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 was Marx’s view, or that there is 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.

In a fiat-money system, if the minimum wage is ten dollars per hour and minimum-wage labor is considered to represent simple labor, then it takes six minutes of simple labor time to obtain a dollar. Six minutes of simple labor will be the value of the currency. (Workers perform this labor time. Capitalists induce it from others in exchange for a payment of wages.) Similarly, under a gold standard, a certain amount of labor time is performed to produce a commodity that is exchangeable at a fixed rate for the state currency.

In a gold standard, the rate at which gold is exchanged for currency is fixed by the state. There is also always the possibility that the state will alter the fixed rate at which currency and gold are exchanged. This will cause the value of the currency to change. Likewise, in a fiat-money system, if the government changes the terms on which it issues its currency, such as altering the minimum wage, the value of the currency will change.

This, again, seems to raise the question of what is really money. Is money a commodity, or a social arrangement? And it raises the question, what is really behind money? Is it backed by a commodity, out of human hands, or backed by the state (or grouping of states) that sets the terms on which currency is issued?

Since the rate of exchange under a gold standard is determined by the state, just as the minimum wage and other terms of issue are determined by the state in a fiat-currency system, it seems plausible to suggest that money is ultimately social (fiat based), not natural (commodity based), even during periods in which a commodity standard is maintained. On this interpretation, there is a real basis (in Marx’s sense) to the value of a commodity money for the same reason that there is a real basis to the value of fiat money. In either monetary system, the non-government performs a certain amount of socially necessary labor time in exchange for the state currency.

If this reasoning is accepted, we arrive at the conception of the value of the currency proposed in Modern Monetary Theory (MMT). (Well, really, we arrive at an MMT-influenced interpretation of Marx’s conception of the value of money.) In this conception, it is not denied that gold is quite different to currency. Gold has intrinsic value. Currency does not. Gold may have some attraction to wealth holders that currency does not. But, from the MMT perspective, the reason for this difference in attractiveness would be gold’s property as a real, physical asset, not it’s (sometimes proposed) property as real money. Currency, unlike gold, is only a financial asset. Fiat currency, in particular, is only a nominal claim on real assets. Currency under a gold standard is, in principle, a fixed claim on a particular real asset, though a fixed claim that can ultimately be altered by the state.

Just as the value of the currency under a gold standard is contingent on the state-determined fixed exchange rate with gold, the value of the currency in a fiat-money system is contingent on the terms government specifies and enforces in issuing its currency. Ultimately, successful maintenance of the currency depends on the stability of government and, in particular, the government’s capacity to enforce a tax obligation sufficient to maintain value in the currency. If the state itself collapses, the currency likely collapses with it, yet gold remains a real asset. That is not to say that the attractiveness of gold, as a real asset, is completely immune from social upheaval. Like any real asset it might end up being confiscated. Still, gold and other real assets such as real estate might, at least under some circumstances, be a safer asset than currency, being physical rather than only financial.

Nevertheless, as long as a fiat currency exists, it seems that its value can legitimately be conceived in terms of socially necessary labor time, just as the value of a commodity money or commodities in general can be conceived in these terms, separate from their physical attributes and intrinsic value.

The value of gold (the commodity) depends on conditions of production in the gold industry. The value of currency (whether fiat or gold based) depends on conditions set down by government. The amount of labor required to obtain a unit of currency under a gold standard (assuming the fixed rate of exchange endures) typically varies only slowly (in contrast to its fluctuating price on the commodity market) as efficiency in the gold industry advances. The amount of labor required to obtain a unit of fiat currency also typically varies only slowly as the state allows gradual increases in the minimum wage or – in the absence of minimum-wage legislation – as the wage paid to simple labor gradually evolves. In both types of monetary system, the value of the currency will decline as the amount of labor necessary to obtain a unit of the currency declines. Needless to say, this does not mean, in either system, that total currency on issue commands less use values, nor necessarily that a unit of the currency commands less use values (this will depend on changes in productivity and inflation). A reduction in currency value simply means that it takes less socially necessary labor time to obtain a unit of the currency.

The underlying reason people agree, happily or otherwise, to sell their labor power in exchange for the government’s intrinsically worthless fiat money as opposed to some other money (whether a commodity money, a private money or another fiat money) is that the government has imposed – and enforces – a tax obligation payable only in its own money. At least, this is the chartalist and MMT view. The amount of labor time that has to be worked in exchange for the government’s money will determine the value of the currency. Again, this is the MMT view, but seems compatible with Marx’s reasoning if extended to fiat currency. Government can intensify or ease the tax burden, relative to its expenditures and lending conditions, thereby impacting on the degree to which there is necessity to obtain the fiat currency. For instance, tight fiscal policy (tight in relation to private and foreign spending levels in the domestic economy and potential output) results in unemployment. This indirectly affects the value of the currency by increasing the need to obtain currency while simultaneously making it more difficult to find or stay in employment. When, in this way, workers are made more “willing” to perform labor – the willingness of course being under duress – employers are given greater power in the setting of wages and the decline in the value of the currency is likely to decelerate.

