MMT does not presuppose a particular theory of value. In principle, it is possible to situate a subjective or objective view of value within it. The present focus is on Marx’s theory of value and, more specifically, his ‘law’ of value. Marx’s law of value, in which commodity production only occurs on the basis of profitability, and profitability derives from surplus labor, is compatible with MMT so long as it is understood that Marx’s law pertains only to the sphere of commodity production, a sphere that is embedded in a broader socio-institutional context. In a modern monetary system, the context in which commodity production takes place is shaped by currency-issuing government.
Compatibility of Marx and MMT
From an interview published in the Morning Star:
Ben Chacko: “So MMT accepts the labour theory of value?”
Bill Mitchell: “Nothing we have done in Modern Monetary Theory, a macro theory, is inconsistent with it. That’s not to say that MMT is Marxist or of Marxist origin: of the core developers most don’t come from Marx, I’m the only one who does, they mostly come out of Keynes. But MMT is not inconsistent with Marx.”
Marx’s theory of value, in which abstract labor is the substance of value, is compatible with MMT. This compatibility is evident in the way MMT approaches currency value. In broad terms, MMT defines the value of the currency as “what must be done to obtain it”. As Wray and Tcherneva (page 15) note, the measure of “what must be done” can be specified in labor time. In Keynes’ terms, the value of a currency unit will be an amount of ordinary labor, with hours of special labor converted into equivalent amounts of ordinary labor. In Marx’s terms, the value of a currency unit will be an amount of simple labor, with hours of complex labor converted into equivalent amounts of simple labor.
One approach, consistent with both Marx and MMT, is to define the value of the currency as the reciprocal of the monetary expression of labor time (MELT). The MELT is the amount of nominal value resulting from an hour of simple labor. The MELT’s reciprocal is the amount of simple labor required to generate a currency unit’s worth (e.g. a dollar’s worth) of nominal value. For Marxists who like to think in terms of a commodity theory, the value of a currency unit, when defined as the reciprocal of the MELT, can be understood as the amount of labor socially necessary to reproduce a currency unit’s worth of whatever commodity is designated as the ‘money commodity’.
Within the sphere of commodity production, labor-power, according to Marx, is treated as a commodity. I have suggested previously that, in a modern monetary system permitting commodity production, labor-power rather than a metal is the most suitable candidate for ‘money commodity’. While there is no commodity standard at present, MMT’s prescribed job guarantee would, in effect, institute a ‘labor-power standard’ in which a currency unit exchanges at a policy-determined rate with simple labor-power, on demand. This rate of exchange – the job-guarantee wage – would anchor the economy’s nominal wage and price structure. The value of the currency can then be understood as the amount of simple labor required for the social reproduction of a currency-unit’s worth of the commodity labor-power. A currency unit, by serving as the equivalent of this one commodity, is able to serve as the equivalent of all commodities, in different quantities. Since commodities as products of labor have value, and the currency unit is the equivalent of each commodity, taken in the right amount, the currency unit represents value. This is what is needed, in Marx’s theory, for a currency to express (marxian) value and serve as universal equivalent.
Importantly, MMT applies to the economy in its entirety, not merely to the sphere of commodity production in which Marx’s ‘law’ of value (above all, the profit motive) operates. Although commodity production is a major sphere at present, it exists within a broader social and institutional context. Marxian value relations – in particular, the law of value – will be determining within the sphere of commodity production, but not, ultimately, outside that sphere. The sphere of commodity production itself will be shaped from the outside by the institutional context. From the perspective of MMT, a currency-issuing government is ideally positioned to shape the context in which commodity production takes place and to place limits on it.
Socially embedded marxian value
MMT sheds light on the capacities of currency-issuing governments. A currency-issuing government establishes demand for the currency by imposing taxes denominated in it. Government also acts as guarantor of the banking system, which it can either run itself or delegate to agents in non-government. The government’s nominated currency is required for final settlement of transactions. A consequence is that bank deposits are ultimately promises to deliver currency on demand or at a specified point in time and to have sufficient balances in exchange-settlement accounts.
Since at least some (and, at present, many) economic functions are delegated to non-government, there are both public and private sectors. While the latter is subject to regulation, governments at present do not widely impose direct price controls on private-sector entities (though they could, if they wished). Instead, most private-sector prices are left to the discretion of the firms involved, with some exceptions (an important one typically being a legislated minimum wage).
Government hires a fraction of the working-age population and commits to particular money-wage payments. Others desiring employment have to find it in the private sector. Introduction of a job guarantee would modify the institutional context in which commodity production takes place but not alter fundamentally the way the law of value plays out within the sphere of commodity production.
So long as public sector employment in combination with other not-for-profit activity does not exhaust the entire workforce, there is a potential role for commodity production. From a Marxist perspective, this production will be subject to the law of value and so only occur when expected to be profitable.
A question that arises is the extent, if any, to which government and the public sector – and not just the private sector – are subject to Marx’s law of value.
