Currency Acceptance, Currency Value, and Transcending Capitalism

While revisiting earlier discussions on Marx and Modern Monetary Theory (MMT), I came across an interesting comments thread. In it, a commenter raised an argument that seems worth addressing (the full comment can be found here). The commenter writes:

MMT treats money as a public utility, while Marxism treats it as an expression of value. And I think that no matter the engagement between these two schools of thought, one has to choose either one or another. Either money is an abstract public utility (grounded only in people’s accepting it, through the force of taxation or whatever), which can then be used quite unproblematically for public goods within any context whatsoever … or one realises that money is not an abstract public utility, but is concretely rooted in material processes, i.e. is a concrete expression of value. In which case the one can’t really treat it unproblematically as a public utility to be used by fiscal policy to achieve any ends under any circumstances.

Disregard the references to policy being viable “within any context whatsoever” and “under any circumstances”. MMT emphasizes that policy is constrained by the availability of real resources, as well as political factors. The focus, instead, can be on the substance of the comment, which concerns what I consider to be an insightful distinction between currency as public utility and currency as expression of value.

On this distinction, I think it can be argued that:

  • A currency’s role as public utility hinges on currency acceptance.
  • A currency expresses (Marxist) value in the sphere of commodity production so long as it represents an amount of socially necessary abstract labor.

If so, it is relevant to distinguish two questions: (i) what drives acceptance of the currency? and (ii) what determines the value of the currency?

Currency acceptance and currency value

Acceptance. Government has the authority to impose taxes (and other obligations) on members of the community and specify what will be accepted in payment. In principle, this authority is bestowed upon government by the community and, ideally, will be exercised in a democratically accountable way. Reality, of course, can diverge from the ideal. But, in any case, by nominating its own currency as what is acceptable in payment to it, government can ensure some level of demand for the currency. At least for the purposes of meeting these obligations, people will accept the currency in payment for goods and services. Experience also suggests that so long as taxes are effectively enforced, the community will be inclined to use the currency for other purposes as well, such as for transacting and saving.

Value. In Marx’s theory, ‘value’ (defined as socially necessary labor time) governs commodity production and exchange. A commodity, by definition, is a good or service produced for sale in a market. Not all goods and services are commodities. Public education, for instance, is a service but not a commodity. Modern economies employ a mixture of commodity and non-commodity production. For a currency to facilitate commodity exchange, it must express value. So long as a unit of the currency can be said to be the equivalent of an amount of labor time, the currency will in fact express value in the Marxist sense. As observed in the previous post, currency value can be conceived in two closely related ways, either as the amount of labor a unit of the currency commands or as the amount of labor needed to reproduce a currency-unit’s worth of the commodity labor power; in short, on the basis of either a labor command theory or a commodity theory. A currency-issuing government, through its price-setting capacities, is in a position to exert strong influence over the currency’s value, under either definition.

Acceptance in relation to value. On the basis of the above, currency acceptance, driven by taxes, ensures that a unit of the currency will command at least some real resources, including labor services. This implies, if commodity production is permitted, that the currency will have at least some value in the Marxist sense. But the level of this value will depend on either the difficulty in obtaining a unit of the currency (labor command theory) or the difficulty in reproducing a currency-unit’s worth of labor power (commodity theory). Taking these considerations together, it could be said – somewhat analogously to a commodity – that the currency must first have use value if it is to express value. The currency’s use value, peculiar to it alone, is that it can be used to pay taxes and other obligations denominated in it. Since it has use value, it can also express value, and so represent an amount of labor. (I have seen this same analogy drawn by Hedlund in previous internet discussions but am unable to locate a link.)

The primacy of currency acceptance

The government’s capacity to ensure acceptance of its currency, at least sufficient to transfer available goods and services to the public sector in accordance with its socioeconomic program, will apply irrespective of the particular economic system that is in place. The government’s authority to tax and issue the currency places it in a position to set and enforce the rules of the game. At the level of theory, these rules might or might not permit a role for commodity production, embedded within the economy’s institutional and regulatory structure.

