Internet Marxists Who Are More Austrian than Neoclassical

In the previous post, we encountered the views of a small subset of Internet Marxists who appear to adhere to a rather hard-line, Chicago-like neoclassical understanding of the capacities of the state. There is another small subset, the Austrian Metalist Internet Marxists (or Austrian Marxists, for short), who appear to believe that a state currency not “backed” by gold must surely have zero value or, at the very least, command a level of acceptance likely to crumble at any moment. In reality, the choice between a gold standard and fiat money changes little of significance when it comes to the value of the currency or its acceptance, although it does of course affect the policy space a state leaves open to itself for as long as the currency arrangement remains in place.

Whether a state decides to make its currency convertible into a commodity at a fixed rate or instead issues it by fiat, it is always the state that dictates the terms on which its currency is to be issued. Under a gold standard, the state decides how much gold will be represented by a unit of its currency. It can also alter that conversion rate. This imposition is by fiat just as much as fiat money is by fiat, so in a sense the distinction between “commodity-backed” and fiat money could be considered a misnomer.

Acceptance of a state currency – whether linked to gold or not – is ensured by the state enforcing a tax obligation. The need to pay taxes in the state’s unit of account guarantees this acceptance, at least to the extent necessary to enable the state to perform its various functions. The tax obligation should certainly be in sensible proportion to state spending. Too much spending relative to tax revenue will be inflationary. (There is an inflation risk in all spending, private or public, if it causes overall spending to outstrip the capacity of the economy to respond with an expansion of output at more or less stable prices.) But, generally, for the global economy taken in aggregate, it will make sense for governments as a whole (though not necessarily every single one simultaneously) to spend somewhat more than they tax because of the private-sector tendency, also in aggregate, to desire a financial surplus.

Under a gold standard or a gold “backed” currency system, the state could dramatically reduce the amount of gold represented in a unit of its currency without undermining acceptance of it, provided it continued to enforce taxes.

The abandonment of the gold standard and the subsequent breakdown of Bretton Woods serve as illustrations of this point. With the end of Bretton Woods, the amount of gold promised in exchange for a unit of the state currency dropped to zero. Yet, there was no noticeable change in the capacity of the state to enforce acceptance of its currency. A reason for this is that the tax obligation remained in force.

It might be objected that the acceptance of fiat currency is only guaranteed by compulsion, whereas under a gold standard acceptance would be guaranteed without compulsion. But is this likely to be true? Where is the guarantee that the state will convert its currency into gold at the rate it promises independent of that state promise itself? It would be safer to opt for actual gold if it were really the case that only gold is “real money”.

The value of a state currency should really not be such a mystery, as Modern Monetary Theory (MMT) makes clear. Applying Marx’s basic argument, the value of a state currency can be considered the amount of socially necessary labor needed to obtain a unit of the currency or, equivalently, the amount of labor power commanded by it.

Just because the state can produce its currency without cost – surely a social advance over shipping quantities of gold around the place for no sensible purpose – this does not mean that a member of the population can “produce” a unit of currency for him or herself at zero cost, at least beyond some minimal level dictated by the specifics of state policy. What really matters, for currency value, is the average amount of labor required to obtain a unit of the currency, even though in some individual cases a dollar may be received with the sale of less labor power than the average amount.

Members of the private sector have to find a way to obtain the currency. For many, the method will involve selling labor power to a capitalist or capitalist government in exchange for a wage, or to depend upon somebody who does. For a few, the capitalists, the method will involve appropriating the surplus labor of others.

Whether the amount of socially necessary labor required to obtain a unit of the currency is influenced by the state through the implementation of a minimum wage and/or centralized wage determination procedures, collectively bargained, mediated through the vagaries of “the market” (a market, incidentally, that is shaped and kept operative by the state) or set equal to the labor time necessary to produce an amount of gold, it will make little difference. Irrespective, the state will set the terms on which its currency is issued and use the same basic mechanism to ensure its acceptance – taxation.

In this context, the minimum wage serves as a policy variable in relation to other wage rates in a similar way to how the short-term interest rate is a policy variable in relation to longer interest rates. Just as the monetary authorities could dictate longer rates, the state could dictate all wage rates. More often, the monetary authorities limit themselves to directly controlling the short-term rate and leave it for arbitrage to adjust longer rates. Similarly, the state often chooses simply to set the minimum wage and public-sector pay and conditions and leave it to competition, collective bargaining and so forth to influence other wages.

