May 15, 2019

MMT, money, value, and transcendental Capitalism

Comment on Peter Cooper on ‘Currency Acceptance, Currency Value, and Transcending Capitalism’

Blog-Reference and Blog-Reference

Peter Cooper argues: “A currency’s role as public utility hinges on currency acceptance. A currency expresses (marxist) value in the sphere of commodity production so long as it represents an amount of socially necessary abstract labor. If so, it is relevant to distinguish two questions: (i) what drives acceptance of the currency? and (ii) what determines the value of the currency?”

Peter Cooper answers the question of acceptance: “Government has the authority to impose taxes (and other obligations) on members of the community and specify what will be accepted in payment. In principle, this authority is bestowed upon government by the community and, ideally, will be exercised in a democratically accountable way.”

This is not correct. Imagine an elementary production-consumption economy consisting of the household sector and the business sector.#1, #2, #3 The business sector pays the wage income Yw with own IOUs, and the households, in turn, fully spend the IOUs for buying the consumption good output from the business sector, i.e. C=Yw. The workers will accept the business sector’s IOU’s as payment if they can be reasonably sure that the creation/destruction of IOUs is fraud-safe. This can best be achieved if the business sector’s IOUs are replaced by the central bank’s generalized IOUs, i.e. by fiat money. The acceptance of fiat money does NOT depend on the taxing power of the state but on institutional safeguards.

Peter Cooper answers the question of value: “In Marx’s theory, ‘value’ (defined as socially necessary labor time) governs commodity production and exchange.”

This is not correct because Marx’s Theory of Value is provably false. Marx got profit, exploitation, and classes wrong.#4 To this day, Marx and Marxians lack the concept of cross-over exploitation.#5

From the true macrofoundations follows the macroeconomic Law of Supply and Demand as shown on Wikimedia.#6 It says:

(i) An increase of the expenditure ratio ρE≡C/Yw leads to a higher market clearing price (the Greek letter ρ stands for ratio). An expenditure ratio ρE greater than 1 indicates deficit-spending/dissaving/credit-expansion, a ratio ρE less than 1 indicates saving/credit-contraction.

(ii) An expenditure ratio greater than 1 makes that macroeconomic profit, i.e. Q≡C−Yw or Q≡(ρE−1)Yw, is greater than zero.

(iii) Deficit spending, i.e. the move from ρE=1 to ρE greater than 1 causes a one-off price hike but NOT inflation.

From the macroeconomic Law of Supply and Demand follows the purchasing power of the wage a.k.a. the Value of Money as W/P=R in the elementary case of budget balancing, i.e. of C=Yw or ρE=1. In other words, the Labour Theory of Value is false since the founding fathers. Value does NOT depend on socially necessary labor time.#7 The Value of Money depends on productivity R.

When the government sector is added the macroeconomic Profit Law reads Q≡(G−T)+(I−S) or Public Deficit (G−T) = Private Profit Q if I and S are taken out of the picture for a moment.

So, profit in transcendental Capitalism does NOT depend on the exploitation of the workers but on the deficit spending of the government sector and the household sector. Roughly speaking, transcendental Capitalism is state-sponsored.#8 The accumulated sponsoring is measured by the public debt which stands currently at $22 trillion. The so-called free-market economy is already for a long time on full life-support of the state.#9

Egmont Kakarot-Handtke

#1 This is the true core of macroeconomic premises: (A0) The objectively given and most elementary systemic configuration of 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.
For a start X=O, i.e. market-clearing holds. The ratio ρE≡C/Yw is called the expenditure ratio; ρE=1 indicates budget balancing of the household sector.
#2 True macrofoundations: the reset of economics
#3 MMT is dead
#4 The thing with profit and exploitation
#5 Capitalism, poverty, exploitation, and cross-over exploitation
#6 Wikimedia AXEC101 Law of Supply and Demand, elementary production-consumption economy
#7 Economics ― nothing but claptrap, twaddle, drivel, slip-slop, wish-wash, waffle, and proto-scientific garbage
#8 No future for Socialism and Capitalism
#9 Keynes, Lerner, MMT, Trump, Biden, and exploding profit

Related 'The objective value of money'. and 'MMT: fundamentally false' and 'Warren Mosler: scientific dilettante and political fraudster' and 'MMT: The fusion of Wall Street and Academia' and 'Rethinking the Profit Law' and 'Basics of Value Theory' and 'Mathematical Proof of the Breakdown of Capitalism'.