For Marx and many Marxists, money is based in a commodity; in Modern Monetary Theory (MMT), it is not, being based instead in a social relationship that holds more generally than just to commodity production and exchange. Even so, to the extent that commodity production and exchange are given sway within ‘modern money’ economies, operation of the Marxian ‘law of value’ appears to be compatible with MMT. It is just that, from an MMT perspective, private for-profit market-based activity will be embedded within, and delimited by, a broader social and legal framework that is – or at least can be – decisively shaped by currency-issuing government. Therefore, even though in MMT money is not regarded as a commodity, it seems that a commodity theory of money can be reconciled with MMT provided,
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For Marx and many Marxists, money is based in a commodity; in Modern Monetary Theory (MMT), it is not, being based instead in a social relationship that holds more generally than just to commodity production and exchange. Even so, to the extent that commodity production and exchange are given sway within ‘modern money’ economies, operation of the Marxian ‘law of value’ appears to be compatible with MMT. It is just that, from an MMT perspective, private for-profit market-based activity will be embedded within, and delimited by, a broader social and legal framework that is – or at least can be – decisively shaped by currency-issuing government. Therefore, even though in MMT money is not regarded as a commodity, it seems that a commodity theory of money can be reconciled with MMT provided, first of all, that the connection between a money commodity and currency is understood to apply only to the sphere of commodities and, secondly, that it is legitimate to regard labor power as the ‘money commodity’. An earlier post gave some consideration to the social embeddedness of commodity production and exchange. The present focus is on the notion of labor power as money commodity. On this point, MMT can be understood as directly linking currency to labor power, which, as Marx demonstrated, is a commodity under capitalism. This raises the question of whether labor power can serve the role of money commodity in Marx’s theory.
Commensurability requires a common unit of measurement
Marx emphasized that for commodities to be deemed equal in exchange, they must have something in common. For subjectivists, this substance in common might be utility. In Marx’s theory, the substance common to all commodities is abstract labor.
In the early chapters of the first volume of Capital, Marx often assumes for simplicity that all commodities are priced at their values, with the substance of value being abstract labor. Under this assumption, all commodities, when taken in certain proportions, will require the same amount of abstract labor for their production and so have the same value, making them equal in exchange.
As Marx notes, this equivalence of various commodities, taken in the right proportions, is not directly observable in the commodities as use values. Nor is there an obvious equivalence in the different concrete labors (mining, engineering, bricklaying, truck driving, etc) that go into their production. The act of exchange itself is evidence that the commodities must in some way be commensurable, but this commensurability cannot be explained in terms of the use values or the concrete labors connected to the commodities. For example,
A units of steel require α hours of steel producing
B units of wheat require β hours of wheat producing
C units of coffee require γ hours of coffee producing
and so on for other commodities
Steel as a use value is not directly commensurable with wheat or any other commodity. Likewise, the concrete labor going into steel production is not directly commensurable with the concrete labor going into the production of wheat or any other commodity. For commodities to be commensurable, society must abstract from these differences in use value and concrete labor and instead consider commodities in terms of what they have in common. The social abstraction, according to Marx, is to treat commodities as the products of labor as such – labor in the abstract – without regard to the concrete labor or use value associated with each commodity.
By making this (or, for non-Marxists, some other) abstraction, all commodities are made commensurable and so can be valued in relation to each other. On the basis of this social abstraction, the relationship between all commodities can be expressed in terms of one particular commodity, such as gold, which can then be regarded as the money commodity:
A units of steel = x units of gold
B units of wheat = x units of gold
C units of coffee = x units of gold
and so on for other commodities
In these equations, amounts of each commodity are deemed equal in exchange to x units of gold, which plays the role of universal equivalent. Because gold is a commodity – and so the product of abstract labor – it can express the relative values of all other commodities. By implication, all quantities of use values on the left side of the equations are produced with the same amount of abstract labor as x units of gold.
