Melting Some Marx Into MMT

I have been meaning for a while now to explore potential connections between Marx’s theory of value and Keynes or Kalecki-influenced approaches to macro. This is a tentative testing of the waters. It may be the first in an indefinite series of posts, sprinkled throughout the future, on correspondence between the two theoretical traditions. Then, again, it might not be. At this stage it is not clear to me how far the exercise can be taken, or how useful it might be. I know that there has been some exploration of the connections between Keynesian and Marxian approaches in the academic literature. Massimo De Angelis (here is a sample paper, though a subscription is required) and Andrew Trigg come to mind. Any posts I do here will be more exploratory and elementary by comparison. The emphasis will be on connections of a macro nature between MMT and Marx’s value categories. One point of entry appears to be the ‘monetary expression of labor time’ (MELT), introduced by Alejandro Ramos Martinez (see chapter 5 of this link), and its connection with the Modern Monetary Theorists’ ‘value of the currency’.

Since readership at heteconomist is diverse, an ultra brief rundown of Marx’s theory of value is probably in order. Only as much detail as is necessary for present purposes will be included. I’ll let details leak out progressively over future posts, if there are any. In these discussions, I will be applying the so-called ‘temporal single-system interpretation’ (TSSI), which is one of the competing interpretations of Marx. Chief proponents of this approach include Andrew Kliman and Alan Freeman. The other main approach – the dominant one traditionally – is sometimes referred to as the ‘simultaneist dual-system interpretation’.

In confining my attention to the TSSI, I will make no effort to defend this interpretation or evaluate its merits relative to the alternatives. There are others far more qualified to attempt that task. My focus will simply be on explaining Marx in terms of the TSSI and linking this understanding, where possible, to Post Keynesian and/or MMT macroeconomics.

Even so, I can offer a couple of motivations for my choice, which do not concern the theoretical merits of the competing approaches but simply reflect my present purpose in considering Marx. One is that, like much of Post Keynesianism, the TSSI emphasizes the importance of historical time (the approach is dynamic or temporal) and is not confined to equilibrium or steady-state scenarios. To the contrary, it emphasizes non-equilibrium analysis. The other motivation is that Post Keynesianism, Modern Monetary Theory and the TSSI all seem particularly suited to the study of a monetary production economy.

Values and Prices

Marx’s theory of value applies to commodity production. A commodity is a good or service that is produced for the purpose of being exchanged in a market. The theory does not apply to goods or services that have not been produced as commodities, which may instead be valued according to normative criteria, cultural norms, and so on.

Value, in Marx, is a quantity of socially necessary labor time or its monetary equivalent. Labor time is only socially necessary if it involves producing commodities at the prevailing, average level of productivity. This ensures that the value of a commodity is not increased simply by taking longer to produce it through inefficiency or the application of backward production techniques. The time taken must be consistent with prevailing technology, know-how and worker effort of the average kind in that line of production.

Price is distinguished from value, in Marx, in at least two different ways. In one usage, ‘value’ refers to the ‘value created’ in production, whereas ‘price’ refers to the ‘value received’ in exchange. In a second usage, price refers to value expressed in money rather than labor-time terms.

Unless otherwise stated, I will be employing the first usage. So value will refer to what is created in the sphere of production. Price will refer to what is realized in the market when output is sold. In this usage, both price and value can be expressed in labor time or, equivalently, in money, and often will be.

Marx’s Theory of Value in a Nutshell

We can keep this as elementary as possible by considering the ‘total value’ and ‘total price’ produced in the economy as a whole. This is similar to considering the GDP of an economy without regard to sectoral breakdowns of the economy. Sectoral breakdowns are important, but will be left for possible future posts.

Total value, for Marx, is the sum of three components. First, there is the value outlaid for ‘constant capital’, which is the portion of plant, machinery and raw materials used up in the production period. In Marx’s theory, constant capital represents value that existed prior to the current production period. It is ‘dead labor’, in the sense that it was produced by labor in a previous period. The magnitude of constant capital does not change during the current period. Instead, it is simply passed on to the final value of the output.

Second, there is ‘variable capital’. This is the amount of value outlaid to employ workers in the current period. The employment of ‘living labor’ creates new value. Importantly, if workers are required to work for longer than is necessary to produce the equivalent of their wages, there will be ‘surplus value’ left over for capitalists. This surplus value can be realized in exchange as gross profit, prior to its distribution into various parts (e.g., corporate retained earnings, interest, rent).