The same considerations would seem to apply to gold and fiat when it comes to the notion of “world money”. Gold is in international demand, but so too are fiat currencies. The underlying reason a fiat currency is demanded by foreigners is the same as the reason it is demanded in the nation of issue. There is an enforced tax obligation that requires some people – citizens of that nation – to obtain the currency for the purpose of paying taxes. And the reason the currency has value, in Marx’s sense, is that a definite quantity of socially necessary labor time must be performed by the non-government to obtain a unit of the currency.


43 thoughts on “Value of Fiat Money on the Basis of Marx in Light of MMT

  1. “Currency, unlike gold, is only a financial asset.”

    I’d say that outside its country of issue gold and currency are the same. They are assets. You buy gold units because you believe somebody else will want them. You buy US dollars (if you’re a citizen of the RoW) because you believe somebody else will want them.

    But you hold your domestic currency because you believe somebody else will want them, but also because you will need some of them yourself to settle debts and tax bills.

  2. The other issue is the concept of ‘value’ – which of course Marxist types spend all their time droning on about.

    If you’ve spent time removing useless metal from the ground, or been paid by the state to count grains of sand then how is either of those of any actual value?

    What is valuable activity sufficient that it should be rewarded with food and shelter?

  3. Peter,

    I am afraid this is well above my pay grade, and I bet what I am going to say is really stupid, so apologies in advance, but (replacing gold with Big Macs) it reminds me of the Big Mac analysis UBS Wealth Management regularly performs: if I am not mistaken, they compile Big Mac prices worldwide and compare those prices with the respective local wages, so as to determine how many minutes of work are needed to buy a Big Mac. Can you compare your idea with the UBS Big Mac?

    See here:

    Big Mac Index

    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?

  4. Magpie, I’m just following MMT in applying to fiat money Marx’s argument that the value of money is determined by the amount of socially necessary labor time required to obtain it. And I’m suggesting this can work within Marx’s framework. There is no suggestion that the value of the currency should be fixed to anything. The currency’s value will change over time as wages evolve (rise, let’s hope!).

    However, there is a question mark over whether Marx thought this reasoning applied to fiat money, or only to gold. (And there is also debate among Marxists over what can function as true money in Marx’s framework.) As we both know, Marx argued that the value of money was the amount of socially necessary labor time required to produce gold because gold was considered the money commodity. The question is, did Marx stress labor required to produce gold simply because he was analyzing the gold standard or because he thought “real” money had to be gold even in a fiat-money system?

  5. Neil: I agree that foreigners (as well as locals with no tax liability) will hold both gold and the domestic currency because they think somebody else will want it. But I still tend to think the willingness of a foreigner to hold the currency is linked to an enforced tax obligation. That is, the underlying reason “somebody else will want the currency” is that they have to pay tax in it. If the tax couldn’t be sufficiently enforced, I doubt many foreigners would be keen to hold the currency. Clearly there are many other reasons to hold (or not hold) a currency, and these other reasons can often be more pertinent to a particular decision to hold the currency at a given time. But I don’t see that as different from saying, as MMT does in relation to domestic acceptance of the currency, that an enforced tax obligation is a sufficient, though not necessary, condition for the currency to be accepted.

    Regarding currency value, MMT considers this too, not just Marx. The question is, what is required to obtain the currency? This is separate from the question of what use values a unit of the currency commands (which can be considered in terms of movements in a price index). In a fiat-currency system, what is required is the performance of a particular amount of labor to the satisfaction of an employer.

    (Value of the currency and inflation are separate concepts, but connected. The connection is outlined in a previous post.)

    In light of chartalism and MMT, fiat currency might also be said to have a use value in its capacity to extinguish the tax obligation.

  6. Re: “if the government changes the terms on which it issues its currency, such as altering the minimum wage, the value of the currency will change.”

    I question that. Usually the minimum wage has lagged, not led, inflation.

    While I agree with the Abba Lerner claim that demand-pull inflation can be controlled or at least influenced by fiscal policy, so that there is some relationship between taxes and inflation, it’s a reach to say that the purchasing power of the dollar is based on so many units of unskilled labor required to pay taxes. Our economy is not based on unskilled labor, and that’s one of the problems with the MMT JG price stability theory.

    You can make a good argument that we have a petro economy, or you can make a good argument that we have a knowledge economy, but I’m not buying the unskilled labor economy claim.

    One can also argue that, while the US claims to have a floating fiat currency, the dollar is for all practical purposes pegged to the price of oil due to our dependence on oil and due to an informal agreement with the Sauds to sell oil for dollars in exchange for the US military protecting the not-so-popular Saudi regime. In effect, we have agreed to let the Sauds control our currency.

    I think you could make a stronger argument that the value of the dollar is how many hours of labor required to buy a barrel of oil, rather than how many hours of labor required to pay taxes.

    As Magpie said, this value-of-currency thing is above my paygrade. In general I think there may be multiple factors that influence inflation, and some of those factors like international commodity prices may be beyond our control. What we can control is taxes and spending. But mostly we should focus on taking care of our people and not worry too much about modest inflation.

  7. Peter,


    “There is no suggestion that the value of the currency should be fixed to anything. The currency’s value will change over time as wages evolve (rise, let’s hope!).”

    Got it. I myself doubted before describing your idea as a “labour standard”.