Currency, in contrast to the money commodity (e.g. gold), is not the product of abstract labor (at least from the perspective of its issuer) and so not a commodity. For this reason, if commensurability in exchange is based in abstract labor, as Marx held, then the currency is not directly commensurable with commodities. The link between currency and commodities must therefore be an indirect one, working through the money commodity. With all commodities equated to an amount of one particular commodity (x units of gold), this amount of the money commodity can then be represented, symbolically, by the currency. For example,
A steel = x gold = z dollars
B wheat = x gold = z dollars
C coffee = x gold = z dollars
and so on for other commodities
Dollars, in this view, while not being directly commensurable with commodities (since they are not the product of abstract labor), can be made so, indirectly, by having each dollar represent an amount of something that is the product of abstract labor, namely the money commodity. In the present example, x gold = z dollars or, equivalently, 1 dollar = x/z gold.
The above set of equations illustrates Marx’s view that a dollar, while directly representing an amount of one particular use value (the money commodity, here taken to be gold), does not directly represent an amount of abstract labor (value) and so is not directly commensurable with commodities as values. A dollar’s relationship to abstract labor, as already anticipated, is indirect, mediated through the direct connection between the currency and a particular use value (the money commodity).
Since a dollar represents x/z gold, the value represented by a dollar, or the ‘value of money’ in Marx’s terminology, will be the amount of abstract labor needed to produce x/z gold. Like all values, the value of x/z gold (and hence the value represented by a dollar) will vary somewhat with the conditions of commodity production. When gold is taken to be the money commodity, the value of money (i.e. the value represented by a dollar) will be affected by variations in productivity in the gold sector.
The money commodity serves two roles in Marx’s theory:
As measure of value, and as standard of price, money performs two quite different functions. It is the measure of value as the social incarnation of human labour; it is the standard of price as a quantity of metal with a fixed weight. As the measure of value it serves to convert the values of all the manifold commodities into prices, into imaginary quantities of gold; as the standard of price it measures those quantities of gold. (Capital, volume 1, Penguin, 1976, p. 192, emphasis added)
As measure of value, the money commodity “as the social incarnation of human labour” converts all the different use values (or products of concrete labors) into “imaginary quantities of gold”. C units of coffee, for example, equals x units of gold. In this way, all use values are converted to the same unit, the gold unit.
As standard of price, the money commodity serves as a basis for quantitative measurement. If an ounce of gold is taken to be one unit of gold, x ounces will be x gold units. Since C coffee equals x ounces of gold, 2C coffee equals 2x ounces of gold and 0.5C coffee equals 0.5x ounces of gold.
Prices can be expressed either in terms of the money commodity or the currency:
1 unit of steel = x/A ounces of gold = z/A dollars
1 unit of wheat = x/B ounces of gold = z/B dollars
1 unit of coffee = x/C ounces of gold = z/C dollars
and so on for other commodities
In general, the gold price of a commodity is the number of units of gold for which it exchanges. The money price of a commodity is its gold price expressed in monetary terms. Since z dollars represent x gold, z/x dollars represent one unit of gold.
The rate at which the money commodity exchanges for currency – z/x dollars per unit of gold in the present example – may or may not be fixed, depending on institutional arrangements. Under the gold standard, which was a relatively short period (historically speaking) but in place at the time of Marx’s writing, the rate of conversion was fixed by the state. But in general it need not be, as is clear from present reality in which no commodity standard is in force.
Labor power as the universal equivalent
As has been discussed, for Marx the currency cannot directly represent amounts of abstract labor because the currency itself is not a product of abstract labor. But this need not preclude the currency from directly representing labor power, because labor power is a commodity under capitalism and so a product, according to Marx, of abstract labor. MMT can be understood as relating the currency directly to labor power, and not directly to labor, and so is consistent with Marx on this point.
It is therefore relevant to consider whether the commodity labor power is a valid choice for universal equivalent within the sphere of commodity production and exchange such that
A steel = y labor power
B wheat = y labor power
C coffee = y labor power
x gold = y labor power
and so on for other commodities
Marx opens the third chapter of Capital, volume 1, as follows:
Throughout this work I assume that gold is the money commodity, for the sake of simplicity. (p. 188)
This statement makes clear that gold is not the only candidate for the role of money commodity. It is chosen, in Marx’s analysis, “for the sake of simplicity” (and presumably also because it was the obvious choice at the time of writing, with a gold standard in operation, as well as for a few other reasons that will be considered in the next section).