Value of the currency, as understood by MMT, is a distinct concept from the monetary expression of labor time, or MELT. In relation to state currency, however, the MMT conception of currency value does lend support to the notion of a positive MELT and the view that a unit of the currency will represent a positive amount of socially necessary labor. The reciprocal of the MELT can be regarded as the amount of labor commanded by a unit of the currency, where that labor is represented in commodities. (Money does not command an amount of labor directly, in Marx’s theory, because labor itself is not a commodity.) The value of the currency, in contrast, relates to the commodity labor power. It can be defined as the amount of labor power commanded by a unit of the currency. In short, a unit of the currency can command a worker’s capacity to labor for a certain amount of time (equal to currency value) and a certain amount of labor actually performed and represented in commodities (equal to the reciprocal of the MELT).

Unless surplus value is negative, in which case capitalists will hardly persist with commodity production for very long, a unit of the currency will command more labor power than labor. This is possible – indeed probable – because some labor is unpaid. Capitalists benefit from the performance of more labor than they pay for, with the difference amounting to surplus labor.

To illustrate, suppose all labor is simple and paid the same wage. Suppose also that the MELT is constant, which amounts to assuming for simplicity a constant price level and productivity. If workers are paid a wage of $10/hr (i.e. currency value = 1/10 hours/dollar) and an hour of socially necessary labor creates $20 of value (i.e. MELT = $20/hr), a dollar will command 1/10th of an hour of labor power but only 1/20th of an hour of labor represented in commodities.

Critically, even though labor power is distinct from labor performed, in aggregate the total amount of labor power purchased by capitalists will actually determine the total amount of average labor performed, which will be indicated by the aggregate level of employment L. The reason for this is that, according to Marx, an hour of average labor always creates the same amount of new value, irrespective of variations in productivity. Since a portion of this average labor is unpaid, the MELT exceeds the average wage rate (or reciprocal of the value of the currency) and the capitalists appropriate surplus value.

Under capitalism, a system in which capitalists will not continue to initiate productive activity in the persistent absence of positive profit, the value of the currency sets a floor under plausible values for the MELT, other than temporarily.

Under our simplifying assumption of a constant MELT, surplus value per hour for the economy as a whole is equal to the MELT m minus the wage rate w, or m – w. Equivalently, surplus value per hour equals m – 1/z, where z is the value of the currency. Since, under capitalism, currency value is positive (a unit of the currency commands a positive amount of labor power), and since the reciprocal of the value of the currency places a practical floor under the MELT, the MELT will not only always be positive but will normally be greater than the reciprocal of the value of the currency.

So long as the state can enforce taxes, it is in a position to guarantee, for capitalists, that a unit of the currency will command a positive amount of labor power. (This point is emphasized in the previous post.) If the capitalists’ ability to command a positive amount of labor power with a unit of the currency was ever remotely in question, the state could remove any doubt in the matter by imposing and enforcing an exogenous tax on members of the working class. As emphasized in the previous post, private property (enforced by the state) ensures that workers have little choice but to participate in the “voluntary” labor exchange. More specifically, taxes ensure that workers have no choice but to accept wages denominated in the state’s unit of account.

None of this is to deny that Marx often considered money in terms of gold. But perhaps that was mainly because there happened to be a gold standard in his day, and Marx was trying to understand the system as it actually existed at the time. The attempt to maintain a gold standard was really a failed attempt by the ruling class to turn money – a non-commodity and social relation – into a (fictitious) commodity. This foolish and socially destructive attempt to turn money into a commodity merely succeeded in making the monetary system as unstable as capitalist commodity production itself. In any case, if we consider Marx’s basic approach to the value of a currency, it depends on labor time in a way that in no way needs to be linked to gold.

Besides, isn’t it the great sin of commodity fetishism to be equating money – a social relation – to the money thing? In the case of gold, it is not even the money thing, but just any old thing.


21 thoughts on “Internet Marxists Who Are More Austrian than Neoclassical

  1. I got here through your comment on the real movement blog.

    In your first paragraph you claim that some universal money equivalent is not necessary and the fiat money backed by the government can easily substitute it. I’m not here to argue this silly point but to show that if you do think that Marx didn’t look at the gold as the base and universal money equivalent of our capitalist system that the fiat money and the credit system are just extensive constructs off of, you are in the wrong and haven’t read Marx’s argument properly. In fact, I still remember his argument about precisely this point where it is clearly stated. It is the second volume of capital, in the section on expanding reproduction.