    Just to further clarify: are we talking here about a (1) policy proposal, (2) about a theoretical device to make MMT and Marxism compatible, or (3) both?

  8. 2. I think it helps to make sense of fiat money from Marx’s perspective. But this is contingent on it being permissible to consider state currency, and not only gold or another commodity, as “true” money.

  9. Dan, thanks for your comment. (Sorry for the length of this reply.) As mentioned in my response to Neil above, value of the currency (whether in MMT or Marx) is a separate concept from inflation or the purchasing power of money, though these concepts are all connected. I try to explain the connection in the earlier post linked to in the response to Neil above.

    I agree with you (and so would MMTers and Marxists) that there are many factors affecting prices and exchange rates. For Marx, of course, there is the further point that commodity prices differ from commodity values.

    There are also many reasons for a currency’s acceptance (as distinct from its value). The MMT claim is not that an enforced tax obligation is the sole reason for currency acceptance, or even necessary. The claim is that it is sufficient, and specifically that it is sufficient for the state’s purpose of transferring some resources from the private to public domain.

    Regarding your comment about unskilled labor, in the context of Marx’s theory, all labor of higher quality is, in principle, reducible to a multiple of simple labor. So it is not that simple labor, as such, determines the value of money in Marx. In his commodity money theory, it was the average quality of labor performed in the gold industry that determined the value of money, and this could be reduced to an amount of simple labor time. By extension, and following MMT, I am suggesting in the post that the value of fiat currency could be conceived as the labor time required to obtain a unit of the currency.

    I am open to your view that it is not necessarily the minimum wage, in isolation, that determines the value of the currency. I think value of the currency in MMT could be conceived in terms of average labor. (I have suggested this approach in an earlier post.) However, MMT appears to treat currency value as being determined by the minimum wage, or “at the margin”, though I may be misconstruing their actual argument on this point (see below). As you would be aware, this leads them to a criticism of a BIG, because if taken literally, it implies that once people can receive currency without performing labor in return, there would be nothing to stop the currency value from falling to zero. We know this argument can’t be true, taken in its extreme form, because already there are some people in some countries who receive currency without performing labor in return, and the currency has not fallen to zero. So, to the extent the argument is valid, it is a matter of degree, which I think MMTers would acknowledge. If so, it suggests value of the currency, for them, is not only determined by the minimum wage but also, indirectly, by the effects of the minimum wage (and other terms of currency issuance) on other wages. A higher minimum wage, a JG, a BIG or an increase in public-sector pay scales will all influence other wages through impact on the bargaining position of workers. So it may be that I have taken the MMT argument too literally, thinking it comes down to the minimum.

    In any event, since in Marx it is always possible to treat complex labor as a multiple of simple labor, possible differences in the conception of the labor time defining currency value do not affect the basic argument in the present post. The argument is simply that MMT’s conception of currency value – what must be done to receive the currency – can be considered in terms of labor time and, therefore, seems compatible with Marx’s theory, provided, in the latter, a state currency – rather than gold – can be deemed “true” money, a point that appears to be controversial among Marxists.

  10. Neil (and others): On a foreigner’s acceptance of a domestic currency, this passage from Tymoigne and Wray’s recent Reply to MMT Critics is on point. (For anyone who hasn’t read this paper, I highly recommend it as a clear, tight and pretty recent summary statement of the MMT position.)

    Palley notes that government currency is demanded for reasons other than paying taxes and that foreigners who may want to hold the domestic (foreign to them) currency do not pay taxes to the domestic government. In addition, in some countries the domestic private sector does not want to use the domestic government currency in many, or even most, economic transactions even though the government is imposing a tax; thus taxes do not drive currency.

    MMT has always made both of these points, indeed, they are critical to understanding MMT. Note that even within a sovereign nation there are individuals who do not owe taxes but still accept the national currency, and foreign currencies can be accepted domestically even though there are no domestic taxes in those currencies. And in some countries there are things for sale only in foreign currencies. All of these situations have been discussed in length by MMT. (Wray 1998) None of this causes problems for MMT. The simple fact is that almost all monies of account are “state monies” and almost all government currencies do have taxes or other obligations standing behind them. Further, even if one can find a money of account and a currency that has no fee, fine, tax, tribute, or tithe backing it, that would not invalidate MMT. Perhaps Palley does not understand the difference between “necessary” and “sufficient” conditions: a tax (or other involuntary obligation) is sufficient to drive a currency; it might not be necessary. MMT theory relies on the sufficient condition, not the necessary condition. There is no part of MMT theory that relies on the necessary condition. Even if Palley could uncover dozens of currencies driven without fees, fines, tithes, tribute or taxes, it would in no way invalidate MMT. It is curious, however, that so far as we know, he has found none that is documented to the standard that a serious researcher would desire. (Tymoigne and Wray, 2013, pp.37-38)

  11. It seems to me values are little fish swimming in an ocean of contextual currents; changing colour according to the angle and intensity of light that strike them, and pov of the observer.

  12. Hi jrbarch

    The word “value” has different meanings in different contexts, and it’s important not to conflate them.

    In a sociological/cultural/philosophical context “value” has a normative, ethical, moral meaning: think of the expression “family values”. Those “values” (which I think you have in mind) are largely dependent and variable. Your metaphor (“values are little fish swimming in an ocean of contextual currents”) seems appropriate in this context.