The first main function of gold is to supply commodities with the material for the expression of their values, or to represent their values as magnitudes of the same denomination, qualitatively equal and quantitatively comparable. It thus acts as a universal measure of value, and only through performing this function does gold, the specific equivalent commodity, become money. (p. 188)
On the basis of this passage, gold is only the money commodity so long as it functions as universal equivalent. As has already been discussed, the universal equivalent renders all commodities “magnitudes of the same denomination” (quantities of a use value) that are “qualitatively equal and quantitatively comparable” (because they are products of abstract labor and can be equated to amounts of the money commodity).
According to Marx,
It is not money that renders the commodities commensurable. Quite the contrary. Because all commodities, as values, are objectified human labour, and therefore in themselves commensurable, their values can be communally measured in one and the same specific commodity, and this commodity can be converted into the common measure of their values, that is into money. Money as a measure of value is the necessary form of appearance of the measure of value which is immanent in commodities, namely labour-time. (p. 188)
For Marx, as has been discussed, it is only because commodities represent amounts of abstract labor that they are commensurable. And it is only because gold, as a commodity, likewise represents an amount of abstract labor that it can serve as universal equivalent.
Marx adds in a footnote:
The question why money does not itself directly represent labour-time, so that a piece of paper may represent, for instance, x hours’ labour, comes down simply to the question why, on the basis of commodity production, the products of labour must take the form of commodities. This is obvious, because their taking the form of commodities implies their differentiation into commodities [on the one hand] and the money commodity [on the other]. (p. 188)
This affirms what has already been noted; that, according to Marx, money (including the currency, as made clear by the reference to a piece of paper) cannot directly represent labor time. But this does not preclude labor power from serving as the money commodity. If, as Marx insists throughout his work, there is a fundamental distinction between labor and labor power, the claim that money cannot directly represent labor time does not at all dictate that money cannot directly represent labor power.
To the contrary, it seems consistent with Marx’s logic to express the relationship between commodities in the following form:
A steel = y labor power = z dollars
B wheat = y labor power = z dollars
C coffee = y labor power = z dollars
x gold = y labor power = z dollars
and so on for other commodities
In these equations, commodities taken in certain proportions are directly equated to an amount of labor power (a use value) which, in turn, is directly represented by the currency (dollars). As yet, the linkage between the currency and abstract labor is not visible. This linkage will come about, indirectly, on the basis of commodity production and exchange, through the factors that determine the value of labor power. The cultural reproduction of y labor power (representing a fraction of the cultural subsistence of workers) will require a certain amount of abstract labor.
Suppose the policy-administered minimum wage is $15/hour. According to Marx, competitive forces will tend to cause wages to reflect the value of labor power, with wage differentials tending to reflect the complexity of the labor power involved (this point is considered further in an earlier post). If the average labor power sold for the minimum wage is designated ‘simple’ with all other labor power in varying degrees deemed ‘complex’ (other designations would be possible without altering the basic point under consideration), then the wage paid on average for the equivalent of an hour of simple labor power will tend – due to competition – to $15/hour. Complex labor power will be treated as equivalent amounts of simple labor power. Labor power that is twice as complex as simple labor power, for instance, will tend to sell for $30/hour, which will represent a payment of $15 for the equivalent of each hour of simple labor power sold to the capitalist.
Viewed in this way, the currency directly represents an amount of labor power, not an amount of abstract labor, and so conforms with Marx’s insistence that the currency cannot directly represent the latter. Instead, and consistent with Marx’s argument, the connection between the currency and abstract labor is indirect when labor power is taken to be the money commodity, just as the connection between the currency and labor is indirect when gold is taken to be the money commodity.
