Tuesday, September 2, 2014

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

7 comments:

Anonymous said...

Isn't there something iffy aboout these kinds of foundational searches for the "true value" of a currency? A currency is worth, to its holder, whatever other people will exchange for the currency. Those exchange values are largely a self-sustaining social convention, are alwasy in a certain amount of flux, and don't rest on some bedrock foundation of of ultimate value-providing realty that goes beyond the exchange conventions themselves. Large-scale institutionalized promises conencted with the currency (for example, the promise to exchange some special, particular commodity for the currency, or promises to punish people in certain ways for not handing over designated quantities of the currency) can certainly help to stabilize the value people attach to the currency, and make it less volatile, but those promises don't constitute some kind of foundation of true, objective, agent-independent value.

Tom Hickey said...

The value of a currency is its purchasing power domestically and purchasing power parity. This is information that markets generate on a real time basis.

The question is what this purchasing power is based on, since that information is not given by markets.

There are many factors involved wrt to money in monetary production economies, and looking for one, or a primary one that applies across the board, is probably the wrong way to be be looking.

Money is a complex institutional there are a lot of variables operative in money use. It's unlikely there is a single universal to be found as the "essence" of money's value, and furthermore, the question becomes justification.

While it's true that money is a social construct or social convention, it's rather trivial in that it doesn't yield much useful information other than money is an artifact and not a natural phenomenon.

Moreover, it suggests that the value of money is purely subjective or social and that doesn't seem to be completely right either. For example, many people view price in terms of what they have do to get the money to pay that price, that is, translate the price into work time. That's probably only true down scale though.

At upper levels, people may think in terms of money as financial capital and what it can do given opportunities and their knowledge level.

In both cases, however, opportunity cost plays a role and that has to do with balancing subjective preferences and actual goods available, as well as market prices.

Like most things of interest there are subjective and objective aspects that can be analyzed generally and in specific instances as exceptions.

NeilW said...

Marx influenced people do tend to drone on about value - in the nicest possible way of course.

That sort of suggests that it is an insolvable problem.

If an individual spends time digging gold out of the ground, or is paid by the state to spend time counting grains of sand, how can either of those actions be considered 'valuable' in any real sense?

Hence the silly idea in some quarters that value can only be determined in a market - as though such a thing actually existed.

ISTM that value is actually an emergent property of society, and that trying to tie currency to such a nebulous notion is probably futile.

Matt Franko said...

"money" is a metonym and acts to cover what is really going on...

wiki:

http://en.wikipedia.org/wiki/Metonymy

""Hollywood" is used as a metonym for the U.S. film industry because of the fame and cultural identity of Hollywood, a district of the city of Los Angeles, California, as the historical center of film studios and film stars."

The definition from wiki here overlooks a "division" that always exists within metonymy... it says "film studios" (plural) and "film stars" (plural) so if there was only one "studio" (singular) and one "star" (singular) then there would not exist the metonym "Hollywood" as we would just simply refer to the one studio by name and the one star by name... so the industry becomes divided and then we bring the metonym in... and this division pre-dates the metonym (has to logically...)

So today we have state currency and we have metal which are TWO (plural) different systems so hence the metonym "money" is created in the language... (these two systems are also components of something (not clear) that originally was divided into (at least) 2 components)...

'state currency' is associated with "authority" while the metal(s) are associated with "liberty"... this is probably also somehow representative of the original division that took place and this division is now covered by our language via the metonym "money" which is a conflation of these (at least) 2 components...

So I dont know if its a good idea to be chasing this metonym "money" all around unless why we are doing it is to try to reach a better understanding about what is really going on within the component divisions that are existing behind this metonym... Which is how I look at what Peter is doing here..

Wittgenstein: "[Philosophical problems] are, of course, not empirical problems; but they are solved through an insight into the workings of our language, and that in such a way that these workings are recognized..."

rsp,

Schofield said...

Surely the "value" of money reflects the state of power relationships within a society and those between societies. So, for example, the stagnation of wages in the USA for certain sectors in recent decades can be attributed in part to the legitimacy of outsourcing manufacturing using "barge economics" strategy to maximise profits for corporations.

Matt Franko said...

In electronics we have Amperes/Amps:

"the ampere is a measure of the amount of electric charge passing a point in an electric circuit per unit time, with 6.241×1018 electrons (or one coulomb) per second constituting one ampere."

We don't have "current thingies"...

Tom Hickey said...

In discussing value, it is useful to distinguish means from ends.

"Money" has value as a means to other means and perhaps to ends, such as "happiness."

This opens up a whole philosophical discussion that has been going on in the West since the ancient Greeks. Plato's notion of the Good, which Aristotle explained in terms of final causality, is the paradigm case of an end (telos).

Book I of Aristotle's Nichomachean Ethics investigates differ ideas of good, now called "utility," as the motivator of rational action, with "good" being the object of the rational appetite in contrast the sense appetite that man shares with animals.

The objective of the ancients in the West, as well as Eastern inquiry, was into the highest good for human beings. Most agreed that it lay in fulfilling inherent potential as a human being. What disagreement there was usually centered on what this potential may be.

This investigation became ethics and value theory and was influential in action theory also. Subsequently, this inquiry split into philosophical inquiry, which is normative, and scientific inquiry that is naturalistic.

The former seeks rational guidance in motivation — what should humans wish for and do. The latter describes actual motivation.preferences, decision-making and choice in terms of behaviors.

Economists tend to avoid such inquiry and instead begin with assuming some conclusion of the inquiry as a starting point. Naturally this is their own normative viewpoint, which everyone has. The difference is that some seek to understand the foundations and others don't, just accepting the hand they are dealt by their nurture as being universal and true.

As result, hidden assumptions lurk, key ideas are nebulous and key terms ambiguous, prior inquiry that may be relevant is ignored, and there is little concern whether the view is consistent. And that is just for starters.

Marx was a philosopher by training and expert in Greek philosophy. He knew what the issues involved were and he provided what he thought was a point of view that advanced he debate. Economists following him have not understood what Marx was doing, what issues he was responding to in the debate, and therefore end up criticizing a strawman based on their own assumptions.

I am not saying that Marx was correct or at least correct in everything or overall, but he was a serious thinker. Most economists are not serious thinkers but rather technicians operating in terms of unexamined assumptions and the system that these assumptions erect as a possible world. Interestingly, the possible worlds that economists create are then posited as both real and optimal. Just because mathematics.