    However, “value” doesn’t need to be used in that sense. In these other senses, the metaphor is much less appropriate.

    Mathematicians, for instance, also use the word “value”. In a mathematical context, value is something altogether different and much more precise: a specific figure is a value (the value of the square root of 4 is 2; the value of Pi is 3.14159…). Clearly, when a mathematician speaks of the value of Pi, he is not thinking of your metaphor.

    Other fields also have their notions of value. In finance, they have their own use for the word “value” (see here:

    The “value” Marxists talk about all the time is not the “value” you seem to have in mind.

    Another way to see that is comparing the word “mass” as used by Catholics (a religious service), with the word “mass” as used by physicists (a property of matter), or with the word “mass” as in “weapons of mass destruction”.

  13. Thanks Magpie. Yes, I was thinking of a human value. Although 2+3=5 is only true because people say so. Is Marxist ‘value’ Peter’s labour time, which in the end is a human value? I once saw ‘money’ defined as concretised human energy, hence ‘value’ invested (which I guess is another word for expectation). Supposing I had three breaths left: – what is the ‘future value’ of my expectation to me. I laughed when I thought of ‘mass’. I usually say it words are symbols which mask meaning, which in turn masks significance. My brain has very loose and wandering connections all over Magpie, so you will just have to cut me some slack.

    But I agree: when a human says “pass the relish” half the time we end up with radish. I kind of look for the ‘feeling’ behind words, and that means more to me than concepts. Because I know the person was in a particular state of consciousness, and looking out through a particular window from their ‘home’ at a particular view of the world, to generate the concepts. It’s the people I find amazing. When the orchestra finishes playing, all that is left (well at least for me) is the feeling. The same with people. Would really ‘value’ some more music popping up on this site now and again!!!

  14. Not to worry, jrbarch. You are not the first to stumble on the word “value”.

    The quote below comes from a paper published in 1959, by a professor whom I believe is (was?) an Austrian economist (of all people), and not a Marxist or “fellow traveller” (so he wasn’t trying to make up excuses).

    What Gordon said in 1959 was as true then, as it is now:

    “In a discipline that has long been rife with confused controversy, there is no concept, or perhaps should I say there is no word, which has borne a greater share of this confusion than has the notion of value; and around no set of doctrines concerning value have the problems been greater than around those that are normally called labor theories of value”. (page 462)

    Donald F. Gordon. What was the labor theory of value? The American Economic Review. Vol. 49, No. 2, May, 1959


    Regarding your question (“Is Marxist ‘value’ Peter’s labour time, which in the end is a human value?”), although Peter can answer for himself, I’d advance the “official” Marxist definition of value:

    Unfortunately, it’s rather longuish…

  15. The Marxist definition does seem to fit in pretty well with the notion of ‘money’ as a symbol of concretised human energy (labour) Magpie. It’s really quite dehumanising when the meaning and significance (humanity and money as something meant to minister to human need) is stripped from the symbol.

  16. Peter,

    You mistake my meaning. When I say that foreigners accept currency in the same way as gold, what I’m saying is that there is no further impulse for them to carry either asset.

    Gold is functionally useless (for the overwhelming majority of gold), and so are Canadian dollars in other functional currency areas. They are simply stores of value that have that value because you believe somebody else wants those things.

    Whereas if you are Canadian in Canada you hold Canadian dollars because you believe somebody else will want them, but also because you need them to settle taxes and debts.

    Whereas gold is held by Canadians in Canada solely because they believe somebody else will want it! It is always an ‘asset’ rather than a ‘currency’.

    So my argument is that currency isn’t currency in the hands of a foreigner. It’s just an asset.

    It only becomes currency when in the hands of somebody who has to settle debts or taxes in the area that takes the currency.

    So it’s really a description of how easy the thing can turn from a stock into a flow. Gold doesn’t flow that easy because it generally has to be swapped for currency before you can transact in the real economy. Similarly with Canadian Dollars in the UK.

    But when I’m in Canada, my Canadian dollars get me my a box of Timbits at pretty much every corner.

  17. “The question is, what is required to obtain the currency? ”

    I’m not sure it is. I know this comes from Marx and Keynes, but I have real problems with the concept and the arguments behind it. It doesn’t pass the reality smell test to disconnect it completely from resources.

    Why does just giving something up give anything any value – particularly if that time is not utilised to do anything? I just don’t think the argument passes muster.

    The main reason an income guarantee cannot work is because an income guarantee can never exist. It is always a job guarantee, except that the job is “use my day spending the money that I am given”. Others in society refuse to accept that is of sufficient value and politically agitate to have the income removed. Hence why pension ages are extended, student grants cut, and unemployment benefit pared back from a living wage to a pittance. The implicit ‘job’ is not seen as worth the candle by others in society, and never will be.

    You have a hard enough time convincing people that other forms of work and activity are worth the candle, and it may be in some societies that Job Guarantees cannot be implemented because none of the jobs proposed are seen as ‘worth the candle’, and the ones that are are already filled by the private sector.

    Then you’re really stuck.