Suppose the rate of surplus value is 100 percent. Since, in the present example, the equivalent of an hour of simple labor power tends to sell for $15, one hour of simple labor or its equivalent will create $30 of monetary value. Half of this newly created value will replace the amount that, as a competitive tendency, needs to be advanced as variable capital, and the other half will represent surplus value.
A dollar, in this scenario, purchases 4 minutes of simple labor power. This is the direct connection between the currency and labor power: one dollar = 4 minutes of labor power. The expenditure of this 4 minutes of labor power in production will, on average, result in the performance of 4 minutes of simple labor. Of the 4 minutes of simple labor performed in production, half will be paid and half unpaid. The dollar used to purchase 4 minutes of simple labor power will enable, through the expenditure of that 4 minutes of simple labor power in production, and so the performance on average of 4 minutes of simple labor, the creation of two dollars of monetary value. The ‘value of money’, in Marx’s sense of the term, will therefore be 4 minutes of simple labor per $2 or, equivalently, 2 minutes of simple labor per $1. In other words, the value of a dollar will be 2 minutes of simple labor. This is the value of money, in a Marxian sense, because it is the amount of abstract labor required to reproduce the amount of the money commodity (here taken to be labor power) that is represented in a dollar.
Let LP denote simple labor power. Placing various commodities in relation to the commodity labor power, with the latter serving as universal equivalent, we have:
A steel = 4 minutes LP = $1
B wheat = 4 minutes LP = $1
C coffee = 4 minutes LP = $1
x gold = 4 minutes LP = $1
and so on for other commodities
As required by Marx, the connection between the currency and hours of simple labor (L) is indirect, mediated through commodity production and exchange, with the value of money (VOM) linked to the value of labor power:
Value of $1 = Value of 4 minutes LP = 2 minutes L
VOM = 2 minutes L per dollar
More generally, for given money wages, the value of money will change with variations in the rate of surplus value (defined as s/v, with s and v denoting surplus value and variable capital, respectively). Letting k = 1 + s/v denote the aggregate markup over money wages:
Value of $1 = Value of 4 minutes LP = (1/k) (4 minutes L)
VOM = (1/k) (4 minutes L) per dollar
In the earlier example, s/v = 1, implying k = 2.
Labor power’s suitability for the role of money commodity
Although Marx recognized the potential for different commodities to play the role of money commodity, it is true that he viewed gold (and, more generally, precious metals) as naturally suited to the status. Even so, the reasons he gives in support of precious metals, especially gold, appear to apply equally, and in some respects perhaps even more so, to the commodity labor power. Like gold, labor power is easily divisible. The former divides into different weights; the latter, into different durations. Like a unit of gold, each unit of simple labor power is of the same quality. An individual unit of simple labor power always has a strictly uniform use value – at all times it represents precisely the same capacity to create value (i.e. perform abstract labor). This follows from Marx’s principle that an hour of simple labor always creates the same value, irrespective of variations in productivity (Capital, volume 1, Penguin, 1976, p. 139), so that the purchase of an hour of simple labor power always transfers to the purchaser precisely the same value-creating potential.
Like the value of gold, the value of labor power varies with the conditions of production, but as Marx notes, this does not affect a money commodity’s function as standard of price.
It is, first of all, quite clear that a change in the value of gold in no way impairs its function as a standard of price. No matter how the value of gold varies, different quantities of gold always remain in the same value-relation to each other. … Since, on the other hand, an ounce of gold undergoes no change in weight when its value rises or falls, no change can take place in the weight of its aliquot parts. Thus gold always renders the same service as a fixed measure of price, however much its value may vary. (pp. 192-3)
Put simply, x ounces of gold always have x times the value of one ounce, and one ounce of gold always constitutes the same quantity of gold. Whatever might happen to the value of gold, due to variations in production conditions, an ounce of gold can always function as a standard of price. The same is true of labor power. Since y hours of simple labor power always have y times the value of one hour of simple labor power, and since one hour of simple labor power always constitutes the same quantity of labor power, the commodity labor power can always function as a standard of price.
