Money and socially necessary labor time: A (Pre-)Review of Moseley’s new book

by Jehu

You are not supposed to review a book without having read it. This often poses a problem for me, since I never buy books, but sometime want to say something about them before I can steal them off the internet.

Such is the case with Fred Moseley’s new book, ‘Money and totality’. Fortunately, in the case of Moseley’s new book, there is a paper trail going back at least to the 1990s on which I can draw to raise questions about his argument. These pre-publication texts (here, here, and here, along with a recent review of the book by Michael Roberts, raise enough questions about Moseley’s so-called ‘macromonetary’ approach to capital that allow me the opportunity to outline a number of troubling problems with methods.

I will detail them in the following post. The reader is forewarned, however, that what I say here may have already been addressed by Moseley in the book.

What is money?

Money is exchange value, i.e., the value of a commodity expressed in the material of a qualitatively different use value. To say capital begins with money, means capital begins with a use value that expresses the value of all other commodities in its own material.

In labor theory, therefore, money always assumes the prior existence of the  commodity.

But the money form capital initially takes mystifies the origin of capital in commodity production. Thus, when Moseley states the money price of commodities are given, he is doing what the bourgeois simpletons do: assuming the existence of money and money prices prior to production of commodities. By beginning with money and prices, he neatly avoids having to explain how money relations arise out of commodity production.

This was not Marx’s approach. He set himself the task of actually explaining where money and prices come from before turning to his subject, capital. By doing this, Marx accepted the difficult problem of showing how the value of a commodity was expressed in its price. Marx thus spends the first three chapters of Capital demonstrating how money, (the departure point for the capitalist mode of production), arises from commodity production. Only in chapter four does he actually begin to discuss capital itself.

In his macromonetary approach, Moseley argues the reason Marx did not have to transform the values of capitalist inputs into prices is that Marx begins with money and “the same quantities of constant capital and variable capital are taken as given in both volumes [one and three]”. In this interpretation of labor theory of value, value simply explains prices and profits. The capitalist begins with a definite sum of money prior to production and uses this money to buy all of his inputs. Prices of commodities have already been determined prior to being purchased by the capitalist and Marx’s sole aim is to show how profits are produced.

This argument poses several difficulties for analysis of the capitalist mode of production:

PROBLEM 1: Moseley’s approach to the transformation problem inverts production and exchange

First, Moseley’s approach requires an inversion of the act of production with the act of exchange, wherein the relations of exchange are assumed to be given prior to production taking place:

“Both constant capital and variable capital are advanced prior to production, and thus both are known quantities prior to production and the production of surplus-value. Therefore, both of these known  quantities of constant capital and variable capital are taken as given in Marx’s theory of surplus-value and prices of production.”

Since Marx is never dealing with anything but quantities of money and prices, it would seem he never has an occasion to convert values into prices nor vice versa. But is this true? Here is my problem with this argument: While it is true that the circuit of capital begins and ends with money, money is only exchange value, which, in Marx’s theory is only an expression of value. It is not itself value.

Value is the expenditure of some duration of socially necessary labor time. No matter where he begins in his discussion of the mode of production Marx is still required to prove there is a definite material relation between the duration of socially necessary labor time expended on production of a commodity and its price, i.e., its exchange value. Value is not a physical attribute of the commodity itself, like a particle or substance embedded in it. All value tells us is that some quantity of socially necessary human labor was expended on its production. We can’t see this socially necessary labor time because it occurred in the past; we can only infer its prior existence from definite exchange ratios between commodities.

PROBLEM 2: By beginning with prices, rather than values, Moseley cannot explain how the second act of capitalistic exchange necessarily involves greater exchange value than the first.

Between the initial exchange when the capitalist buys labor power and other inputs and the next exchange, when he sells his newly produced commodity, some expenditure of socially necessary labor time takes place in production such that the second exchange involves a greater sum of exchange value than the first. This implies a critical role for the expenditure of socially necessary labor time during the production of the new commodity. It is pertinent to ask how the socially necessary labor time expended to produce the new commodity is converted into its price.

To put this in physical science terms: In the simple schematic for the circuit of capital, m =>[c-p-c’]=> m’, the relation between m and m’ can only be explained by process [c-p-c’], which ‘absorbs’ the value m and ’emits’ the new, larger, value m’. The law of conservation of energy requires us to explain where this change in m came from. Marx had to explain how new value created during the process [c-p-c’] is transformed in the exchange value (price) of the resulting commodity and how the change in the value, [m’ minus m], was created.

Anyone familiar with Capital will know Marx explicitly rules out the idea the capitalist makes a profit by buying low and selling high. He set himself the task of explaining the very existence of profit without resorting to unscientific assumptions that capitalists are cheating everyone else in the market. Marx had to show the conversion of values into prices and his proof had to be quantifiable in order to be considered scientific.

PROBLEM 3: Moseley and Marxists in general already know (or should know) the value of a commodity diverges from its production price.