  18. If you ever struggle to sleep just listen to a debate amongst the various flavours of Marxists over the term ‘value’ 🙂

    It goes beyond philosophy into something else entirely I swear – but I’ve normally nodded off before then.

  19. I think the ‘value of the currency’ concept of MMT is actually highly pertinent to capitalism.

    Viewed from one side, it is saying that for workers to obtain a unit of the currency, they need to perform x amount of socially necessary labor time. It is a measure of difficulty in accessing what in a monetary economy is essential to their survival, and given capitalist property relations, indicates the degree of coercion that is being exerted on them to sell their labor power to an employer. The coercion is applied to workers more broadly than just in the tax obligation, but it is the tax obligation that creates their need for a particular currency (the state currency).

    Viewed from the other side, it measures capitalists’ command over socially necessary labor time. The value of the currency indicates how much labor time a unit of the currency enables them to purchase. Their accumulated money capital commands a certain amount of socially necessary labor with which they can undertake further exploitation of labor, appropriation of surplus labor as profit and ongoing accumulation.

    So, again, I would say currency value as defined by MMT is a concept that is highly relevant and captures a fundamental aspect of the current system.

  20. Thanks, Tom! I remember reading this or a similar paper (or version) very early after my introduction to MMT — too early, before I’d arrived at much understanding of MMT itself, let alone its possible links to prior theory of a monetary production economy. It’s time I gave it a thorough re-read.

    In case it is not clear to everyone — and further to Magpie’s question above regarding purpose — my motive in this post and related ones is not to minimize MMT by claiming it is a subset of Marx or must be interpreted on the basis of Marx, or to minimize Marx by claiming he needs to be interpreted in light of MMT. These are clearly standalone approaches. Each can obviously exist independently of the other. I am, however, interested in compatibility of the two approaches because, personally, I find both approaches largely convincing. I just think each approach offers insights that can enrich the other. This requires me to explore whether being largely convinced by both is a contradictory position or, as I expect, valid because of a fundamental compatibility between the two. By compatibility, I simply mean that adopting one approach would not necessitate a rejection of the other approach, even though many, coming from a different view of the world, might no doubt (legitimately) accept one and reject the other.

  21. My observation is, every day, 7+ billion of us get up every day, and chase ‘something of value’.

  22. You’ve got me chasing some music to post, but it might take a while. I have been trying to stay “disciplined” and “on topic”. It won’t last.

  23. The problem with Marx now is that he was writing in a historical context that no longer exists and in terms of somewhat different issues and problems than face us today.

    The contribution of Marx that is still most valuable is his recognition that the issues are not chiefly economic but social and political, that is, cultural and institutional, hence, historical and developmental.

    We have to remember that Marx was not an economist but like Adam Smith a philosopher. Both of them can be viewed as founders of economics as a discipline that spun off from philosophy as did logic, math and the sciences to become disciplines in their own right.

    In addition, Marx was not only a founder of economics but also sociology and his legacy, being more sociological, has been carrie forward by sociologists, economic anthropologists, and institutional economists.

    Geoffrey Ingham, emeritus professor of political economy and sociology at Cambridge University, and author of The Nature of Money, also wrote a book called Capitalism. In it, he summarizes the history of the debate and brings it up to date. The latest edition has a postscript on the financial crisis.

    IMHO, this is a much much deeper and broader analysis of the capitalist system than economists have produced. Ingham’s approach is historical and analytical, and he doesn’t propose solutions to the challenges he identifies. Rather he shows that the present course in not working and appears to be unsustainable. What the fixes may be, or the new course to be set remains to be determined, perhaps occasioned by systemic breakdown resulting from the false assumption that a free market society is self-correcting as well as self-augmenting.

    Ingham locates the problem in institutional power and the ability of wealth to capture institutional power in a capitalistic system under representative democracy.

    Where power is asymmetrical, economic rent can be extracted, which disrupts Smith’s natural order and falsifies Say’s law. As Keynes realized, it is really rent extraction that results in the demand leakage that leads to insufficient effective demand to sustain full employment of available resources, including labor. Thus, his prescription to euthanize the rentier.

    So it would seem that the issue could be resolved by balancing capitalist power with state power. But historically that has been a cyclical affair. At this point, according to Ingham, the ascension of capitalist power, especially that of finance capital, is threatening the system with breakdown. He concludes that the financial crisis is not over yet (2011). It is far from clear that the power of finance capital can be contained politically since it has its tentacles into both parties in the US, for example. Just as Wall Street controls Washington, so too, the City controls London.

    As far as economists go, I would look at work of Michael Hudson, and Bill Black and Randy Wray (UMKC) as well as Bill Mitchell; Herbert Gintis, Stephen Resnick, Richard D. Wolff and Richard Edwards (University of Massachusetts Amherst); Michael Perelman (California State, Chico), and Philip Mirowski and David Ruccio (Notre Dame).

    I also highly recommend the work of economist Kenneth Boulding, a co-founder of General Systems Theory and developer of evolutionary economics. He adopted a system approach in contrast to a disciplinary approach and contended that economics and the life and social sciences were all needed to adequately study the issues that humanity faces in that these issues are interconnected. So there is no purely economic solution to economic challenges, for example.