  2. Point taken regarding Marx’s view on gold, Socialiast and Tom, and good post by LK. I’ll give it more thought, but I’m starting to think I might have to call an early end to the “great” Marx & MMT experiment. As it happens, I’ve been working through the three volumes of Capital again, hence the delay between parts. It has quickly become apparent that I should have done this before commencing the project. It’s been a while since my last serious read through and I was not cognizant of MMT at the time. As a result, I am noticing many things I hadn’t noticed last time round.

  3. Peterc,

    I, on the other hand, am starting to think that now is the time when it becomes more and more apparent that the system is bound by the value of gold and it just can’t escape it.
    But anyways, keep posting, blogs like this one are a pleasure to read!

  4. Well, although we have different viewpoints on that, I *hope* you are correct, and the system comes crashing down as a result.

    Thanks for the kind words. Certainly I will keep posting, but there may be a little bit of a delay as I tussle with what exactly to post. 🙂

  5. One thing I find odd is that, for most, the sticking point, if any, with Marx is his theory of value. To me, his theory has always made good sense since first encountering it. Yet, I find myself stuck on his metalist theory of money. (I’m not all that enthused by the productive/unproductive distinction either, at least as it is employed in Marx, which may say more about me than anything else.)

    I still think Marx’s theory of value – at least when interpreted in a single-system way, which I understand is controversial – can probably fit quite easily with MMT. But it can’t really be a *synthesis* of Marx and MMT when the theories of money are diametrically opposed.

  6. ”socially necessary labour ….”

    Janus was distinctly a Roman god, presiding over beginnings and transitions: – gates, doors, doorways, passages and endings; the beginning and ending of conflict, hence war and peace; birth, journeys and exchange travelling, trading and shipping – and was usually depicted as having two faces, since he looked to both the future and the past. If he was a wise god, he would have realised that he could live only in the Now, moment by moment, like the rest of creation!

    There is a little bit of Janus’s outlook in all of us and I think it is necessary to examine ‘socially necessary labour’ in two directions. Peter is incredibly perceptive (I think the best) in gazing from the standpoint of socially necessary labour into the vicissitudes and viscera of the political economic system, (even entrails precasting!) but what happens when we gaze in the other direction. I don’t have a theoretical view of the world, because I think it is down to human character: – (island story – but it is interesting to contemplate ‘socially necessary labour’.

    For me, ‘socially necessary labour’ is human energy – applied and directed; which involves a consciousness, a mind and a will.

    For a child, human energy is ‘play’ through which enjoyment and learning are instantaneous. They laugh a lot because of it. For an adult, human energy is ‘work’ and the rewards are duly postponed, often fractious. Human energy can be used as ‘individually necessary labour’ (e.g. brushing your teeth) or ‘socially necessary labour’ (e.g. the agricultural, transport and production processes of making loaves of bread for others). Human energy can even be used as a trade for a govt. iou. Human energy can be used for creativity, learning, love and hate, peace and war. Human energy can also be used for discovery of the Self which is where the other side of Janus’s face comes in, in my understanding – and hard-nosed sophisticated pragmatic realists pass out – but there is something to understand there, which is simple, and I believe, impacts ultimately on both sides.

    This is because human energy in its essence, seeks to fulfil itself. This is the simple engine that drives us from cradle to grave. From the little baby that coos contentedly when it is comfortable, warm, dry, fed and smiling at mum – to the guys who want to invade Russia and steal all of the skin of the earth’s resources, and rule millions, thinking they will be content thereby. We spend a lifetime trying to fulfil human energy through the formulas that the world offers, but of course, none of them work; they are all temporary and conditional. Everything is ground up between Kabir’s millstones. 62 people own the same as Half of the World – even these guys get ground up too, no excuses. Each gets 70 laps on average around the Sun, to use their human energy for some pursuit. The slaves building the pyramids, when their bodies gave out, had themselves buried under a little pile of rocks, just like their masters – slaves also to the ideology of the day. They didn’t come back to claim their possessions either.

    There are four basic questions arise eventually in every human breast: ‘ Who am I; What am I doing here; What am I meant to do; What will happen to me, when I have to go’ (?). Human energy can be used to ignore these questions and get busy with everything else; or we can attend to everything else giving Caesar and Nature their due, AND uncover the key to human energy and its fulfilment. Our most powerful weapon is that we have a choice and CHOOSE – consciously or unconsciously. We wield this power of choice unconsciously most of the time, haphazardly, also slave to some ideology or desire. The thought of choosing to become conscious seems nebulous to us.

