There is NOT ONE concept in economics that is clearly defined and consistently adhered to.#1 Because of this, every economic debate ends with karmic necessity in the swamp of cross-talk and interpretation and second-guessing of “what Keynes [or anybody else, for that matter] REALLY meant.”#2 One of the worst examples is the double-whopper Value of Money. In 200+ years economists have not made up their minds about what value and what money is and how both are related.
Peter Cooper, according to the preeminent philosopher Tom Hickey “the preeminent authority on the relationship of Marx and MMT”, has no scruples to again display his lamentable incompetence: “An economy’s minimum wage equates a unit of the currency to an amount of labor time. For instance, in marxist terms, a minimum wage of $15/hour sets a dollar equal to 4 minutes of simple labor power. At a macro level, this enables currency value to be defined in terms of simple labor. There are, however, at least two ways in which this connection between currency value and labor could be drawn. One way would be to adopt a labor command theory of currency value. In effect, modern monetary theory (MMT) takes this approach. A second way would be to link the value of the currency to the commodity labor power. Adopting the second approach leads to a definition of currency value that is distinct from the MMT definition but closely (and simply) related to it.”
Let us forget the blather and settle the matter here and now ― once and for all.
The elementary production-consumption economy is defined with this set of macroeconomic axioms: (A0) The economy consists of the household and the business sector which, in turn, consists initially of one giant fully integrated firm. (A1) Yw=WL wage income Yw is equal to wage rate W times working hours. L, (A2) O=RL output O is equal to productivity R times working hours L, (A3) C=PX consumption expenditure C is equal to price P times quantity bought/sold X.
Under the conditions of market-clearing X=O and budget-balancing C=Yw in each period, the price as the dependent variable is given by P=W/R (1a). The price is determined by the wage rate W, which takes the role of the nominal numéraire, and the productivity R. The elementary production-consumption economy is shown on Wikimedia.#3
What is needed for a start are two things (i) a central bank which creates money on its balance sheet in the form of deposits, and (ii), a legal system which declares the central bank’s deposits as legal tender.
Deposit money is needed by the business sector to pay the workers who receive the wage income Yw per period. The need is only temporary because the business sector gets the money back if the workers fully spend their income, i.e. if C=Yw. Overdrafts are needed by the household sector for consumption expenditures if the households want to spend before they get their income.
For the case of a balanced budget C=Yw, the idealized transaction pattern of deposits/ overdrafts of the household sector at the Central Bank over the course of one period is shown on Wikimedia.#4
The household sector’s deposits/overdrafts are ZERO at the beginning and end of the period. Money is continually created and destroyed during the period under consideration. There is NO such thing as a fixed quantity of money. The central bank plays an accommodative role and supports the autonomous market transactions between the household and the business sector. From this follows the average amount of transaction money (commonly referred to as stock) as M=κYw, with κ determined by the transaction pattern. If employment L is doubled, the average amount of transaction money M doubles. In a well-designed fiat money economy, growth is not hampered by a lack of the transaction medium. Money is endogenous and neutral.
The macroeconomic Law of Supply and Demand (1a) implies W/P=R (1b), i.e. the real wage is always equal to the productivity no matter how the wage rate W is set. In other words, the real value of money is in the elementary production-consumption economy equal to the productivity R and has NOTHING to do with “socially necessary labor”.
Ramifications: (i) The State is needed for the institutional setup of the monetary order, (ii) the State is NOT needed for injecting money into the economy, (iii) what is needed is an accommodative Central Bank, (iv) neither the State nor the Central Bank interferes with the autonomous transactions of the household and business sector, (v) money is a generalized IOU, (vi) money is created and destroyed by the transactions between the household and the business sector, (vii) the value of money is given by W/P=R (1b), i.e. is equal to the productivity, (viii) the value of money does NOT depend on the (average) amount of money M, (ix) the functionality of monetary institutions and the value of money does NOT depend on the taxing power of the State.
Bottom line: both Marx and MMT got the Value of Money wrong. Unfortunately, “the preeminent authority on the relationship of Marx and MMT” and the rest of the MMT crowd#5 lack the brain-power to grasp it. Fortunately, they still have enough blather-power available to pollute the econblogosphere with proto-scientific garbage.
#1 Mad but true: 200+ years after Adam Smith economists still have no idea what profit is
#2 Marshall and the Cambridge School of plain economic gibberish
#3 Wikimedia AXEC31 Elementary production-consumption economy
#4 Wikimedia AXEC98 Idealized transaction pattern
#5 Refuting MMT’s Macroeconomics Textbook
Related 'Value — the Bermuda Triangle for economic theories' and 'The creation and value of money and near-monies' and 'The Theory of Value and the worthlessness of economics' and 'How to get out of psychology/sociology/wish-wash' and 'Basics of Value Theory' and 'Here is the long-overdue scientific death certificate for Marx and Marxists' and 'The objective value of money' and 'MMT and Marxism: A debate between proto-scientific zombies' and 'Neoclassics and MMT ― much like pest and cholera' and 'Rethinking the Profit Law' and 'How to end the Punch and Judy Show about profit' and 'The thing with profit and exploitation' and 'The Logic of Value and the Value of Logic' and 'The Value of Water and Diamonds: Back to Square One'.
You say: “Interesting discussion, Calcagus and Andre. Thanks.”
Not so. The value of money is given by W/P=R as derived above for the most elementary case. The rest is uninteresting troll-talk, claptrap, twaddle, drivel, slip-slop, wish-wash, waffle, and proto-scientific garbage.
Both MMT and Marxianism are refuted on all counts.#1
#1 For the detailed refutation of specific points go to the AXEC blog and search for ‘Peter Cooper’ (the preeminent authority on the relationship of Marx and MMT according to the preeminent philosopher Tom Hickey).
You say: “Basically, I think everyone agrees with the labor theory of value. … I think empirical work shows that prices are explained by labor with correlation of 95% or something. Joan Robinson said something like- what other choice is there? The problem is formulating the labor theory of value, just right.”
Indeed, that’s the problem of any theory.
The elementary production-consumption economy is for a start defined by three macro axioms (Yw=WL, O=RL, C=PX) and two conditions (X=O, C=Yw). This yields the macroeconomic Law of Supply and Demand as P=W/R.
Now imagine two countries that are equal in all real respects except for productivity. Clearly, the market-clearing price is lower in the country with higher productivity. So, the purchasing power of the wage a.k.a. the value of money is higher, it holds W/P=R.
Note that in both countries the labor input L is exactly the same. But this does not matter because the value of money does not depend on “Socially Necessary Labor” or other figments of the poor imagination of socially unnecessary economists.