    Of course, it would be remiss not to mention Karl Polyani, especially The Great Transformation, which also argues for a much broader conception of economics. It would also be an oversight not to included the institutionalists, beginning with Thorstein Veblen, down to John Kenneth Galbraith and The Good Society: The Humane Agenda (1998).

    The comprehensive and historical approach that Marx undertook has been carried forward through people like this to the present, whence it is influencing economists just coming along, many of whom are demanding a broader, deeper and more realistic approach to economics than is now being taught for the most part.

    So while it is valuable to look back to Marx, a lot of work in a similar vein has been done since then. We just need to broad the scope of the debate to include what conventional economists are marginalizing and also include relevant input that doesn’t presently count as “economics.”

    It’s long since past time to put people and the environment ahead of money and machines. This is the real impact of a labor theory of value of some sort, which Abraham Lincoln realized was obvious. See following quote.

  24. “It is not needed nor fitting here that a general argument should be made in favor of popular institutions, but there is one point, with its connections, not so hackneyed as most others, to which I ask a brief attention. It is the effort to place capital on an equal footing with, if not above, labor in the structure of government. It is assumed that labor is available only in connection with capital; that nobody labors unless somebody else, owning capital, somehow by the use of it induces him to labor. This assumed, it is next considered whether it is best that capital shall hire laborers, and thus induce them to work by their own consent, or buy them and drive them to it without their consent. Having proceeded so far, it is naturally concluded that all laborers are either hired laborers or what we call slaves. And further, it is assumed that whoever is once a hired laborer is fixed in that condition for life.

    “Now there is no such relation between capital and labor as assumed, nor is there any such thing as a free man being fixed for life in the condition of a hired laborer. Both these assumptions are false, and all inferences from them are groundless.

    “Labor is prior to and independent of capital. Capital is only the fruit of labor, and could never have existed if labor had not first existed. Labor is the superior of capital, and deserves much the higher consideration.

    “Capital has its rights, which are as worthy of protection as any other rights. Nor is it denied that there is, and probably always will be, a relation between labor and capital producing mutual benefits. The error is in assuming that the whole labor of community exists within that relation. A few men own capital, and that few avoid labor themselves, and with their capital hire or buy another few to labor for them. A large majority belong to neither class–neither work for others nor have others working for them. In most of the Southern States a majority of the whole people of all colors are neither slaves nor masters, while in the Northern a large majority are neither hirers nor hired. Men, with their families–wives, sons, and daughters–work for themselves on their farms, in their houses, and in their shops, taking the whole product to themselves, and asking no favors of capital on the one hand nor of hired laborers or slaves on the other. It is not forgotten that a considerable number of persons mingle their own labor with capital; that is, they labor with their own hands and also buy or hire others to labor for them; but this is only a mixed and not a distinct class. No principle stated is disturbed by the existence of this mixed class.

    “Again, as has already been said, there is not of necessity any such thing as the free hired laborer being fixed to that condition for life. Many independent men everywhere in these States a few years back in their lives were hired laborers. The prudent, penniless beginner in the world labors for wages awhile, saves a surplus with which to buy tools or land for himself, then labors on his own account another while, and at length hires another new beginner to help him.

    “This is the just and generous and prosperous system which opens the way to all, gives hope to all, and consequent energy and progress and improvement of condition to all. No men living are more worthy to be trusted than those who toil up from poverty; none less inclined to take or touch aught which they have not honestly earned. Let them beware of surrendering a political power which they already possess, and which if surrendered will surely be used to close the door of advancement against such as they and to fix new disabilities and burdens upon them till all of liberty shall be lost.”

    [paragraphing changed for readability]

    Abraham Lincoln
    First Annual Message
    December 3, 1861

  25. Neil: Others in society refuse to accept that is of sufficient value and politically agitate to have the income removed. Neil, as I have been saying for a while, this is wrong. And you are making things too complicated. (Which IIRC is something like what Wray said when you brought this up at economonitor.) It is not because others refuse to accept doing nothing as sufficient value, and because they agitate that Income Guarantees don’t work. For imagine a world where people don’t do this, Would the (big, naked = without a higher wage JG to protect it, UBI) BIG work then? No.

    The BIG can’t work because “doing nothing” is not of sufficient value in reality, not just in perception. It still wouldn’t work if people thought “doing nothing” was the most valuable thing. It can’t work because it is obvious to a 10 year old that it is (hyper)inflationary. People like me stop contributing their work to society in a situation of high demand created by the BIG. Decrease supply, raise demand, and in the absence of enormous (and absurdly unlikely) social pressures or savings desires – inflation.

  26. Free time does not equal doing nothing. It can be highly productive. More productive than plenty of activity that occurs in the current formal economy, some of which is not only socially unproductive but damaging, criminal and even murderous.

    Free time can be used for productive and leisure activity. Paid employment is sometimes neither (financial speculation), sometimes only the latter (academic economics), and only sometimes the former.

  27. Yes, of course, I very frequently make those points, more vehemently. How about not “doing socially necessary labor” that may be irksome, that people don’t naturally do. Arguing with him, I used the phrase Neil did.

    The only way that a BIG can work is if it has a JG to protect it. BIG promoting websites are often decorated by a quote from Bertrand Russell. But they never give the whole quote, from Roads to Freedom which of course proposes both a JG and a lower BIG. The means of production of foolish ideas was not so advanced back then.