    Everything we do on the outside is to fulfil human energy – and I mean EVERYTHING. And everything we do on the outside will never ever, and can never ever, fulfil human energy – that is the stark truth of the matter. So, we are ignorant, chasing our tails around the wheel, until the last breaths, all freely given, are breathed out and no more come. Then we approach the inevitable with hat in hand.

    For me, I do not want to use human energy as a child does; I do not want my fulfilment to be dependent on the play going well. And I do not want to use my human energy as an adult does; I do not want to wander out into the desert, a once proud and mighty lion, King of my Jungle, to die alone, and all that is left is a ? (the tail). I am not a thrill seeker or adventurer. Climb Mt Everest and there is no rest, because you have to come back down into the valleys where life is lived. The stars will laugh at your ‘mighty accomplishment’.

    For me, human energy is a door. And behind that door lies something so beautiful, so powerful, it will take your breath away (and give it back again incredibly enriched). An ultimate reality, inside of you – too. It gives you dignity, peace, and human prosperity. It is fulfilling. It causes gratitude to blossom in the human heart.

    Scientists seek the beginnings of the Universe in a big bang (it could have been gentle like the dawn, but that theory is avoided for the much more compelling drama of a BIG BANG!!!!). They say the whole Universe came out of pre-existent something but are not quite daring enough to mention the word ‘omnipresent’, which implies omnipotent – nor speculate on past and future, or parallel universes or parallel planes and planets – the focus is a big blinkered physical bang. Whoooomph! They get very excited about dark matter and dark energy – mysterious!

    If you say that omnipresent something is also inside of them, and why not look there to find out their answer, not only to the beginning of the universe, but more importantly, to all four of the basic human questions (and the answer to every other question that anyone could possibly ever come up with, even if you have to fill in the details later) – they will look at you and blink. How do you get a grant for that? How do you build a large hadron collider for that? How does it fit with nuclear physics? Will my political masters fund that?

    ‘Turn around’ and look is all that any teacher has ever said. Whilst you contemplate what is on the outside, consider also, how an inner world of beauty, life, intelligence, and will (impetus) might impact the outer. See for yourself. Or are we just lemmings being pushed inevitably to a 200,000 year old ledge, hypnotised by the world. I don’t think so.

  7. Awesome stuff, jr – both the story you linked to and your comment. Looking back over some of the best of the comments on this blog – which prominently feature the thoughts of yourself, Magpie and Tom – makes for some terrific reading on a rainy day. 🙂

    Please don’t overestimate my contribution on socially necessary labor, though, or to economics in general. I am mostly just following the work of others in my offerings – at best, with a bit of a personal twist.


  8. Hi. I was directed here by Barry Finger of New Politics (, a socialist journal. I admit to being not the most sophisticated political economist in the world but I find your musings interesting. Your thinking on the role of money in post-capitalist society seems in line with what David Laibman writes here:

    As to Marx and money and gold, I think you’ve got it. I don’t think that the existence of a money commodity (gold) is in any way a *necessary* consequence of his analysis of commodities and money. As Barry himself puts it, value in the Marxian system first exists in monetary form as exchange value. What Marx did was to demystify that form by establishing the relationship between the labor process (which is the foundation of any given society) with the exchange process typical of capitalism, in which the accumulation of capital is the means for the appropriation of surplus labor. It is the monetary unit that “crystallizes” value, profit and capital as socially derived expressions of homogeneous quantities of abstract labor time.

  9. Pete,

    “Applying Marx’s basic argument, the value of a state currency can be considered the amount of socially necessary labor needed to obtain a unit of the currency or, equivalently, the amount of labor power commanded by it.”

