Total Value Recall

A nice change-up from recent posts today, I get to comment on Randall Wray’s chat with Grumbine, Defining Value with L. Randall Wray on Real Progressives, March 10 2024.

How could I possibly add any value to what Wray has to say on use of a monetary unit to communicate economic value? Amazingly there was a door Wray left slightly open.

Labour Theory of Value is Not Total Value

Wray does a nice job summarizing Marx, and not in the Monty Python Proust way, although that would have been cool too. (Someone should do that skit.) He leaves out a lot of Steve Keen’s contribution, which is unfortunate, but it’s an “ok” for beginners.

To follow are some bullet-point style further summaries, they are essential points of note before reading the rest of my post.

1. Marx did not understand money, he borrowed too much uncritically from Ricardo and Adam Smith. Even a little bit of a bad thing can be a bad thing. In mathematics one little error can destroy the entire edifice. Thus, when in doubt, you use probabilities, not didactic statements as if you are the boss of all economics philosophy. Marx played too much the boss.
2. The gold commodity is not the state’s monetary unit, and so cannot be the source of the price level.
3. One might estimate the labour time + energy to dig gold out of the ground, but this is a laughable theory of how the price is determined. One cannot use a single operation or process. Prices are always nominal, and gain social currency only when pegged or gauged against some common real process. Digging gold out of the Earth is not a common enough process for a decent theory of monetary value. This renders most of Marx’s analysis of the “money form” ridiculous and obsolete.
4. All real value is derived from a combination of free energy + labour.
5. In a fair political economy the relative real values would be reflected in the nominal value, the latter is the currency unit of account.
6. In all current political economies there is no fairness, and the nominal values do not correlate well with the relative real values. Prices are not entirely random, but the relative ratios are heavily distorted by those who wield undue political power over others.
7. Nevertheless, the only one relative value that truly matters is the price of labour. But this is not saying the LTV is correct. What is morally true is that in a fair system the workers would be fairly compensated, so their labour would be accurately valued in nominal terms, by comparison with real output the entire system can produce.
         (If it is not possible to measure real output, it can still be estimated. Statisticians and decent econometricians are not total dummies. Hence workers can always be granted an approximately fair compensation. Disgruntlement at the edges, although something to be minimized, is not a completely terrible thing to have to tolerate if the alternative is an autocracy.)
8. Principle 7 says that if it is possible to measure real output (within reasonable uncertainty bounds) then workers can always be granted a wage commensurate with their fair share of that output. This cannot be market determined.
9. Point 8 says wages cannot be market determined, this is because markets distort relative prices whenever there is accumulation of monopoly pricing power. In such cases the monopoly currency issuer has a moral obligation to make the workers whole. This is because, as MMT shows, the monopoly currency issuer is the price setter, not price taker. They do so by providing a wage floor via a Job Guarantee. The JG policy is not merely economic pragmatism, it is also moral pragmatism (the bare minimum moral economic policy).
10. Defining a unit of account is remarkably similar to defining engineering units, like “the kilogram”, or “the second”, or “the metre”, and “the ampere”. Only because governments (the people who run them) have no clue about this, they turn what should be an exact isomorphism into less than a mere analogy, they do not even think of the state currency unit in such metrology terms, but they should.
          This stuffs up a lot of things in society, so much is f$\ast\ast$d up in fact that it is an epic tragedy. As in biblically epic.

I don’t blame Marx for this epic tragedy. Everyone who was sucked-in by Adam Smith and Ricardo is to blame — so millions of people can be blamed? Yeah, I would say millions. That’s on the low side. You should not follow tradition unless you carefully scrutinize it and find it agreeable, true, kind, and honest.

Adam Smith’s economics came from a good place, he was a moral philosopher, but that does not make the analysis he handed down to Marx any more honest or good and healthy to swallow. Marx may have had a deep and abiding concern and compassion for the working class, but because he was morally righteous in this respect does not excuse his careless and uncritical acceptance of large chunks of Adam Smith’s thought.

I could say the same for MMT. We should not uncritically accept MMT analysis. You need to always take an MMT analysis as fresh: have they considered political power? Have they considered spiritual economics (kindness, altruism, compassion, sacrifice, ecological sensitivity)? If not, then I’d not want to give it any credence or attention, no matter how correct the analysis was in monetary system comprehension.

Some Comments Through the Open Door

In lieu of more academic writing, I’ll just for now paste the comments I made below the Real Progressive eidos with Randy Wray.

Thoughts on the “need to read” Marx:

@19:00 I have something to tell fellow MMT’ers. You could bother to read Marx but only to be able to be sympathetic to actual living marxists. If you are already sympathetic then reading Das Kapital is a waste of your precious time${}^\ast$. There is nothing in Marx’s works that is not better understood in the MMT literature. Even power dynamics and “capitalism” (if you find the good MMT stuff, like Mitchell).
      ${}^\ast$Because anything you get from Marx that the living marxist does not accept is useless in your dialogue/dialectic with them, and anything they think is in Marx which is incorrect is useless to you in the dialectic with them. Instead, read a bit of Marx, and then when you encounter an actual living marxist just ask them their opinion. In fact this works wonders for dialectic with any ideologue of any colour or stripe,… yes, even a libertarian LOL. You need to understand where they are coming from, make the effort to talk in peace.

Thoughts on theory of value:

@24:30 this leaves some territory open for me to blog about. Wray’s version of LTV is fine for what it is, but in the real world things do not actually trade over the counter according to LTV. Plus you are missing S. Keen — not all real value put into real output is from labour, in fact these days labour is a minuscule amount, meaning you need to look at how energy is produced using all that “dead labour” + free energy from Nature. Better to give this a proper name, like “Total energy theory of value” which accounts for both labour and free energy, let’s call it TETV let’s say.
      We all know lower level workers are grossly under-paid, and a tonne of commodity is way over-priced, sometime ridiculously (a van Gogh, or a Gucci thing, etc). On top of the LTV + we have TETV, but on top of TETV we have TSTV = Total Social Theory of Value — which accounts not just for labour + free energy but for people who have more social power who are able to monopolize sources of free energy (primarily land and the sun light that shines upon the land). Those people have a huge say in determining the monetary unit exchange value, and if given too much power they can completely subvert the more natural LTV (which discounts nature’s free energy) and can make workers pay through the nose for simple commodities necessary for a humble decent non-ostentatious life.
      It begs the question when reading Marx and derivatives, what the heck good is LTV when all the socially important factors in living a decent life are completely subverted in price by political power? Answer is, LTV is only good for stupid nerds who like to idly think about a toy model – the, “what if political power had no say in price determination…” — completely useless thinking time.

Robot Theory of Value

About 26 mins in Wray talks about various other “theories of value”. In our times we should be looking at “oil theory of value”". In a mechanized future perhaps a “robot theory of value”. That all sounds nice and good, but what does it really mean?

Wray correctly answers that if we are serious about realistic economic analysis — fair distribution of total output — then we have to have a theory of how real output gets produced. This implies both Labour and Energy theories. If we ignore the factors going into production, we have an incomplete analysis. A theory of the inputs is also necessary because none of the inputs to production are self-replicating and self-sustaining. Energy systems need maintenance, and also periodic modernization. Labour needs a caring social fabric and healthcare.

If the robots are self-reproducing, then who really needs a theory of robot value? What we would require is a theory of robot control. Then this theory must be implemented! Or at least the best theory we can come up with.

It is no good having self-replicating robots if they only serve the Top Ten Percent, leaving us plebs “free” to fight over the scraps, over the robot surplus.

It should be then clear that a proper “theory of value” cannot ignore the moral dimension. Yet all economics theories of value ignore the moral dimension. Marx did come closest to a moral economics.

In such a scifi future, which God willing may become sci-fact, we will still need a labour theory of value. Even if humans are doing far less work, and have far more leisure, we will still need to be working hard to help each other, in whatever way. Even with robotic assistance all around. Since we would have been the creatures who created the robots, we aught not relinquish our status as creators. There is simply no need to be nihilistic about a roboticized dystopia where humans become extinct due to our worthlessness. Such nihilism is patently absurd. Yet, nor should we go the other extreme and grant ourselves lordship and domain over Nature. Nature Bats Last, so is always ready (so-to-speak) to humble the arrogant.

Setting the Quantity, Not the Price

Wray makes a good point about 42 minutes in: in many cases governments are setting quantity, not price. “We want 50 new armoured tanks this year for the local kindergarten bosses.” (I will use a school or kindergarten as an example of a public sector organization, but the discussion is supposed to be generic.))

This can be ok if quantity is indeed the appropriate target. The issue MMT has with policies of setting quantity targets for everything is that is is plainly bone-headed. Why set a quantity of employed labour when in fact you can always employ all idle wiling labour, and set a floor price? There is no reason not to, unless you fail to understand the monetary system.

Private industry cannot provide such a labour guarantee, only a monopoly issuer of the currency can provide that guarantee, and by all moral accounts, it should implement the guarantee.

But even in the case of the kindergarten teachers, the government should not be fixing quantity, because they cannot control these things. The government (mostly) does not use birth control methods, and cannot control how many new children there will be going to kindergarten next year. The best policy is to allow quantity to float, and fix price. Then supply the currency needed. This way kindergarten bosses can purchase all the play equipment they need keep the children happy.

This however leaves a problem. If the kindergarten managers are given currency to meet their purchasing demands, the supply of materials is still finite. So there must be some rationing system, in place. If that is a market then there is price bidding, which risks inflationary distortions, and power dynamics. But if every kindergarten has the same purchasing power per head of children then this solves the problem. Hence the need for budgets.