Under present practice, of course, considerable scope is granted for commodity production and exchange. Taxation induces a supply of goods and services for sale in the government’s money of account. In this way, markets are created for commodities exchangeable in the government’s currency (as distinct from some other currency).

These markets depend on government for their existence, and market tendencies can be overruled at the government’s discretion. If a particular good or service would be of social benefit but an adequate market supply fails to eventuate, its production and provision can still take place outside the sphere of commodities (such as occurs with public health care, the public court system, public roads, and so on).

In the sphere of commodities, to which value considerations pertain, production is subject to the ‘law of value’ (the profit motive). To the extent that economic decision-making is delegated to for-profit enterprise, society subjects itself to the law of value. But it is always within society’s power to reassert its authority over production and distribution; in other words, to override the law of value, or even to do away with it completely.

Viability of a monetary economy

Distinguishing currency acceptance from currency value therefore carries a social significance. So long as a sovereign government’s currency is accepted, neither the currency nor society is ultimately beholden to the law of value.

Since a currency can be made viable irrespective of the dominant mode of production, a currency-issuing government can override the law of value whenever this is the political will. This opens the way for an extension of not-for-profit activity and, if desired, a transcending of capitalism.

To reiterate what was stated earlier, however, this does not mean that policy is feasible “within any context whatsoever” or “under any circumstances”. For instance, it might be that certain policy options negatively affect the profitability of capitalist firms. In that case, certain policy options might not be compatible with a preservation of capitalism.

This only means that society, in such instances, will face a choice between reinforcing capitalist social relations or transitioning to socialism. Ultimately, the viability of the capitalist class is contingent on the actions of currency-issuing governments, not the other way round.


4 thoughts on “Currency Acceptance, Currency Value, and Transcending Capitalism

  1. MMT, money, value, and transcendental Capitalism
    Comment on Peter Cooper on ‘Currency Acceptance, Currency Value, and Transcending Capitalism’

    Peter Cooper argues: “A currency’s role as public utility hinges on currency acceptance. A currency expresses (marxist) value in the sphere of commodity production so long as it represents an amount of socially necessary abstract labor. If so, it is relevant to distinguish two questions: (i) what drives acceptance of the currency? and (ii) what determines the value of the currency?”

    Peter Cooper answers the question of acceptance: “Government has the authority to impose taxes (and other obligations) on members of the community and specify what will be accepted in payment. In principle, this authority is bestowed upon government by the community and, ideally, will be exercised in a democratically accountable way.”

    This is not correct. Imagine an elementary production-consumption economy consisting of the household sector and the business sector.#1, #2, #3 The business sector pays the wage income Yw with own IOUs and the households, in turn, fully spend the IOUs for buying the consumption good output from the business sector, i.e. C=Yw. The workers will accept the business sector’s IOU’s as payment if they can be reasonably sure that the creation/destruction of IOUs is fraud-safe. This can best be achieved if the business sector’s IOUs are replaced by the central bank’s generalized IOUs, i.e. by fiat money. The acceptance of fiat money does NOT depend on the taxing power of the State but on institutional safeguards.

    Peter Cooper answers the question of value: “In Marx’s theory, ‘value’ (defined as socially necessary labor time) governs commodity production and exchange.”

    This is not correct because Marx’s Theory of Value is provably false. Marx got profit, exploitation and classes wrong.#4 To this day, Marx and Marxians lack the concept of cross-over exploitation.#5

    From the true macrofoundations follows the macroeconomic Law of Supply and Demand as shown on Wikimedia.#6 It says:

    (i) An increase of the expenditure ratio rhoE≡C/Yw leads to a higher market clearing price (the Greek letter rho stands for ratio). An expenditure ratio rhoE greater than 1 indicates deficit-spending/dissaving/credit-expansion, a ratio rhoE less than 1 indicates saving/credit-contraction.