Moseley discards the transformation problem for the simple reason that he cannot make it “work” to explain how socially necessary labor time determines the prices of capitalistically produced commodities. By which I mean, Moseley (like most Marxists) has concluded he cannot employ Marx’s labor theory of value without accepting that capitalistic prices of production must necessarily diverge from their simple labor values.

Michael Roberts, who, unlike me, has actually read Moseley’s book makes this critical point:

“The mainstream critiques of Marx’s analysis make the mistake (deliberate or not) of arguing that Marx had two logical analyses – first based on values, which had to be transformed into prices. They say, if you start with ‘inputs’ of labour and means of production measured in values (as they claim Marx does), surely you must convert these values into money prices? And if you do so, then, using simultaneous equations, you find that total values no longer equal total prices and/or total surplus value no longer equals total profit. That is because your original inputs in value will also be converted into prices. Marx’s analysis is thus indeterminate or logically inconsistent.”

The point Roberts makes here is pertinent: If you begin with capitalistic production of the commodity, rather than money prices, the standard interpretation of Marx’s theory states you cannot produce results where the labor value of the commodity is equal to its price of production. According to Roberts reading of Moseley, one of two conditions are required for the values of these commodities to equal their prices: the value of the commodity must equal zero or the surplus value of the commodity must be equal to zero. Roberts above statement can be stated mathematically:

v = v+s, when (and only when) v = 0 or s = 0

PROBLEM 4: Although he criticizes the standard interpretation of Marx’s theory, Moseley never explains how his macromonetary approach to labor theory of value differs from that of bourgeois economics.

As Roberts points out:

“Samuelson showed that if you started with two systems – one in values in labour time and one in prices – the labour values can be cancelled out and play no determination in the real world of prices. Prices are then determined by the quantities of things produced and the demand for them (supply and demand).”

According to Samuelson, this meant value and the labor theory of value were irrelevant to the analysis of the capitalist mode of production; the only thing that matters in the analysis of the capitalist mode of production are prices of production. In his review of Moseley, Roberts cites the writer apparently agreeing with this opinion:

“But, as Moseley says, Samuelson was right on the standard interpretation. If you interpret Marx to have two systems of capitalism – one based on values (in labour time or physical units) and another on prices – then you have to transform values into prices. But why bother? – values can be cancelled out. Marx’s value theory then becomes metaphysically unnecessary like the concept of god.”

But is this assertion true? Is it accurate to say starting the analysis of the capitalist mode of production with values leads to the same results as starting with money prices? Clearly, this can’t be true because, as is demonstrated in PROBLEM 3, Roberts argues beginning with labor values leads to results that significantly diverge from those of money prices such that values no longer equal prices or surplus value no longer equals profits or both as was stated above.

Is it significant that values and prices of production diverge in the so-called standard interpretation of Marx’s theory? That is our next problem.

PROBLEM 5: The standard interpretation of Marx’s theory predicts the collapse of the gold standard; a result not predicted by any other approach to Marx’s theory.

Who would have guessed this? Certainly not Moseley or Roberts, even when the theoretical rationale for its necessity is posed to them directly. If Moseley and Roberts are to be believed, the standard interpretation of the transformation problem predict eventually commodity money can no longer serve as the standard for currency prices. The gold standard collapses!

Here is Roberts missing the entire point of the exercise:

“[One] consequence of … the neo-Ricardian/von Bortkiewicz model was that money was tacked onto the capitalist system as a separate department of production: that of gold. In doing so, the price of gold, and thus the price of money under a monetary system based on a gold standard, diverges from its value. So the ‘value of money’ changes, further complicating and confusing the connection between value and price – another mistake of Marx, according to these critics.”

If we set aside the questionable assertion that money is a separate department of production, the so-called neo-Ricardian/von Bortkiewicz model predicts the growing antagonism between values and prices in a system based on commodity money in which prices expressed in the currency increasingly diverge from values expressed in the commodity money itself. The growing divergence of value and price is practically expressed in money appearing to acquire a price that is distinct from its own value, i.e., the collapse of the standard of price.

How can money, which in labor theory has no price, acquire a price distinct from its value? This confused formulation must be interpreted as a growing contradiction between money as the expression of the labor values of commodities, the socially necessary labor time required for their production, and the capitalistic prices of production of these same commodities, the socially necessary labor time required for production of the commodities in their capitalistic form.

Which is to say, at a certain point in the development of the mode of production two distinct and incompatible measures of socially necessary labor time emerge: the real labor times required for production of commodities, on the one hand; and the labor time required for production of the commodities by capital, on the other.


To put this another way, the prediction of the so-called neo-Ricardian/von Bortkiewicz model seems to be consistent with what Moishe Postone asserts are two antagonistic notions of what constitutes socially necessary labor time under late capitalism: the duration of labor time required for the production of commodities as a form of material wealth and the altogether longer duration labor time required for the production of commodities as a form of capitalistic social wealth.