So far, the intention has been to give a sense of the relevance and accessibility of Marx’s macroeconomic ideas. Rather than jump straight into his theory, with what might appear to be strangely named variables and foreign concepts, it seemed desirable to spell out simple connections between Marx’s categories and those of non-Marxist economics. Doing so meant glossing over some of the finer points of Marx’s definitions and categories. The first task of this post is to address a few of these. Attention then turns to distinguishing value from price and introducing Marx’s three aggregate equalities. The implications of Marx’s equalities are powerful, but their validity depends on how his theory is interpreted. The final section of the post will highlight the major points of contention. This will provide context for two upcoming posts, which consider the temporal-single system interpretation (TSSI) and a possible rationale for its adoption in this series.
The first post in this series distinguished between three types of macro measures: ‘monetary’, ‘real use-value’ and ‘real labor-time’ magnitudes. Under simplifying assumptions, the post spelled out basic connections between these different kinds of variables. The same assumptions are retained in this post to highlight a connection between the aggregate markup (Kalecki), the rate of surplus value (Marx), value of the currency (MMT) and the monetary expression of labor time (MELT).
I am interested in exploring what seems to be a basic compatibility between MMT (Modern Monetary Theory) and Marx. Compatibility of two theories, of course, does not require agreement, and there is no suggestion that either MMT proponents or Marxists will find a synthesis between the two approaches fruitful. Compatibility simply means that the two approaches are mutually consistent and that, if desired, the insights of both could be integrated into a unified understanding of the capitalist economy. At the same time, there is no claim that the idea of a connection is new. I have linked in the past to work by MMTers Randall Wray and Mathew Forstater concerned with various aspects of Marx’s theory, and Bill Mitchell has often noted in posts at billy blog an influence on his work of Marx. Suffice to say that, personally, I think a synthesis could prove worthwhile. Some MMTers may agree, some not, and likewise for Marxists.
Tom O’Brien conducted an excellent interview with Mathew Forstater in November 2012 on the topic of Marx and Modern Monetary Theory (MMT). The first half of the interview focuses on Marx, particularly in relation to primitive accumulation and fiat currency as one mechanism used to drive the process. There is a clear connection with MMT on this point. There is also a connection, as Forstater explains, in conceptualizing value of the currency in terms of socially necessary labor time. (Further discussion on this latter connection can be found in a couple of previous posts, here and here.)
One way to conceive of money is as an IOU (“I owe you”) that is deemed acceptable by somebody other than its issuer. Anyone can attempt to issue an IOU. The difficulty, as the economist Hyman Minsky emphasized, is in getting it accepted.
A monetary economy needs spending for production and employment to occur. This is a truism. Spending equals income, by definition. One person’s purchase of a good or service is another person’s income. But it is also clear that causation, ultimately, runs from spending to income. More specifically, the creation of income requires a prior decision to spend. In a monetary economy, to paraphrase Michal Kalecki, each of us in isolation can decide how much to spend but we cannot choose the size of our income. Our personal income will depend not on our own spending but on the spending decisions of others acting somewhat independently of ourselves. Total income, of course, will depend on spending in aggregate – our own spending and the spending of others.
Warren Mosler (for example, here) has explained very clearly and succinctly the key steps involved in effectively introducing a currency such as the drachma. (See, also, Bill Mitchell’s recent post, ‘A Greek exit is not rocket science‘.) Fears of exchange-rate catastrophe would be unfounded if these steps were followed.
In a previous post, it was explained that enforcement of taxes (or some other financial obligation to the state) is fundamental to the viability of a national currency. Without such an obligation, widespread acceptance of the currency would not be assured. The currency might cease to serve as an effective mechanism for public provision of adequate infrastructure, education, health care, social security and much more.
It seems to me that those, including New Keynesians, who support the maintenance of a “balanced budget over the cycle” are either not recognizing or rejecting a number of points made by heterodox Keynesian (or Kaleckian) critics of such a policy approach, including proponents of Modern Monetary Theory (MMT) as well as many other Post Keynesian and Sraffian economists.
A modern money system, as that term is applied in Modern Monetary Theory, typically has three key features. Two of these features are always present. The third is optional but normally should be in place for the full benefits of modern money to be enjoyed:
1. The currency is a public monopoly. Government issues the currency and is the only entity allowed to do so.
2. The currency is nonconvertible. It is a fiat currency. The government does not promise to convert its currency into a precious metal or some other commodity at a set price.
3. The exchange rate is allowed to float. The government does not promise to maintain a fixed exchange rate with any foreign currency. Instead, the exchange rate is ‘flexible’ or ‘floating’. As already mentioned, this feature is usually operative, but not always.
Taking these three features together, we can say that modern money normally involves a ‘flexible-exchange-rate nonconvertible currency’, or ‘flex-rate currency’ for short.