  28. … that was the promise in the story of the Three Prophets: the prophet of the agricultural revolution, the prophet of the industrial revolution, the prophet of the technology revolution – more free time, freedom from the mill-stones – yeh! (to do the things we really want to do)!

    The modern promises are information, networking and systems development: anyone reporting less stress, more free time? Economists should be compelled to watch hours of time-lapse photography of the cities they dwell in. How come these prophets are turning us into rats?

    Free time is the difference between a human being and a human doing (and usually an unconscious doing). So where Dear Watson, is the value in that?

  29. “It can’t work because it is obvious to a 10 year old that it is (hyper)inflationary.”

    That’s not correct – because we have state pensions, disability benefits and child benefits. They don’t cause that problem.

    Income guarantees are not hyper inflationary for the fairly obvious reason that the tax rate rises on their introduction to claw them back. The tax rate has to be about 50% or so – depending upon the level of saving – for income guarantee to have space. That is recognised by anybody rational in the debate.

    And of course if you are being paid to do nothing, then you’re very likely to want to be paid more to do something. Yet the likelihood is that wages instead will drop (we’ve already seen that in the UK since the compulsory retirement age was lifted and older people start taking up job positions on reduced income – for something to do).

    So we have a situation where you get paid less to do something, and have to be taxed at 50% on that something to make space for those that do nothing.

    Not really a recipe for social harmony.

    People don’t tend to give up what they are doing – because they mostly like doing it or have a ratchet that needs them to carry on doing it (a mortgage for example). What they do is start to agree with those politicians that say they will cut taxes, and take the money away from the ‘shirkers’ who don’t deserve it.

    Which is exactly what has happened with state pensions, child benefit, disability benefit, and unemployment benefit – along with the implicit public sector job guarantee implemented after the war.

  30. “Free time does not equal doing nothing.”

    It may not from your point of view. But that is not the point of view that matters. It’s everybody else’s view of what you are doing that matters. That is how you are judged whether you are worthy or not and therefore whether *they* will share the food and shelter *they* have created with you.

    The question is this:

    “Are you happy to accept a likely decreased wage and pay 50% tax to continue to work 40 hours a week on stuff that society needs doing, while others spend those 40 hours doing what they want.”

    Until you have the overwhelming majority of people agreeing to that statement, you cannot implement. Because those that object will vote for the other guy and stop it.

  31. “Free time does not equal doing nothing.”

    I should point out that I agree entirely with the sentiment and I think we’ve already discussed before that it would be better if everybody accepted that and found a better way of sharing out the socially necessary work.

    However that’s a bit like saying free markets work in a world of rational robots.

    It isn’t the world we have or are likely to get any time soon. We have to work with the current social maturity of the populations we have.

    What one person considers valuable, another does not. The aggregate of that effect drives this ‘value of money’ dynamic I think – along social dimensions as Tom has alluded to.

  32. Sorry, fellows. Yours is a strange discussion.

    Neil Wilson starts by saying of currency and gold: “I’d say that outside its country of issue gold and currency are the same. They are assets.”

    He is right on that. Gold, whether minted or not, is an asset. So, too, is foreign currency (say US dollars, for non-US residents).

    Why would a Russian resident want a US dollar? I don’t know. Nor do I care. There may be thousands of motives, but they are not relevant for the purposes of defining an asset.

    So, what is an asset?

    Well, this is the accounting definition of asset:

    “An asset is anything of value that can be converted into cash. Assets are owned by individuals, businesses and governments.”

    Another, from Google:

    “an item of property owned by a person or company, regarded as having value and available to meet debts, commitments, or legacies.

    And these are examples of assets:

    – Cash and cash equivalents – certificates of deposit, checking and savings accounts, money market accounts, physical cash, Treasury bills;
    – Real property – land and any structure that is permanently attached to it;
    – Personal property – everything that you own that is not real property such as boats, collectibles, household furnishings, jewelry, vehicles;
    – Investments – annuities, bonds, cash value of life insurance policies, mutual funds, pensions, retirement plans (IRA, 401(k), 403(b), etc.,) stocks and other investments.


    Having scored a point (one that I don’t think Peter disputed), Wilson says:

    “But you hold your domestic currency because you believe somebody else will want them, but also because you will need some of them yourself to settle debts and tax bills.”

    Note Wilson’s emphasis shifting: no reference to assets. Now everything seems to depend on the motive.

    And there may well be a tax settlement motive, but that has nothing whatsoever to do with the fact the item is an asset. Check the definition above and the list of examples. Cash is an asset because it is an item of property that can be converted into cash (how could it not?). Period.

    It was like this under the gold standard, it is like this now, with fiat money.

    Motives had nothing to do in the case of the Russian resident above, why should they be relevant here?


    So, both gold and currency (even fiat money) are assets.

    If Peter’s ideas hinge on that, as far as I’m concerned, the argument is settled. No “I’d says”, no buts.

  33. @jrbarch

    “The Marxist definition does seem to fit in pretty well with the notion of ‘money’ as a symbol of concretised human energy (labour) Magpie.”

    Sorry I never got back to you, jrbarch.