On the basis of MMT, it is clear that currency-issuing governments will be unencumbered by the law of value so far as operations in their own currencies go, but that currency-using governments, at least so long as they remain currency users, will ultimately be constrained by it. Even currency-using governments, so long as they have the authority to tax, do have considerable capacity to act along not-for-profit lines. But since they need to obtain the currency before they can spend, they ultimately depend upon tax revenue, profit of public sector corporations, borrowing, or assistance from the currency issuer. Unlike a currency issuer, for whom savings in the currency of issue have no significance, a currency user does have reason to save in the currency, as it can be a source of initial finance for future spending. Whereas a currency-issuing government is constrained only by real resources (what is available for sale in its own currency) and politics, and is impervious to market pressures, a currency-using government is constrained to the extent that the currency issuer leaves it in this predicament. Of course, in the case of a currency-using national government (such as a member government of the eurozone), the predicament is voluntary, and could be changed by reintroducing a national currency. For lower level governments, the predicament is not of their own making (unless they are permitted by higher levels of government to issue their own currencies).
The currency issuer in relation to commodity production
A currency-issuing government can commit to whatever nominal wage rates it deems appropriate for public sector employees. As currency issuer, government is also in a position ultimately to govern real public sector wages. But the government’s control over real public sector wages is not as direct as its control over the sector’s nominal wages because the government, at present, does not widely subject the private sector to direct price controls. Nevertheless, government ultimately can govern real public sector wages because it holds the levers of demand management – fiscal and monetary policy – including if it so chooses the automatic stabilizing properties of a job guarantee.
In a situation of runaway private-sector nominal wages and prices, in which private firms are enticing workers out of the public sector with better job offers, government does not need to compete on wages in order to retain sufficient staff. Rather, it can tighten fiscal policy (through a discretionary raising of taxes and/or cutting of spending) to discipline private-sector wages and prices. Conversely, if private-sector wages and prices are depressed, government can relax fiscal policy. In more normal circumstances, automatic stabilizers (preferably including a job guarantee) will be sufficient.
Private-sector wages, for their part, are influenced to an extent by public-sector wages because of the need of private firms to offer competitive pay and conditions. In any event, private-sector wages are ultimately subject to the government’s application of fiscal and monetary policy.
In the final analysis, then, policy determines (though not directly or in any precise or easily foreseeable way) the real wage, and therefore the distribution of income between wages and profits. As historical examples, policies of the neoliberal era have underpinned an increase in the rate of surplus value. Before that, policies of the immediate postwar era underpinned real wages growth in line with productivity growth. In the context of a rising organic composition of capital (at least in the US, see Andrew Kliman’s 2011 study, The Failure of Capitalist Production, page 133), this translated into a decline in the rate of profit.
A currency-issuing government’s capacity to influence the real wage is not in any necessary conflict with Marx’s analysis of commodity production: the real wage, for Marx, is socially determined. Nor does the government’s influence over the sphere of commodity production necessarily preclude the working of Marx’s law of value. It just means that if the law operates, it does so within a context shaped by government policy, including the terms on which the currency is issued, the system of laws and regulations put in place, fiscal policy, monetary policy, and administrative policy.
Government sets the basis for profit making by defining and enforcing property rights and establishing a viable currency. It defines the scope for profit making through legislation. It actively creates opportunities for profit making through provision of infrastructure and the setting of economic priorities and incentives. For instance, by establishing and maintaining a system of laws, government creates opportunities for law, accountancy and consultancy firms. By funding basic research and, if it chooses, other forms of research, it opens up possibilities for the application of new technologies in the sphere of commodity production. By investing in the construction and maintenance of public roads, government creates opportunities for car manufacturers, construction companies, businesses situated near the roads, and so on. More generally, public infrastructure creates opportunities for many kinds of businesses. By opening land for the development of suburbs, investing in public transport systems, or investing in public hospitals, government creates opportunities for a construction industry, many kinds of tradespeople, and the providers of many kinds of products and services. Through the public provision or guarantee of public access to health care, government creates employment opportunities for doctors, nurses, administrators, and other medical practitioners. By guaranteeing public education, business has at its disposal a more educated workforce. By encouraging socially beneficial activities or curtailing environmentally destructive activities, government shapes what is profitable and what is unprofitable for the private sector to undertake.
Government itself, of course, ultimately can only operate within the limits permitted by society as a whole. It is really society that is prior to the law of value, and ultimately society (whether consciously or otherwise) that is determining macroeconomic outcomes. It is because society itself is prior to the law of value that a currency-issuing government, whether acting in good faith as society’s agent or in bad faith, is likewise prior to the law of value. To the extent that the law of value is permitted to hold sway, ultimately it does so because society permits it.
Marx and MMT:
Marx & MMT, PART 1 – Three Kinds of Macro Variables
Marx & MMT, PART 2 – The Markup, Exploitation, Currency Value and MELT
Marx & MMT, PART 3 – Marx’s Conception of Labor and His Aggregate Equalities
Marx & MMT, PART 4 – The TSSI and Marx’s Aggregate Equalities
Marx & MMT, PART 5 – Why a Single System & What Did Marx Say?
Marx & MMT, PART 6 – The Temporal MELT
Interpreting MMT’s definition of currency value in a Marxist way:
Currency Value in Terms of Socially Necessary Labor
Currency Value Interpreted as the Reciprocal of the MELT
Marx & MMT – Currency Value and its Relationship to Price Stability
Currency Value, Productivity, and a Currency’s Command over Use-Values
A potential path to socialism or communism, in light of Marx and MMT:
Currency Acceptance, Currency Value, and Transcending Capitalism
Fiat Money is Logically Prior to Capital
Money and Paths to a Post-Capitalist Society
Fiat Money Socialism vs Lower Form Communism
MMT is NOT a Theory of State Capitalism
The monetary expression of labor time: