Marx, TSSI and Modern Money

by Jehu

The Daddy-State economy in modern money theory according to MMT theorist Billy Mitchell

Here is an interesting post: Marx, Fiat Money and a Simple Business Card Economy, from the blog, Magpie’s Asymmetric Warfare. The motto of the blog is appropriate: “Maybe the world is going to hell. But I’m not going down in silence.”

The post is actually from February 2016. As things so often happen, it is only now coming to my attention. I came across this piece from the internet the way I come across most things I come across on the internet when it popped up on my blog as a link.

I usually ignore these referrals, but this one contained three words I cannot resist: Marx, Fiat and Money. So I went to investigate. The post began with a quote from one of my old posts and it seems the writer thinks my take on fiat money is wrong. My error appears to have something to do with my misunderstanding of modern monetary theory.

At the top of the page there is a category titled, “Marx + MMT“. Although I think MMT is a crock, I was intrigued by what possible connection this group thought existed between Marx and the modern money school. So I decided to check it out.

*****

That’s where I found this very interesting series of essays by the Australian economist Peter Cooper on the alleged compatibility between Marx’s labor theory of value and modern monetary theory, which he has given the title, Marx and MMT:

Part 1: Three Kinds of Macro Variables

Part 2: A Connection Between the Markup, Exploitation, Currency Value and MELT

Part 3: Finer Points of Marx’s Conception of Labor and His Aggregate Equalities

Part 4: The TSSI and Marx’s Aggregate Equalities

Part 5: Why a Single System & What Did Marx Say?

Part 6: The Temporal MELT

Peter wants to demonstrate that Marx’s labor theory of value is basically compatible with the modern money school argument. Unfortunately, he seems to have a very poor grasp of Marx’s labor theory of value.

Double unfortunate for Peter, he takes, as the basis of his argument, the approach to Marx’s labor theory of value employed by Kliman and Company’s so-called “Temporal single-system interpretation” of Marx’s labor theory of value, (TSSI, for short).

In fact, it turns out that TSSI may be fundamentally compatible with the argument made by the modern money school for reasons Kliman and Company may actually find embarassing.

What ensues is a comedy of errors the likes of which is quite fascinating to behold as Peter reveals all the weaknesses of the TSSI school.

*****

It is not unusual for two fundamentally different approaches in science to arrive at the same conclusions. The most famous example of this is Einstein’s General Theory of Relativity and Quantum Mechanics. Both approaches appear to produce the same result within the limits of our ability to test them. Physicists are so intrigued by this they are trying to synthesize the two approaches to explain the as yet unexplained phenomenon of gravity.

Peter Cooper seems to think he has stumbled on a similar compatibility between the insights of Marx’s labor theory of value, as interpreted by the TSSI school, and the modern money school. I think he is wrong, but he deserves a hearing for his argument. So let me provide a window for his view.

Peter begins in Part 1 of his examination by defining some basic categories of Marx’s labor theory that will figure in the later discussion.

In first place, of course, we have the commodity:

“Marx’s theory of value applies to commodity production. A ‘commodity’ is a good or service produced for exchange in a market. The ‘value’ of a commodity is the quantity of socially necessary labor that is needed to produce it. Labor only counts as socially necessary if it is performed with the average degree of intensity and proficiency currently attained in that line of production. Unless stated otherwise, ‘labor’ always refers to socially necessary labor.”

Having qualified labor to mean only “socially necessary labor”, Peter then introduces the concept of ordinary and complex labor. Complex labor, Peter tells us, is paid a multiple of the wages of ordinary labor. Apparently, Peter forgets he has not explained wages yet, nor even money nor capital on which wages are premised.

In any case, Peter tells us:

“If the average wage is three times the minimum wage, society is behaving as if an hour of average labor is worth three hours of simple labor. In this way, all labor can be reduced to simple labor. The reduction is social, made by society itself, rather than necessarily natural or technical.”

And more. Society is not just behaving as if the average labor is worth three hours of simple labor, it is behaving as if society is not founded on simple commodity production, as in chapter one of Capital, but on the premises of a fully functioning capitalist mode of production!

*****

But before we ask how we managed to blip over multiple chapters of Capital to arrive at a fully functioning capitalist mode of production apparently standing on its own feet, perhaps we should step back for a minute and ask what Peter means by the term, “socially necessary labor”.

Peter argues that labor only counts as socially necessary if it performed with the average degree of intensity and proficiency currently attain in a given line of production. I might quibble with the way he phrases this, but the real question this raises is how might we objectively determine whether a given expenditure of labor meets this test?

We certainly cannot tell whether the labor is socially necessary or not simply by looking at it as it is being performed. In Marx’s labor theory of value, the actual act of labor itself has no value at all.

And, we cannot determine whether the labor is socially necessary by examining the product of that labor either. The value embodied in the commodity produced by socially necessary labor cannot be ascertained by any known direct method, because, to be honest, the value of the commodity is not actually an attribute of the commodity.

What is so confusing about value in Marx’s theory is that it is a social relation between individuals in a community of commodity producers masquerading as a relation between things. We cannot actually see this social relation between individuals within a community of social producers. What we actually see expressed by a commodity when a producer places it in a definite exchange relation with the commodity of another producer is its exchange value.

Value is a social relation between individual commodity producers. This social relationship is expressed as exchange relations between the products of their labor, exchange value. It is from the exchange value of commodities that the money prices of commodities eventually emerge.

*****

Now, Marx takes the above points one step further when he argues:

“The progress of our investigation will show that exchange value is the only form in which the value of commodities can manifest itself or be expressed.”

If value is a social relation between individual commodity producers, Marx says this social relation between individual commodity producers can only be expressed in the form of the exchange values of commodities. There is no other way we can apprehend them.

Which makes this next statement by Peter rather problematic, to say the least:

“A quantity of value can always be expressed in two equivalent and interchangeable ways. On the one hand, it can be expressed as a quantity of labor, measured in hours. On the other hand, it can be expressed as the equivalent amount of money, measured in a particular unit of account.”

According to Peter, and contrary to Marx, the value of commodities can be expressed as quantities of labor, measured by the duration required for their production. And it can also be expressed in the form of an equivalent amount of money, denominated in a particular unit of account.

Remember, above Peter told us:

“Unless stated otherwise, ‘labor’ always refers to socially necessary labor.”

So, when Peter argues that the values of commodities can be expressed as quantities of labor, he means they can be expressed as quantities of socially necessary labor. This adds a complication to his argument he does not acknowledge.

For instance, it is one thing to measure the duration of labor expenditure required to weave a given quantity of yarn into 20 yards of linen by a hand-loom. But it is quite another to compare the value created by this labor expenditure to the value created by a much reduced expenditure of labor required to weave a given quantity of yarn into 20 yards of linen by a power-loom.

The power-loom assisted weaver requires only half the labor of the hand-loom weaver to produce 20 yards of linen; but, in Marx’s theory, they both create the same value. How can the values of the linen be expressed as quantities of labor when the labor actually expended on production of one of the commodities may not be entirely “socially necessary”.

*****

As I will show next, this has a fatal implication for the so-called monetary expression of labor time, that the TSSI school employs in place of Marx theory of money.