The Key to Value: The Debate over Commensurability in Neoclassical and Credit Approaches to Money — Christine Desan

Neoclassical and credit approaches to money represent dramatically different theories of value. For many within the neoclassical tradition, the market exists as a conceptual enterprise – a place where independent agents compare and rank real goods, exchanging them afterwards to in accord with their preferences. That theory reflects a particular approach to value, identifying it as a pre-existing quality ranked by individual choice. The theory also generates a particular approach to money, assuming that a term of measurement naturally imports commensurability into evaluation.

By contrast, public credit approaches suggest that creating commensurability in a world heterogeneous in so many aspects is a profound challenge. Modern political communities have responded by substantiating value in a unit that is cognizable to all: they issue credit tokens that can be set off against widely shared public obligations. That means, first, that value cognizable in money follows rather than pre-exists market activity: it is produced as individuals use credit money as a medium. Second, because value is produced as people use money, the character of that money matters: its nature as credit carries with it an allocative bias. Both governments and private lenders (banks) advance credit in order to spend selectively: they create a credit medium by providing credit to some people relative to others. According to the way money is created, definitionally we might say, individuals will not be equally situated in the process that generates prices. Decisions about value are made in the wake of that fact. The essay closes by contrasting the democratic visions at stake in neoclassical and public credit approaches to value. That exercises suggests that, if the public credit approach better describes money and market, their potential can only be realized by promoting rather than assuming equality.

Value theory is one of the foundational aspects of philosophy and social science, including economics. While economics is concerned with economic value, value is relation between subjective and objective factors that are not limited to the field of economics, and economic agents are also social and political agents.

Neoclassical theory assumes homogenous agency to be the natural state. Homo economicus is atom-like. All agents in this view are essentially fungible in representative agency.

Contrastingly, credit is discriminatory based on institutional criteria. In this institutional view, agents are heterogenous, and unequal access pertains, resulting in asymmetries that lead to arbitrary distributive inequality – instead of "just deserts" based on productive contribution in marginalism.

Since governments are necessarily deeply involved institutionally, e.g., legally, the resulting asymmetries are institutionally generated based on policy choices.

The insight of MMT via Warren Mosler is that currency-issuing governments have a monopoly on their currency and as such, they are price setters rather than price takers. Monetary policy is government policy and the overnight rate is the policy rate generally set by the central bank in the existing monetary system. The policy rate is the benchmark rate for the price of money, and monetary value is a reaction to the policy rate. For example, the value of assets is dependent on changes in the policy rate, and expectations thereof.

Furthermore, neoclassical theory assumes a fixed stock of loanable funds that influences money demand. There is no such fixed stock in a credit theory where loans create deposits and the government faces no limit on its ability to create currency, inject it and withdraw it.

MMT economists have explored the details of this in depth, based on institutional arrangements, and Eric Tymoigne has made a draft version of his money & banking text based on MMT analysis available here.

Just Money
The Key to Value: The Debate over Commensurability in Neoclassical and Credit Approaches to Money
Christine Desan