In relation to the money commodity’s function as a measure of value, Marx writes:
Moreover, a change in the value of gold does not prevent it from fulfilling its function as measure of value. The change affects all commodities simultaneously, and therefore, other things being equal, leaves the mutual relations between their values unaltered, although those values are now all expressed in higher or lower gold-prices than before. (p. 193)
A change in the value of gold relative to other commodities, due for instance to variations in productivity in the gold sector, will mean “other factors being equal” that all commodities are equated with a somewhat larger or somewhat smaller quantity of gold. A change in gold’s value will affect the level of prices – and, when the condition “other factors being equal” is violated, also relative values – but this change in gold’s value will not prevent gold from serving as a measure of value. It will still be the case that gold represents an amount of abstract labor and so remains commensurable with all other commodities. Here, too, the same can be said of labor power.
Just as in the case of the estimation of the value of a commodity in the use-value of any other commodity, so also in this case , where commodities are valued in gold, we assume nothing more than that the production of a given quantity of gold costs, at a given period, a given amount of labour. (p. 193)
Once again, the same can be said of labor power. One hour of simple labor power “costs, at a given period, a given amount of labour” and so can function as a measure of value.
One relevance of the Marxian value of money is its connection to the price level. As Marx observes,
A general rise in the prices of commodities can result either from a rise in their values, which happens when the value of money remains constant, or from a fall in the value of money, which happens when the values of commodities remain constant. (p. 193)
The price level P can be expressed in the form P = (kw)(L/Y) = (1/λ)(L/Y) where k, as before, is the markup (equal to one plus the rate of surplus value), w is the hourly money wage paid in exchange for simple labor power, L is productive employment measured in hours of simple labor, Y is total real (price-deflated, monetary) output of the productive sectors, and λ is the Marxian value of money (equal to the reciprocal of kw which, for given productivity, equals the ‘monetary expression of labor time’). In the quoted passage, Marx points out that the price level can change because of either a change in the value of money (λ) or a change in the average unit value of commodities (L/Y, the reciprocal of average productivity). Considered in isolation, a change in average productivity (the reciprocal of L/Y) or a change in the value of money (λ) alters the price level.
While the money commodity can serve as both standard of price and measure of value in spite of variations in its own value, it is nonetheless conducive to price stability for the value of the money commodity (λ) to move roughly in line with the average value of all other commodities (L/Y), as the relation P = (1/λ)(L/Y) makes clear. So long as the value of money declines over time roughly in line with the average value of other commodities, as a result of trend improvements in productivity, the price level remains roughly stable.
As already noted, when gold is regarded as the money commodity, the value of money (λ) can be interpreted as the amount of simple labor required to produce a currency unit’s worth of gold. If x gold equals z dollars, the value of a dollar will be the amount of labor required to produce x/z gold. This amount of labor will tend to decline over time due to improving productivity in the gold sector. As a consequence, 1/λ will tend to rise over time, putting upward pressure on prices. Price stability will require that rising productivity in the gold sector roughly mirrors improvements in average productivity for the economy as a whole (Y/L). When this is the case, the effect on the price level of the rise in 1/λ will be offset by the impact of a decline in L/Y (the reciprocal of average productivity).
Under a gold standard, authorities institutionalize gold as the money commodity by fixing the rate at which gold is convertible into currency. By fixing the rate of conversion at x/z gold per dollar, x/z gold is made convertible into one dollar on demand. But this will not be sufficient to maintain price stability to the extent that productivity in the gold sector behaves differently to productivity in the economy as a whole.
As has also been noted, when labor power is taken to be the money commodity, the value of money (λ) will be the amount of simple labor required to produce a currency unit’s worth of labor power. If y labor power equals z dollars, the value of a dollar will be the amount of labor required to produce y/z labor power. Unlike in the case of gold, when labor power is taken to be the money commodity, ongoing improvements in productivity will not necessarily create a tendency for the value of money to fall. The reason for this is that the value of labor power depends on the production conditions pertaining to many commodities, rather than just one, with the quantities and/or number of commodities entering into this determination potentially rising over time. So long as the markup (k) and total hours of productive employment (L) remain the same, a constant proportion of society’s productive labor time will be devoted to the cultural reproduction of the working class. If the money wage paid for an hour of simple labor (w) likewise remains constant, the amount of labor required to reproduce the labor power equated with a dollar will also remain constant. Basically, productivity growth makes possible improvements in workers’ living standards by enabling growth in the production of use values, but the extra use values will not represent more value, in aggregate, so long as the amount of labor devoted to the cultural reproduction of workers remains unchanged.
