In an earlier post, I discussed the way in which Modern Monetary Theorists conceptualize the value of the currency. In this context, 'value of the currency' refers to its domestic value, not exchange rates. This value is defined in MMT as whatever must be done to obtain a unit of the currency. It can be defined in terms of minimum-wage or 'simple' labor time. A minimum wage of $10 would imply that it takes 6 minutes of simple labor time to obtain a dollar, expressed as 6 minutes/dollar or 0.1hrs/dollar. A recent post, which considers the idea further, makes brief mention of the connection between currency value, inflation, and distribution. Here, I want to elaborate on that connection.

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Kalecki's profit equation famously shows gross profit, prior to its distribution into various parts (retained earnings, interest, rent, etc.), as a function of aggregate demand. In a simplified model of a closed economy with only capitalists and workers, in which workers in aggregate do not save, it shows that profit is the sum of capitalist consumption and private investment. On first encounter, this is an intriguing relationship. One explanation, which I have discussed previously, is that wages, being spent entirely on consumption items, return to capitalists, whereas capitalist expenditures remain with the capitalist class as a whole. This has been summarized as "workers spend what they get and capitalists get what they spend". I find this aphorism eye-opening and fascinating, yet, in its own way, also somewhat mysterious if pondered for long. Kalecki provided an alternative way of viewing the situation, which may further aid understanding.

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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) and Andrew Trigg are two names that 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'.

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No, don’t worry, this is not a religious lesson. The relevance of the post title – drawn from Luke 6:38 – is the causation it implies between autonomous action and induced behavior. I have been reflecting on the current state of macroeconomic policy in which a purported commitment – a nonsensical one – to reduce the public "debt"-to-GDP ratio exposes an upside-down or back-to-front view of reality that is evidently widespread. The austerians exploit this confusion for their own class-interested ends, a point that Rodger Malcolm Mitchell has tenaciously and effectively hammered away at for some time now (for example, here). These class-interested ends include the breaking of organized labor, dissembling of the welfare state, and the intentional widening of the wealth gap between the 0.1% and the rest of us.

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Federal systems, in a similar way to a common currency zone, seem tailor made for neoliberalism. By starving currency-using state governments of funds, a currency-issuing federal government is able artificially to create a need for the states to find private sources of funding that would be better provided through fiscal transfers. Details from one federal system to another differ. In my country, the taxing powers of the states are deliberately restricted relative to their responsibilities over service provision. In the Eurozone, member governments have voluntarily poleaxed their capacity to run deficits.

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Thom Hartman has conducted an excellent interview with Randall Wray. In part, the interview considers why the currency value (of the US dollar) has declined since the breakdown of Bretton Woods. This led to an interesting post by Mike Norman, who argues that, against a broad basket of currencies, the US dollar has not declined* in value but in fact risen. Both Wray and Norman make valid points, but my understanding is that they are discussing different things. Norman is considering the external value of the currency (i.e. exchange rates), whereas Hartmann and Wray appear to be discussing the domestic value of the currency. It would be possible for the external value of the dollar to have risen against a broad basket of other currencies even though the domestic value of the dollar has declined. However, this latter tendency does not prevent all the dollars in aggregate from purchasing more real output now than in the past. Nor does it prevent a given amount of labor time from commanding more real output than in previous periods.

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Believe it or not, somebody has requested that I discuss the minimum wage. Apparently a politician of note in the U.S. has suggested that increasing it to $9/hour would be a good thing. It would certainly be better than nothing, but should be raised significantly beyond that. However, even the present proposal, which is so modest as to be offensive, has apparently sparked debate in the mainstream press. Considering that most economists have been taught from texts that double as bad joke books, this is entirely predictable. One tome, authored by the notorious Mankiw of Harvard, used to report (maybe it still does) that 90% or so of economists – from memory – agree that "the minimum wage causes unemployment". Or maybe what they agreed was that "the minimum wage hurts those that it is intended to help" or some such disingenuous nonsense. Evading, as usual, the sewerage gushing out of the mainstream press, I remained blissfully unaware of the latest kerfuffle until the request for a post on the topic forced me, instead, to swim in it. Thanks, anonymous request person.

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