    (ii) An expenditure ratio greater 1 makes that macroeconomic profit, i.e. Q≡C−Yw or Q≡(rhoE−1)Yw, is greater zero.

    (iii) Deficit spending, i.e. the move from rhoE=1 to rhoE greater than 1 causes a one-off price hike but NOT inflation.

    From the macroeconomic Law of Supply and Demand follows the purchasing power of the wage a.k.a. the value of money as W/P=R in the elementary case of budget balancing, i.e. of C=Yw or rhoE=1. In other words, the Labour Theory of Value is false since the founding fathers. Value does NOT depend on socially necessary labor time.#7

    When the government sector is added the macroeconomic Profit Law reads Q=(G−T)−S or Public Deficit (G−T) = Private Profit Q if S is taken out of the picture for a moment.

    So, profit in transcendental Capitalism does NOT depend on the exploitation of the workers but on the deficit spending of the government sector and the household sector. Roughly speaking, transcendental Capitalism is State sponsored.#8 The accumulated sponsoring is measured by the public debt which stands currently at $22 trillion. The so-called free market economy is already for a long time on full life-support of the State.#9

    Egmont Kakarot-Handtke


  2. Hi Peter,

    The case for 100% land value tax and basic income:

    Labour should embrace a land value tax and basic income.

    What is your view on land value taxation to anchor the currency?

    A land/location value tax (LVT), also called a site valuation tax, split rate tax, or site-value rating, is an ad valorem levy on the unimproved value of land. Unlike property taxes, it disregards the value of buildings, personal property and other improvements to real estate, only “location, location, location” value remaining. A land value tax is a progressive tax, in that the tax burden falls on titleholders in proportion to the value of locations, the ownership of which is highly correlated with overall wealth and income.

    Bearing this in mind, can it really be right that land owners (from the largest to the smallest, and including indirect landowners, i.e. the banks who collect land rents via mortgage lending) are allowed to enjoy or collect all this rental value for little or no payment, even though it is clearly the whole of society which creates rental values – whether directly or indirectly, whether through their own presence, the work they do or the taxes they have deducted from their earnings?

    A tax on land values is merely a user charge and largely voluntary – if you want to live in a nice house, you pay more, and in return for that payment you get a direct tangible benefit in return, which you would have to pay for anyway, with or without LVT.

    So if it is acceptable for private landowners to collect land rents, it is more than acceptable for “society as a whole” to collect those rents. The current tax system just boils down to welfare for the wealthy, paid for by taxes on the middle (who also have to pay for welfare for those at the bottom).

    The owner of a vacant lot in a thriving city must still pay a tax and would rationally perceive the property as a financial liability, encouraging him/her to put the land to use in order to cover the tax. LVT removes financial incentives to hold unused land solely for price appreciation, making more land available for productive uses. Land value tax creates an incentive to convert these sites to more intensive private uses or into public purposes.

    The selling price of a good that is fixed in supply, such as land, decreases if it is taxed. By contrast, the price of manufactured goods can rise in response to increased taxes, because the higher price reduces the number of units that are made. The price increase is how the maker passes along some part of the tax to consumers. Land tax incidence rests completely upon landlords, although business sectors that provide services to landlords are indirectly impacted

    Assuming constant demand, an increase in constructed space decreases the cost of improvements to land such as houses. Shifting property taxes from improvements to land encourages development. Such infill of underutilized urban space also combats sprawl.

    LVT is less vulnerable to tax evasion, since land cannot be concealed or moved overseas and titles are easily identified, as they are registered with the public.

  3. I think LVT would play a useful part in the overall tax mix. I wouldn’t want it to be the only (or only major) tax. Certainly it would play a role in driving the currency and also has other nice properties, especially IMO in terms of equity.

  4. Thank you for your excellent heteconomist blog … very helpful.

    In light of the election results, please outline a simple narrative, within a sectoral balance narrative, showing how a progressive government could manage economic growth to achieve a fairer society with a sustainable future.

    Thanks for your help.

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