theory of value, just right. :-)
André:JG would be an infinite demand for unskilled job at a given wage. It would clear the unskilled job market. That's it.
It would do a lot, lot more. It would change everything else, above all, power relations. It would make the LTV truer - but it already is. Capitalism with no reserve army of the unemployed? - well - Toto, I've a feeling we're not in Capitalism anymore.
the government, with its currency issuance monopoly, is a big (the biggest?) player in the market,
It is almost always the biggest - and more. Being "the biggest" that way means it creates the market. The market is a side effect of the government intervention; it is embedded (Polanyi) in a pre-existing society and logically cannot exist without the society/state.
That's the problem with the Austrian/Mainstream view and even many kinds of Marxism that follow what is now blatantly obvious was his mistakes (gold buggery). The deep virtue of MMT is it shows that these views are not merely empirically, but logically impossible. They cannot be held in a coherent and intelligible fashion.
On the MMTers, I'm just saying that if you look at what they've written, you can find Mitchell deprecating the LTV and Wray praising and exploring it (as Robinson did).
Calgacus: "It would make the LTV truer". What does this even means? It is already true and would get even more "truthfull" if JG was implemented?
Mosler says that the government, as a price setter, set the prices of the things it buys and, hence, sets most of the prices of the economy. I believe that most MMTers follow his view, but I may be wrong.
The government doesn't buy labor only. It buys bridges and bombs, food and clothing. The food producers then set the prices of their inputs: land, labor, raw materials, etc.
Labor is just one of the aspects of value... And I don't think that LTV is useful, nor accepted by many... probably most MMTers don't acknowledge it...
Calgacus
You say: “Basically, I think everyone agrees with the labor theory of value. … I think empirical work shows that prices are explained by labor with correlation of 95% or something. Joan Robinson said something like- what other choice is there? The problem is formulating the labor theory of value, just right.”
Indeed, that’s the problem of any theory.
The elementary production-consumption economy is for a start defined by three macro axioms (Yw=WL, O=RL, C=PX) and two conditions (X=O, C=Yw). This yields the macroeconomic Law of Supply and Demand as P=W/R.
Now imagine two countries which are equal in all respects except for productivity R. Clearly, the market clearing price P is lower in the country with higher productivity. So, the purchasing power of the wage a.k.a. the value of money is higher, it holds W/P=R.
Note that in both countries the labor input L is exactly the same. But this does not matter because the value of money does not depend on “Socially Necessary Labor” or other figments of the poor imagination of socially unnecessary economists.
Egmont Kakarot-Handtke
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