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.

Before proceeding, it perhaps should be spelt out that value of the currency is a separate concept from other macroeconomic concepts such as the general price level, inflation and productivity. (This is obvious to those with a background in Marx, but not necessarily to others.) It is also separate from the concept of the ‘monetary expression of labor time’ (MELT). But, although separate, value of the currency is connected to all these other measures in clear ways. Some basic connections between currency value, inflation, productivity and distribution (see here) and between currency value and the MELT (see here) were discussed in earlier posts.

For present purposes, one simple distinction is perhaps worth noting. If we are told that a typical house currently goes for X “Fiats” and that this price has risen over the past decade by π percent per year, we know the price of a typical house and the rate of inflation in its price. But until we know what it takes to obtain a Fiat, we don’t know whether a typical house is easy or difficult to come by and whether it is getting easier or more difficult. Value of the currency, when defined in the MMT way, relates to this question. By specifying what is required to obtain a Fiat, and how this requirement changes over time, we have context in which to size up prices and the rate of inflation. Price on its own is not enough. Nor, conversely, is value of the currency enough on its own.

When currency value is expressed in terms of labor time, the MMT definition gets to the crux of the capitalist social relation and also seems to fit with Marx’s theory of value in general, even if Modern Monetary Theorists themselves have not necessarily adopted this theory of value.* In particular, the definition of currency value captures two sides of the wage labor relation in a way that can be summed up very simply.

Viewed from one side, the side of workers, the MMT definition of currency value is saying that to obtain a unit of the currency, workers need to perform x amount of socially necessary labor. Currency value, under this definition, is therefore a measure of difficulty in accessing what in a monetary economy is essential to workers’ survival, and, together with the general price level, is an indication of the degree of coercion that is being exerted on them to sell their labor power to an employer.

Viewed from the other side, that of capitalists, the MMT definition of currency value 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.


* Although Modern Monetary Theorists do not appear to make explicit use of Marx’s theory of value, other than in relation to their approach to value of the currency, prominent Modern Monetary Theorist Randall Wray has in fact argued in the past for the necessity of both a ‘labor theory of value’ and a ‘liquidity preference theory of value’ in L. Randall Wray (1993), ‘Theories of Value and the Monetary Theory of Production’, Working Paper No.261, The Jerome Levy Economics Institute of Bard College. Hat tip to Tom Hickey.