    But, yes, I do think Peter may be unto something here. Note in my comment above two occurrences of the word “value”: these occurrences can be interpreted in a Marxist way. 🙂

  34. Thought it practical to provide a link (for the future) to the commentary of another leg of the current discussions, which occurred over at MNE:

    Peter Cooper — Value of Fiat Money on the Basis of Marx in Light of MMT

    Peter Cooper — Significance of MMT’s Definition of ‘Value of the Currency’

    For myself, when kids play in a schoolyard and one ‘owes’ the other – that is credit and debt. If they symbolise that with some physical, digital, or even imaginary token, that is money? Value in the eye of the consciousness that beholds it. For me, depends upon whether that consciousness is looking out into the universe without, or towards the universe within. Without the Sun, there wouldn’t be much value on planet earth

  35. Neil: “It can’t work because it is obvious to a 10 year old that it is (hyper)inflationary.”

    I believe I had qualified it enough to make it clear I was speaking of a big Basic Income Guarantee without a Job Guarantee, of the type that Philippe Van Parijs proposes. This is what plain “BIG” usually means in the literature on it. I agree with the MMT thinkers that this is very obviously (hyper)inflationary, and repeat that this has nothing to do with social pressure or resentment.

    I was not speaking of “state pensions, disability benefits and child benefits” – although there is not much dispute that in a chock-full employment situation, additional (government) spending of any sort, including these tends to be inflationary. This is not an argument that it must not be done, and I of course support all of these at a higher rate than today’s especially as we are very far from chock-full employment.

    I would not harp on it, and ask for precise statements, but for the fact that the debate is dominated by people who say astonishingly foolish things, wishful thinking and changing definitions.

    Income guarantees are not hyper inflationary for the fairly obvious reason that the tax rate rises on their introduction to claw them back.

    What you are saying here is not clear. Of course, tax rates could be changed upon introducing an income guarantee, and it would lead to the kind of problems you identify. But this is not automatic, as “rises on their introduction” implies. Just ordinary progressive taxation (especially if it is indexed, but even if it is not) is not enough to deal with a Van Parijs BIG, especially if it is indexed as proposed. This means either incessant changes in tax rates, culminating in everyone being paid exactly the same whatever they do = no real monetary production economy at all, a BIG inflating down to a pittance if not indexed, or hyperinflation.

    Which is exactly what has happened with state pensions, child benefit, disability benefit, and unemployment benefit – along with the implicit public sector job guarantee implemented after the war.

    Not entirely sure about what you say preceding this, and not sure I agree with you on the facts, the sequence or the causation. “The implicit public sector job guarantee implemented after the war” is mostly different from the others. A JG by its nature is not inflationary, simply because it is something for something.
    My comment is that the decision to get rid of the ips – JG – iatw preceded the 70s inflation and was in no way a response to people resenting shirkers because of their own real troubles. It was a top-down decision made before the oil crises to institute stagnation in response to the excessive prosperity of the lesser people during the 60s. The oil-driven inflation was then used to induce stagnation and bamboozle these people into cutting their own throats.

  36. Hi Peter,

    wondering if you had any thoughts on the impact of deficit spending of a fiat currency on the tendency of the rate of profit to fall?


  37. Hi Tom. In the past, I’ve discussed this question in terms of realized profit and the realized rate of profit (following Kalecki). But I have not yet properly worked it out in terms of produced profit.

    The capacity of deficit expenditure to prop up the realized rate of profit is discussed in these posts:

    Thinking in a Macro Way
    How Much Fiscal Stimulus Will It Take?

    A related post is Fiscal Policy and the Rate of Profit.

    The budget deficit adds to realized total profit P and can prop up the realized rate of profit r = P/K.

    I am still thinking about the problem when it comes to the produced rate of profit. Intuitively, deficit expenditure, by impacting positively on the level of demand, encourages a higher level of output and employment (level of value creation) and so can encourage increased production of surplus value for a given rate of exploitation. It can also lead to a reduction in c/v because it implies a higher level of employment (and v) for given productive capacity (and relative to c). In other words, deficit spending can reduce c/v by boosting employment and therefore v.

    It can also act upon c. Reducing c requires a reduction in the prices of the elements of constant capital. Government can use fiscal policy for this purpose. Alan Freeman argues that the US government did this in a big way during and immediately after WW2 (discussed in the second post linked to above). Government spending on education, R&D and public infrastructure is basically a gift to capitalists to the extent that the expenditures exceed taxes paid by capitalists. Investment subsidies can have a similar effect. Fiscal policy of this kind reduces the prices of the elements of c (and K). The effect is to limit the growth of c relative to v and raise both the produced and realized rates of profit.

  38. Hi Peter,

    Thanks for the great response.

    Those articles are pure gold – I’ve being trying to form a synthesis of Marxist and Post-Keynesian theories on my podcast for the last few years, and these articles have got to the core of the issues involved.

    You absolutely HAVE to come on the show to talk about these articles – I think they are super interesting and merit a lot of discussion. I’ve had a slew of MMT and TSSI people on the show, and it would be great to get you on to talk about how these schools of thought can interact.

    You can check at the show here to see what it’s like:

    Hope to hear from you soon,


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