In practice, capitalists may fail to realize in exchange all the surplus value created in production. If so, realized gross profit will fall short of produced surplus value. The difference will accumulate as unsold inventories. For simplicity, in this post (but not necessarily in future ones) it will be assumed that all surplus value created in production is successfully realized in exchange. That is, the important possibility of a realization crisis is abstracted from to bring out some basic relationships.

A Simple Numerical Example

Suppose that the equivalent of $50 in constant capital, C, is used up in the production period and that capitalists outlay $50 of variable capital, V, to employ workers for the period. The workers are required to work a total of 100 hours, which is the amount of total employment, L. We can imagine that 50 hours of the workers’ labor time is spent producing a value equivalent to their wage bill, W (assumed to be equal to variable capital). The other 50 hours of the workers’ time is spent producing surplus value, S, for the capitalists. Since half of the workers’ labor time goes toward the production of surplus value and the other half produces value equivalent to variable capital of $50, this implies surplus value of $50 is produced. Suppose, lastly, that the general price level, P, is 1.

We can infer from the above numbers that the net product of the entire economy, equal to V + S, will be $100. This is the total new value produced in the period. Given our assumption that all value created in production is realized in exchange, this net product will correspond to nominal GDP, PY, so real output, Y, must be 100.

The table below summarizes the situation. The dollar figures are values and prices expressed in money terms. The figures in parentheses are values and prices expressed in terms of labor time.

  C       V       C + V      S       Net Product     Total Value
        (= W)                         (= V + S)    (= Total Price)
                                      (= PY)       (= C + V + S)

 $50     $50      $100      $50         $100           $150
 (50)    (50)     (100)     (50)        (100)          (150)

In passing, we can note that the economy-wide rate of profit is calculated as S/(C + V) = 50%. The rate of exploitation (or rate of surplus value) is defined as S/V = 100%.

The Monetary Expression of Labor Time (MELT)

More relevant for our present purposes is the MELT. In this post, we can assume that productivity does not change over the period. Doing this keeps our calculation of the MELT ultra simple. Once productivity is allowed to change from one period to the next, we will need to resort to a more general formula. I’ll leave this to a future possible post. Those who wish to jump ahead can consult the chapter by Ramos Martinez, linked to earlier.

The MELT is one hour of socially necessary labor time expressed in monetary (let’s say dollar) terms. It is the dollar value of one hour of labor time. Equivalently, it is the economy-wide ratio of total price to total value.

In our simple example, the MELT is equal to $1/hr. This says that each hour of socially necessary labor time creates $1 of value in money terms.

One other thing before moving on. Value is usually expressed in terms of ‘simple’ labor time. This is the simplest form of labor performed in the economy. More complex labor is then considered as a multiple of simple labor.

In relation to the above example, we could suppose one of two things. Either all labor is simple. Or, more likely, our above calculations were in terms of the average kind of labor. I say “more likely” because if we were trying to glean these numbers from national accounts, we’d be relying on total employment figures, then trying to work out how much simple labor time that translated into.

In our example, the average wage rate is $0.50/hr. We can see this from the fact that variable capital and the wage bill are $50 and total employment is 100 hours. Suppose that, in addition, we also knew that the minimum wage happened to be one-fifth of the average (i.e. $0.10/hr). If we interpret minimum-wage labor as simple labor, we might infer from this, imperfectly, that one hour of average labor is the equivalent of five hours of simple labor. Let’s do this. That then implies that total employment is the equivalent of 500 hours of simple labor time.

This modifies our figure for the MELT. Whereas 150 hours of average labor (both dead and living) corresponds to the total value of $150, it is actually 750 hours of simple labor that corresponds to this $150 of total value. In other words, the MELT can be modified to $0.20/hr.

Connection Between the MELT and MMT’s Value of the Currency

In MMT, the value of the currency is defined as what is required to obtain it. Currency value can therefore be defined in terms of labor time (see this old post for more details). In our example, the minimum wage is $0.10/hr. This implies that it takes 10 hours to obtain $1. The value of a dollar, in other words, is 10 hours of simple labor time.

So we have two definitions. Denote the MELT by m and the value of the currency by z:


This implies a simple relationship between the MELT and value of the currency that makes it easy to switch back and forth between the two:




So, in our example, knowing that the MELT is $0.20/hr, we can easily determine the value of the currency as:


Or, knowing the value of the currency is 10 hrs/dollar, we can determine the MELT:



14 thoughts on “Melting Some Marx Into MMT

  1. Bake an ‘average productivity’ loaf of bread.

    Its ‘commodity value’ is constant capital + variable capital + surplus created (aka a free lunch).

    Its ‘price’ is profit + residual inventories.

    Its ‘human value’ differs for someone who is starving to someone who is overfed, but generally it is food. Then there is the value of enjoyment with hot butter and avocado and salt; or the taste and aroma of hot fresh bread, broken and shared. Both consumed and unconsumed bread are recycled. If average productivity is carpet bombed we go back to villages, fields and grinding stones.

    Along the way somebody says ‘man cannot live by bread alone’ and insists his God speaks his particular dialect in saying so – or text messages on tablets.

    Seems like the free lunch is the contentious point? And profit has no value without translation into human values. And human values are a double edged sword until resolved in the heart!

    What a wonderful mess ….

  2. Wow…

    I’m kind of speechless (in a good way, too). I sort of remember Prof. Mitchell writing about the value of the currency as being founded on labour, but it was some time ago and, paradoxically, I never connected that with Marx.

    I’ll need to think about this.

  3. The main trick with Marx is to avoid treating Das Kapital like the Bible. (The same with the General Theory tbh).

    These guys were human and were writing in their time. Certain things have changed. We need to try and understand the principles and then apply them to the modern world.

    Making things is done by machine now. Labour services are different, they are augmented and they differ markedly from labour potential and labour itself.

  4. I agree about not treating Capital or The General Theory like Bibles.

    In Marx, labor, machines, nature, etc., are all productive of real wealth and real goods and services (‘use values’). Higher productivity is due, primarily, to the efforts of prior generations. The argument, rather, is that value, under capitalism, is socially necessary labor time, and the source of surplus value (not surplus use values) is solely surplus labor.

    Money, in this view, is a command over a certain amount of society’s labor time, both living and dead. Capitalists are driven to accumulate surplus value (claims over others’ labor time) without particular regard to the use values produced.

    There is no suggestion that this notion of (capitalist) value is a good one. Clearly, for Marx, it isn’t, because he saw the ideal as “from each according to ability, to each according to need”.

  5. Yeah I sat through a few hours of this with various different Marxists pontificating on their various interpretations of the nature of value.

    Unfortunately that generated more heat than light since value ended up as a Humpty Dumpty word like inflation or savings.

    Explain what Marx was getting at without using the word ‘value’ would be handy. Now there’s a challenge! 🙂

  6. Peter,

    Sometimes I feel that Marxists assume that certain things that for us are obvious are equally obvious to others.

    This, if one thinks about it, is rather paradoxical, given all the mystification involved in the capitalist economy.

    Let’s think about this.

    As I see things, Marx was, above all, a great synthesizer of ideas that were largely already present in his day. LTV? Check! It was there since at least Adam Smith (actually Ben Franklin had already spoken about it, and probably William Petty, before him). Exploitation? Check! Ricardo (although he never used the E-word) had shown that farmers (i.e. small capitalists) were exploited by the landed aristocracy. Capitalist crisis? Check! At least since Adam Smith and certainly since Ricardo, a great stagnation was feared.

    So, if the ideas were there, why didn’t anybody else collect and assemble them? It could have happened that different guys, working separately, had arrived at the same conclusions. It happened, for instance, with Darwin and Wallace: they both arrived at the same conclusions independently at pretty much the same time.

    But it didn’t happen with Marx. Why?

    In my opinion, that didn’t happen because the basic insight was hidden from sight, by all that mystification. In other words, the basic insight is not obvious to many, perhaps to most.

    Perhaps that was Marx’s greatest achievement: to see what was hidden in plain sight.

    Maybe a more basic approach could help here.

    What do you think?

  7. Good observations imo Magpie,

    It’s like to me, Marx is yelling “Hey Christendumb, you have a BIG PROBLEM with the distribution of your surplus!”…..


  8. Part of the difficulty in getting our heads around these and similar theoretical ideas may be their social character. Because value, in Marx, or currency value, in MMT, are social relations, they are only made real through social behavior.

    For instance, when MMTers define the value of the currency as the amount of minimum-wage labor time required to obtain it, in what sense is it being suggested that such labor time conducted by workers in different lines of production is “really” the same? It is clearly not in an absolute or technical sense, but rather in a social sense. It is only society’s treatment of different workers’ labor time as if it is the same that makes a certain amount of minimum-wage labor time a measure of the value of the currency. (I’m not suggesting this is a bad thing. There is an egalitarian aspect to that social treatment.)

    Marx maintained in the first volume of Capital that an hour of *average* labor time “always yields the same value, independently of any variations in productivity”. There are various possible rationales for that position. Drawing on Adam Smith’s work, we might appeal to the “time and trouble” any person engaging in labor of the average intensity and quality would be put through, which might be considered independent of how productive that labor is or the time period in which it took place. On the basis of Marx, we might say that the time and trouble may or may not be the same, but under capitalism society treats it as if it is the same.

    (This does not prevent value created in previous periods from being destroyed as a result of productivity improvements. Such improvements will drive down the values of the components of constant capital as average labor becomes more productive.)

    Capitalism, as the name suggests, is a system for capitalists, and the incentives are geared toward capitalists and the accumulation of surplus value, not the well-being of workers. The tendency, at least under competitive conditions, toward equalization of profit rates rewards capitalists in accordance with the amount of money — equivalent to an amount of labor time — that they have invested in production. This equalization process among capitalists is compromised by private rent seeking made possible by the private ownership of natural resources.

  9. Pete,

    I have some material that could help here. It’s not perfect, requiring some polishing.

    Check these two posts here:
    Land, Rent and Wages (II)
    Land, Rent and Wages (III)

    I play by the rules of capitalism, so I’ll tell you what. If you promise me 3 times this will not be your last post on this subject, I’ll fix those two posts and hopefully this might be of help.

    It’s a deal? 🙂

  10. Maggie, what separates Marx’s LTV from Ricardo’s was that Marx suggested that capitalist exploitation was still very much possible even under conditions that today’s “vulgar economists” would call “perfectly competitive free markets.” Ricardo’s stuff was all about labour arbitrage (real as it may be) and other forms of exploitation symptomatic of conditions outside the “perfectly competitive free markets.”

    I am skeptical of what Neil wrote. Capital shouldn’t be treated as a “bible,” but what could have been a six-themed series on political economy (of which this Capital was only part) might have been more, ahem, authoritative, for those of us actually on the left.

    Peter, you should blog more about specific public policies and sets of such. There comes a point when Chartalism and all things MMT might clash with Labour Supply-Side but Fiscally Conservative Socialism (I’ll explain these in due course).

  11. Hi peterc,

    I’ve been appreciating your efforts to reconcile MMT with Marx for some time, as it’s also something I’ve pondered from time to time. (I know Magpie is in the same “camp” as well, in the event that this orientation deserves the word. Hi, Magpie.) I’m just writing to share a small consideration or two, in light of this nascent series.

    Obviously, Marx was writing before fiat money had the prevalence it does today, and thus a commodity referent appears as utterly central to his theory of money. Where token money is referenced, he gives what amounts to a (better) quantity theory of money, still ultimately referring to labor values, via a MELT. Prof. Moseley has a paper online discussing this, also deriving the MELT and demonstrating it to be algebraically identical to Marx’s original figures. Prof. Kliman has pointed out to me that the other way to derive the MELT draws upon Marx’s aggregate equalities.

    Ultimately, everything comes back to a single, fundamental measure of value: socially necessary labor time. But labor is not itself a commodity, and thus it must be mediated through commodities and ultimately money. And there are important reasons that money would rest on some commodity basis; even in a case like ours, the “flight to value” during crises destroys fictitious capital and pushes money back in the direction of what it might resemble with a commodity basis. As long as the logic of capital is calling the shots, the law of value will sooner or later have to be enforced: money must have value, and the “developed value-form” of money evolves from the “simple value-form” of a commodity.

    An object of value of this sort is therefore a use-value that possesses exchange value. Those two properties, I submit, are both essential to our reckoning of money. As you’ve already discussed, the exchange value is the all-important question of purchasing power. But its status as a use-value also has a role: “enforcing” its common use, if that’s the word I want to use. People who are wary of fiat money persist to ask about what backs it, and so on. What is its specific use apart from a money application? But the thing is, this is exactly what MMT’s “tax-driven money” approach addresses: its unique status as something capable of discharging government debts and fines is much more literally “enforced.” And, amusingly enough, people often find the TDM, on its own, unsatisfactory as an explanation for money.

    So, the way I see it, Marxians and MMT folks seem to be holding opposite ends of a means of analyzing a “synthetic” money commodity; the MELT covers the exchange value aspect, while TDM grants it the status of use-value. The two concepts appear to be utterly harmonious.

    I’ve also been chewing over another possible implication of the MELT, but I’ve decided at the last minute to hold off on it until it’s had a little more time to simmer.

    Anyway, thanks for having (and continuing) this very important discussion!

  12. Hedlund: Thanks. Your insight on the exchange value (MELT) and use value (TDM) aspects is an excellent one. It certainly helps to clarify the connection for me.

    I look forward to your other thoughts on the MELT, once you’ve let them simmer.

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