The different impacts of productivity growth on the value of money, depending on whether the money commodity is gold or labor power, relates to Marx’s macro principle, mentioned above, that an hour of simple labor always creates the same value irrespective of variations in productivity. Because gold is just a single commodity, improvements in gold-sector productivity reduce its value, just as productivity improvements reduce the value of any individual commodity for which production methods improve. The value of labor power, in contrast, depends on the amount of labor going into the production of all commodities consumed by workers. Productivity growth makes it possible to produce more and more use values – both greater amounts of already existing commodities as well as new commodities – that can then enter into workers’ consumption. So long as money wages (w), the markup (k, equal to one plus the rate of surplus value) and total productive employment (L) remain constant, there will be no tendency for the value of labor power to change. Strictly speaking, there will be some change in the value of money to the extent that productivity in the wage-goods sector (meaning all those parts of the economy that participate directly or indirectly in the production of consumption goods for workers) grows at a different rate than productivity in the economy as a whole. But since the wage-goods sector represents a large part of the economy – unlike the gold sector which is only a small part – there is reason to expect productivity growth in wage-goods production to be broadly reflective of the aggregate economy.
The absence of any necessary connection between productivity and the value of labor power creates scope for ongoing, non-inflationary improvements in wages. Since price stability is actually served by a gradual (and preferably smooth) decline in the value of money, it is beneficial for wages to grow in line with productivity. In terms of the expression for the price level, P = (kw)(L/Y) = (1/λ)(L/Y), productivity growth means that Y (real output, a measure of use-value production) continually grows relative to total productive employment (L). As a consequence, the average unit value of commodities (L/Y) tends to decline over time. If the value of money (λ) were held constant, the price level would fall over time. This would place an increasingly onerous burden on private debtors to the advantage of creditors, with deleterious effects for the economy. In the interests of both price stability and generally strong macroeconomic performance, it is therefore desirable that policymakers encourage or engineer a gradual decline in the value of money, roughly in line with the average decline in individual commodity values.
When labor power is regarded as the money commodity, the required gradual decline in the value of money can be achieved through a policy of encouraging or administering wages growth that is tailored to trend movements in average productivity. Periodically increasing the statutory minimum wage along with public sector pay in response to rising productivity would set in motion a process whereby, on the basis of Marx’s theory, competition exerts upward pressure on wages. As the expression for the price level shows, given the markup (k), the wage paid for the equivalent of an hour of simple labor (w) can rise in line with productivity without disturbing price stability.
MMT’s proposed job guarantee would, in effect, institutionalize a direct relationship between labor power and the currency. The program would essentially function as a ‘labor-power standard’, with the administered job-guarantee wage fixing, for a time, the rate at which simple labor power is convertible into currency on demand. With the rate of conversion between labor power and the currency set through the job guarantee, employers in the productive sectors of the economy would need to offer pay and conditions competitive with the program’s wage. In keeping with the factors just discussed, the maintenance of price stability would call for regular revision of the job-guarantee wage so as to promote a smooth, gradual decline in the value of money consistent with the behavior of commodity values in general.
On this last point, it is perhaps worth noting that under a gold standard the decline in the value of money, required for ongoing price stability, occurs without any change in money wages. An implication is that wages growth, under a gold standard, would cause a decline in the value of money beyond what already occurs on the basis of rising gold-sector productivity, and perhaps beyond what is desirable from the perspective of price stability. It is an attractive feature of a labor-power standard that the onus for lowering the value of money over time, in the interests of price stability, can be placed entirely on wages growth, given the political will.
When labor power is taken to be the money commodity, there is a close connection between the Marxian value of money and MMT’s notion of currency value. This connection is considered in an earlier post: