Significance of MMT’s Definition of ‘Value of the Currency’

It was suggested in the previous post that the notion of ‘value of the currency’ adopted in Modern Monetary Theory (MMT) seems compatible with Marx’s theoretical framework, provided it is acceptable in that framework to consider a state currency, and not only gold or some other commodity, as “true” money. As was explained in the post, currency value in MMT can be defined as the amount of labor time a worker must perform in order to obtain a unit of the currency. An advantage of this definition, if applied in Marx’s framework, is that it offers an explanation for the value of fiat currency that can be expressed in terms of socially necessary labor time.

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Value of Fiat Money on the Basis of Marx in Light of MMT

In Marx’s theory, formulated in terms of the gold standard of his day, the value of commodity money is taken to be the amount of simple, socially necessary labor time required to produce gold. This treatment of the value of commodity money is consistent with Marx’s treatment of commodity value in general, which always represents amounts of socially necessary labor time. Since the value of the currency under a gold standard depends not only on the labor time required to produce gold but the rate at which gold is exchanged for currency, the question arises as to whether it is gold that is actually “real money” in such a system, or, rather, state currency, issued and exchanged at a fixed rate for gold, that is real money. If it is gold that is real money, Marx’s theory would seem to suggest that there is no value underlying fiat currency, since fiat currency takes zero (or negligible) labor time to produce. If, instead, state currency can be real money in Marx’s framework, then fiat currency can be conceived as having value in much the same way as currency under the gold standard. In either system, the currency is produced with zero (or negligible) labor, but obtaining a unit of the currency requires a definite amount of simple, socially necessary labor time to be performed by the non-government. From the non-government’s perspective, it is as if that amount of labor is required to “produce” a unit of the currency. There is no suggestion, here, that this would necessarily have been Marx’s view, or that there is necessarily strong textual evidence for it. But it is suggested that taking this interpretation enables Marx’s notion of the value of money as an amount of socially necessary labor time to be extended to fiat money.

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Government Spending and Financially Sustainable Growth

Private and public exogenous expenditures have different impacts on the sectoral balances. The same rate of growth in income has varying implications for the domestic private sector’s financial balance (saving minus investment or, equivalently, income minus private spending) depending on the composition of the demand driving that growth. An increase in private investment pushes the private sector toward deficit. Even though the investment boosts income, saving will not rise as much as investment because of leakage to taxes and imports. In contrast, government spending adds income and saving for a given level of investment. An implication is that growth driven by private expenditure that occurs without compensating growth in government spending pushes the private sector into deficit except to the extent that net exports counter the effect.

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Significance of MMT for Progressives and the Left

Demands on time in the MMT community include (i) providing “simple as possible” explanations of “basic MMT” for public consumption and (ii) exploring theoretical and policy ideas informed by an understanding of those basics together with insights from related approaches to economics. Although the latter task is perhaps more enticing for those who have by now (mostly) absorbed the basics, and is certainly an area worthy of pursuit, the former task remains politically pressing and so equally deserving of time. It doesn’t matter what progressive policies, institutional reforms or plans can be devised if the public believes they are “unaffordable because the nation is bankrupt” or “impossible because capitalists won’t stand for them”. This indoctrination has occurred over decades and clearly many in the community are not freeing themselves of it easily.

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Liberty, At Least For Now, Requires Government

Like many, I embrace the liberal motto “live and let live”. Individuals should be free to think, say and do as they please provided it doesn’t infringe on the liberty of others to do likewise. But living up to this motto does not necessarily call for small or minimal government, especially in the economic sphere. Until individuals are, of their own volition, ready to make use of real resources in a cooperative and harmonious fashion, promotion of liberty requires government.

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Life Advice for the Aspiring Young Academic Economist

You may not have realized it at the time, but that youthful decision to enroll in a doctoral program paved the way for what now threatens to be a lifetime of teaching courses at $2-3k a pop, tutoring out of a car (for quick escape from parking inspectors), grading papers in the campus library (until moved along), feeding at soup kitchens (so long as appropriately attired), fraternizing in parks (and other open spaces) and sleeping on footpaths or church steps when city law permits (which is occasionally). All that, and more, while kowtowing to your tenured seniors, the social products of a bygone era who are paid ten times as much as you and are certainly ten times more important.

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OMG Another Hiatus

Admittedly recent posting inactivity here at heteconomist has given a fair impression of a blogger on holiday, but that was just by accident. There was always the thought that a post might appear some day. Now it is time for an actual hiatus, the third in the blog’s checkered history. Posting activity will ease back to zero (though never to less than zero) for “a while”. Thanks go, as always, to the magnificent commenters, especially the prized regulars. Your services to humanity have been monumental. (Monumental as in “great in importance or extent”, not “what a monumental balls up”.) This notification was withheld for as long as decency could allow in polite circles, but eventually a silence becomes too awkward, a pause too pregnant, and “somebody” cracks under the pressure.

Increased Unemployment Benefits Can Be a Win Win

In our present-day societies, which neglect to guarantee either full employment or an unconditional income, unemployment benefits are a necessary safety net. Having evolved an economic system in which most of us must offer to work for a wage or salary to get by, majorities routinely vote for politicians who promise to make this impossible for a sizable portion of the workforce at any given time. Despite the current necessity for unemployment benefits, prevailing attitudes toward the policy seem largely hostile. Opposition does not solely – or even mainly – come from the powerful and wealthy. Many members of the working class (who, at least until recently, have deluded themselves into imagining they are “middle class”) appear to be hostile to benefit payments as well. They are hostile, that is, until they themselves need them, in which case their new-found altruism lasts for about as long as their jobless episode. A recent study* indicating that winning the lottery significantly influences winners’ political views, with one-fifth converting to conservatism pronto, may partly explain the prevalence of what is clearly intended to be self-interested behavior. The operative word is “intended”. Such people are trying to look out for number one, yet are mostly too clueless even to pull that off.

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