If the schools are bidding in a reasonably fair market, so there is some competition between suppliers, then the government need not worry too much about fixing price, and can permit the schools to purchase what they need at market rates. The inflationary risk of such markets is pretty minimal. Although government is providing all the currency without explicit constraint, their allocations to the school are per capita of student, so there is always an implicit currency constraint.

When the funding agency is the monopoly currency issuer the budget is not supposed to be in nominal currency units, it has to be, or should be in real units. The fair share of each kindergarten is per head of children, in real terms. Government merely provides whatever amount of scorepoints are needed to purchase the resources at a fixed price. For governments, budgets are moral and resource constrained documents. They are not monetary constraint documents. All the monetary constraint in a budget is implicit, and known only after the fact.

There is still room for corruption. The supplier of toy equipment might become a monopolist, so might demand a higher price than is fair, but the government can always pay the price, so affordability for the school is never a problem.

The problem is political, since that higher price could, sometimes, lead to one-off upwards price adjustment. Some people mistakenly call this “inflation”. Be that as it may, it cannot cause hyperinflation. However, it is still a potential political corruption problem. Government have the means to deal with this, by properly and fairly regulating private monopolies. Those private firms are, after all, using state services, in particular they use the state’s currency. Something fair should be demanded in return concerning conforming to reasonable corruption-free business practices.

Or is “rule of law” only for those who can afford it?

Monetization

This was a very good portion of the discussion. Wray points out that MMT activists are going to have a hard time insisting government determine the price level. That’s because, even if government policy determines the price level it is never clear to most ordinary people this is what is happening.

With bank credit systems governments also cannot control the quantity of money, which makes market price control very difficult for a government. To truly use MMT to control prices within reasonable inflation bounds governments will find they need to better regulate bank credit. You cannot let the bankers loose, they are “dangerous beasts”" as Mosler likes to say.

People look around themselves and think they want money to buy a car, or groceries, or get their Netflix. They do not ordinarily consider the real reason they need currency is because the government has imposed tax liabilities.

MMT is in the difficult position of stating a fact about the monetary system that most people cannot easily see. Like scientists before Atomic Theory become recognized and widely accepted (that was, remarkably, really only after Einstein’s work on Brownian motion — well after John Dalton).

Doubly frustrating is that once you learn MMT the concept is not difficult to understand. The monopolist always dictates price. They cannot help it, one way or another. They can allow a market to set a price by fixing quantity, but it is still the monopolists choice of pricing policy. People generally fail to see this in the case of government currency systems. But it is plainly true: the government is the price setter, in one way or another, meaning that it must follow from government policy.

What governments tend not to get involved with is then relative price of goods the government is not supplying. This permits a secondary market to form, exchanging goods in the states unit of account, but at prices determined by relative market value. (Like “voting with your wallet”".) It is not a fair system, because some buyers have more purchasing power that is unearned, the privileged rich. So it is never a truly fair market.

If the richer people earned their currency, then it’d be a different story. If one is contributing a mighty amount into the economy, one might expect a greater share of purchasing power, as a simple matter of justice. But no one can possibly, physically, command thirty times the purchasing power of some other worker. No one can possibly work that hard.

Inflation Bogeyman

Wray brings up the tired old stupid-mmt line about “inflation” being the “problem.” I had to comment:

@46:00 the problem is not inflation. Inflation is a continuous increase in the price level. Government would have to be paying continuing higher prices. that’s not realistic. The source of inflation is elsewhere, mainly in interest rates (basic income for people who already have money) and in corruption, supply constraints, monopoly power, &c. Inflation is a political psychology problems — tends to get you voted out of office — but it’s not that bad of a problem, most economics and voters tolerate bit of inflation. What people care far more about is work and income to support themselves with rising prices. The problem is always unnecessary unemployment. If we had decent non-bs jobs and full employment eventually no one care about inflation. They might worry for a little bit, but eventually they’d get the idea: what matters is how much your entire earned scorepoints can purchase, not what one dollar can purchase."

Capitalism is Worse than Marx Thought

Wray did his usual spiel about how Keynes, Veblen and Marx were not too dissimilar. Marx wanted to end capitalism, Keyens wanted to save capitalism, but both were reasonably sincere enough to reach the same conclusions about macroeconomics, only with Marx being more of an idiot about “money”, Keynes being more of an idiot with his eugenics.

My comment:

@50:00 capitalism is not M-C-M’. No capitalist I know wants only more money. They want other goodies for “peer prestige” as much as they need more money. So it is M→C→(M’ + C’). It makes it more disgusting than Marx’s model. Not only are capitalists sucking up rents to get more scorepoints, they also hoard the real goods: real estate, electricity, transport, all the rest. They also produce more of the waste per head. So the correct symbolism is: M→C→(M’+C’+W’) where W’ is for “surplus waste” — more waste generated than anyone else who is not a capitalist.