    It appears the discussion may be over, but, for the record, I’d like to point that it appears your insights about money and labour have some pedigree. Ben Franklin, for one:

    “For many Ages, those Parts of the World which are engaged in Commerce, have fixed upon Gold and Silver as the chief and most proper Materials for this Medium [of exchange] (…) But as Silver it self is no certain permanent Value, being worth more or less according to its Scarcity or Plenty, therefore it seems requisite to fix upon Something else, more proper to be made a Measure of Values, and this I take to be Labour.
    “By Labour may the Value of Silver be measured as well as other Things. As, Suppose one Man employed to raise Corn, while another is digging and refining Silver; at the Year’s End, or any other Period of Time, the compleat Produce of Corn, and that of Silver, are the natural Price of each other; and if one be twenty Bushels, and the other twenty Ounces, then an Ounce of that Silver is worth the Labour of raising a Bushel of that Corn. (…)
    “Thus the Riches of a Country are to be valued by the Quantity of Labour its Inhabitants are able to purchase, and not by the Quantity of Silver and Gold they possess; which will purchase more or less Labour, and therefore is more or less valuable, as is said before, according to its Scarcity or Plenty”.


  10. Incidentally, I found that reference to Benjamin Franklin’s 1729 pamphlet “A Modest Enquiry into the Nature and Necessity of a Paper-Currency” in Marx’s “Value, Price and Profit”.

    Marx writes:

    “I suspect that many of you will ask: Does then, indeed, there exist such a vast or any difference whatever, between determining the values of commodities by wages, and determining them by the relative quantities of labour necessary for their production? You must, however, be aware that the reward for labour, and quantity of labour, are quite disparate things. Suppose, for example, equal quantities of labour to be fixed in one quarter of wheat and one ounce of gold. I resort to the example because it was used by Benjamin Franklin in his first Essay published in 1721, and entitled A Modest Enquiry into the Nature and Necessity of a Paper Currency, where he, one of the first, hit upon the true nature of value.”

    Marx not only (1) credits Franklin as a precursor to the law of value, and (2) refers to Franklin’s discussion about “paper-currency”, but (3) his own discussion sounds strikingly similar to things you have written here.

  11. Good stuff, Magpie.

    Just to be clear, I still agree with the theoretical argument presented in the post except for any possible implication, especially in the final paragraph, that Marx may have agreed with the argument if it had not been for the gold standard of his day. The points made by Socialiast and Tom, and the passages quoted by LK, seem to cast serious doubt on such an implication. As I said, though, I need to re-read a lot of stuff.

    None of this affects my view that currency value can (correctly IMO) be considered in the MMT way.

  12. Peter,

    At first I was rather puzzled by this post. By those things in life, now I think I know what you are talking about.

    Frankly, I can only say as they say in Spanish: “Dios los cría y ellos se juntan”. It’s similar to “birds of a feather flock together”, but it has an additional connotation: they actively search for each other.

    Oh, well. 🙂

  13. Pete,

    By the way, re-reading this post and the comments to it, I wonder if any commenter (including yourself) has taken into account previous theoreticians (not just Franklin).

    Adam Smith, for instance, saw in his labour theory of value a way around the problem of calculating real net output (what we would call real GDP).

    Growth and distribution were the twin concerns of classical political economists. But nominal GDP is affected both by price and quantity variations (It also has some other limitations). In our days, we use CPI figures to estimate real GDP.

    Smith proposed labour times as the way to overcome that problem (one also sees that in Franklin’s passage). And he had a very good argument, not only for his time, but for ours, as well:

    Adam Smith and LTV.

    For Smith, money played the role of numeraire (just like labour time could play that role): value in exchange was expressed in currency (say, X kilos of beef per ounce of gold/silver; Y metres of linen per ounce of gold/silver); but was not determined by the value in exchange of the commodity money (X/Y kilos of beef per metre of linen was the value in exchange).

    In other words a variation in the value in exchange or in the existence of gold/silver has two properties: (1) it affects the (gold/silver) prices of beef as much as it affects the (gold/silver) prices of linen (causing the net output appraisal problems mentioned above), but (2) it cancels each other out when it comes to their value in exchange for each other: X/Y remains remains unaffected.

    To sum up, for Smith, labour time not only had the second (desirable) property, but lacked the first (undesirable) one: labour time was a better measure of value. On top, it was more general: the value in exchange of gold/silver for other goods is also determined by its labour times.

    Commodity money — gold/silver — was not, at least in principle, indispensable to Smith: that is the bottom line. That was his point in suggesting labour times as measure for net output.

    Now, one may argue that Marx in reality may have thought differently or not have seen that, but personally, I see no reason why or how. In fact, I think that would have been outright contradictory: if I understand the argument, it sounds like someone’s version of Marx is giving priority to commodity money over labour time.

    I may have misunderstood something and I don’t know about anybody else, but — prima facie — that sounds entirely absurd, to me.

    Just sayin’.

  14. Thanks for the link, Magpie. Excellent post, as usual.

    Two points you make are especially pertinent. First, there is your quoting of Smith’s view that “[e]qual quantities of labour, at all times and places, may be said to be of equal value to the labourer.” Marx puts forward a very similar argument when he holds that an hour of socially necessary labor always creates the same value in real terms, irrespective of variations in productivity. This is a key IMO when it comes to understanding the macro power of theories of value centered on labor time.

    Second, you write in your comment: “To sum up, for Smith, labour time not only had the second (desirable) property, but lacked the first (undesirable) one: labour time was a better measure of value. On top, it was more general: the value in exchange of gold/silver for other goods is also determined by its labour times” (emphasis added).

    Yes, precisely (IMO). Gold only has value, for Marx, to the extent that its production requires socially necessary labor. So the value of the currency, under a gold standard, is an amount of socially necessary labor.

    Likewise, the value of a fiat currency can be defined in terms of a quantity of socially necessary labor.

    As you point out, this gives socially necessary labor as “measuring rod” an invariance that the value of a commodity such as gold does not have. The value of gold will fluctuate with every variation in productivity in gold production (relative to average productivity). In contrast, the value created by one hour of socially necessary labor, no matter the period in which it is performed, is always the same.

    The macro rule, which appears to have been expressed in similar ways by both Smith and Marx, implies that government can influence the value of the currency. For instance, if we define the value of the currency as the reciprocal of the average wage – let’s say $10/hour – then a unit of the currency will command 0.1 hours of *labor power*. Since what is directly commanded is labor power, not labor, at the micro level a particular employer might in actuality receive less or more socially necessary labor in exchange for a unit of the currency than another employer, depending on the actual intensity of labor performed in each case. But *in aggregate* all the labor power purchased – implying a level of employment L – will create the same amount of value as an employment level L always creates, because this amount of value is invariant to alterations in productivity.

  15. Thanks, Pete, for your comment.

    “Yes, precisely (IMO). Gold only has value, for Marx, to the extent that its production requires socially necessary labor. So the value of the currency, under a gold standard, is an amount of socially necessary labor”.

    Exactly. Unlike commodity money, it takes no socially necessary labour to “produce”, “manufacture” fiat money, as such. That fact, by itself, should not surprise anybody.

    And maybe I’m just a cranky and mean old geezer, but I see no big discovery there (this goes straight to those desperate souls crazily attempting to find a smoking gun thousands of more talented, smart or at least literate critics couldn’t find).

    This doesn’t mean it lacks value: its value derives from fiat as well (the value of $1 in your pocket is $1 come tax time), as anyone who’s ever completed a tax return knows from experience (you do spend time preparing the damned thing, as opposed to pressing a few keystrokes in the “Treasury terminal”; and on top, you still have to pay for that: negative value, for Christ’s sake!). One cancels the other out. “The Lord gave, and the Lord hath taken away; blessed be the name of the Lord.” Isn’t that what MMT says?

    What matters is that not everybody, however, is the Lord. At least not the Lord of Job 1:21 or of MMT.

    In fact, Pete, as you mentioned in the post: even commodity money under the gold standard, as it was in Marx’s time, is still subject to fiat. So, what’s the big deal people are grousing about?

    “Likewise, the value of a fiat currency can be defined in terms of a quantity of socially necessary labor.”

    That’s precisely what Franklin (and yourself) believe should change: the currency ought to have a labour (power) content. From Franklin’s quote above:

    “But as Silver it self is no certain permanent Value, being worth more or less according to its Scarcity or Plenty, therefore it seems requisite to fix upon Something else, more proper to be made a [invariant] Measure of Values, and this I take to be Labour.”

    In other words: the Labour Measure of Value Franklin speaks of is a normative idea, not a positive description of how the monetary system was operating in reality. It’s a proposal. In Franklin’s case, a policy proposal. In Smith’s case, it’s more an analytical proposal.

    The positive description is the situation with silver (which it seems was the metal behind the U.S. dollar in Franklin’s time), which “it self is no certain permanent Value”. Franklin and Smith find it inconvenient for several reasons, among them because silver is no permanent (i.e. invariant) value. From Smith’s perspective: How can one measure growth with a rubber ruler?

    “The macro rule, which appears to have been expressed in similar ways by both Smith and Marx, implies that government can influence the value of the currency.

    Yes, I think so.

  16. Thinking aloud here … along the lines you may be suggesting …

    In a sense, then, we could say that the value of fiat currency – like currency under a gold standard – is related to an amount of a commodity. It is just that the value of fiat currency is related to an amount of the commodity labor power rather than an amount of the commodity gold.

    Since, for Marx:

    (i) value is an amount of socially necessary labor (i.e. average labor), and
    (ii) an hour of average labor always creates the same value irrespective of changes in productivity,


    (iii) so long as money wages don’t change, the amount of labor power commanded by a unit of the currency (i.e. the value of the currency) will be in a fixed relation to the amount of labor actually performed *on average* in exchange for the currency unit and so will also be in a fixed relation to the amount of value created.

    The value of a fiat currency will change as a result of a change in the average money wage. This is a macro-level, nominal effect.

    In contrast, the value of a currency tied to the commodity gold can change both because of real and nominal effects, and also as a result of changes occurring at the purely micro level. An alteration in productivity in gold production relative to average productivity – a real effect – causes an alteration in the value of the currency under a gold standard, even though the cause is real, not nominal, and productivity at the macro level (i.e. average productivity) may not have changed.

    So, to tie the value of a currency to a commodity other than labor power is to impose unnecessarily destabilizing influences onto the currency itself. Rather than the currency issuer being able to respond in an autonomous, stabilizing fashion to any real instability, the instability extends to the currency itself and, by constraining fiscal capacity, inhibits implementation of policies required to address the real instability.

    The currency, rather than being a macro-stabilizing tool, itself becomes prone to destabilization through both micro-level and real effects.

  17. More thinking aloud …

    The centrality of the commodity labor power to capitalism – the buying and selling of labor power as a commodity – perhaps points to the centrality of the commodity labor power to the value of a currency under capitalism.

    If some wealthy tycoon managed to buy up all the gold in the world and decided to hoard it, refusing to sell it in exchange for a state currency, this would not be fatal to state currencies under capitalism. The currencies could still be used to purchase other commodities.

    If, on the other hand, all the owners of the commodity labor power in the world collectively refused to sell their labor power in exchange for a state currency, these currencies would have zero value under capitalism.

    And, of course, if all owners of the commodity labor power collectively refused to sell their labor power in exchange for any currency whatsoever, capitalism itself would be finished.

    The commodity gold is not fundamental either to capitalism or to a currency operating under capitalism. The commodity labor power, however, is fundamental to both.

    Since labor power, not gold, is the fundamental commodity under capitalism, it makes sense to conceptualize currency value under capitalism as the amount of labor power a unit of the currency commands.

  18. Pete,

    “In a sense, then, we could say that the value of fiat currency – like currency under a gold standard – is related to an amount of a commodity. It is just that the value of fiat currency is related to an amount of the commodity labor power rather than an amount of the commodity gold.”

    That was my reaction when you first mentioned your idea over a year ago:

    Value of Fiat Money on the Basis of Marx in Light of MMT
    Posted on 3 September 2014

    “In other words, if I understand you, you seem to be talking about a ‘labour standard’, similar to the old gold standard: instead of fixing the value of, say, a dollar to a certain quantity of gold (eg. X ounces of gold), the value of the dollar would be fixed to a certain unit of labour (eg. Y minutes of minimum-wage grade labour). Am I on the right track?”

    I might be mistaken, but I think I remember others making similar comments in other blogs.

    By the way, perhaps you might prefer private communication, because your ideas, to the best of my knowledge, are innovative and one doesn’t know who might be following this exchange.

    In fact, I know someone who is following your posts and I have no doubt this person would steal your ideas in two seconds flat.

    If you like, let me know your email or some other way to contact you.

  19. Magpie, actually I tried to email you recently to see if you wanted a copy of an English version of an excellent 2003 paper by Alejandro Ramos-Martinez that he was kind enough to send me. I think you may read Spanish, so the English version may be unnecessary for you. The paper greatly clarifies the issues I have been worrying about concerning Marx and replacement cost (or not replacement cost). You can email me at [email address removed] . (I will delete the email address from this comment once I receive a response. Thanks.)

  20. Among the Marxists who share the Marxian views on money is unfortunately prof. Kostas Lapavitsas, a man of distinction for his integrity, political agitation, and forthrightness. This is evident in his otherwise most incisive, latest work “Profiting Without Producing”; still highly recommended.

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