Posts Tagged ‘Fred Moseley’

Worthless money as a rational absurdity

June 5, 2012 3 comments


For a while now, I have been trying to come to grips with the neoclassical theory of money, which states anything can serve as money and that money doesn’t have to be a commodity. The theory is patently theoretically absurd, contradictory and internally inconsistent as John weeks explains in the paper I discuss in my post. Despite these defects, however, neoclassical money theory not only maintains its dominance in economics, its alternative, commodity money theory, is ridiculed and marginalized even among Marxist theorists.

While reading the John Weeks paper, it began to dawn on me why this is true. I had been spending my effort trying to argue for the superiority of commodity money theory, when I should have been trying to understand the circumstances under which neoclassical money theory made sense. Weeks, in his paper, explains two assumptions which are necessary for neoclassical money theory: 1. the economy has to produce only one composite commodity; and 2. the state must be able to control the money supply.

Weeks thinks both of these conditions make neoclassical money theory wrong, but now I believe he is wrong on this. In the capitalist mode of production, the only true commodity is labor power — the single composite commodity required by neoclassical theory. Moreover, contrary to Weeks’ assertion, the state can control the money supply, if we a speaking of classical commodity money. It need only declare commodity money is not money and replace this money in circulation with its own token, i.e., impose an inconvertible currency in place of gold. This was done in the 1930s in the US and Europe. The state can control the money supply, if by “control” that term includes also setting that supply to zero.

The result was a bit of an epiphany for me, since Weeks is describing how Washington directly manages the US economy as a single giant corporation, despite the economy appearing superficially as numerous separate capitals.

The article was rushed and is in need of serious editing, but I welcome criticism and challenges to this idea.


I want to recommend everyone read John Weeks’ paper, “The theoretical and empirical credibility of commodity money“, because he presents a key to the analysis of neoclassical economic theory that unlocks its inner logic. I missed the juicy goodness of his argument in my first read because I have an aversion to mixing math with social criticism. However, in his math Weeks uncover why money is not a commodity-money in neoclassical theory, and why it cannot be a commodity-money.

Weeks tries to make sense of a troubling rejection by neoclassical economic theory to admit to the obvious internal consistency of Marx’s commodity-money theory:

Th[e] theoretical superiority of commodity-based monetary theory has had little practical impact because of a perceived empirical absurdity of the commodity money hypothesis.

I came to my understanding of fascist state issued fiat money based on one closely held idea that neoclassical economics is not irrational, capitalism is. Yes, capitalism is as irrational as it has been declared by Marxists to be, however no one but an idiot would buy into the neoclassical argument unless it made sense in the context of fascist state economic policy. Since capitalism itself is irrational, a rational person looks like an idiot when he buys into its propositions; on the other hand, accepting the irrationality of capitalist relations of production as the basis for formulating fascist state economic policy is rational.

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Capitalism without Crises?

February 6, 2012 Leave a comment

At the end of his paper, Fred Moseley makes several statements that are important to parse. (PDF: )

This conclusion suggests that the debate over whether or not gold still plays a role in the function of measure of value in today’s economy is less important for Marx’s theory than previously thought. Whether or not gold still plays such a monetary role, i.e. whether it is assumed that credit money represents SNLT directly by itself, or indirectly through gold, it does not make any difference to the quantitative determination of the MELT in Marx’s theory. In both cases, the MELT is equal to the ratio Mp V / L, as in equation (7). Therefore, it also does not make any difference to the determination of the aggregate price level, nor of the total surplus-value produced.

Moseley argues Marx’s theory of money can be dispensed with, since it plays no role in determination of value, prices, and surplus value. As a practical matter, Moseley appears to be right on this: even in the absence of commodity money, labor produces value and surplus value. And, commodity money plays only a symbolic or token role in prices. Finally, if I interpret Marx correctly, money and the circulation of commodities occupy antagonistic poles not only in circulation itself, but between circulation, on the one hand, and a hoard of gold, on the other. Which is to say, between capital (as wealth in circulation, as self-expanding value) and money (as wealth at rest.).

If capital was not prone to crises arising from the mode of production itself, money in Marx’s sense of that term would be unnecessary. This is the side of the equation that Moseley grasps onto as if it is the whole of Marx’s theory of money. Mosley’s argument requires a capitalism without overaccumulation (overproduction) of capital, without crises and stoppages of industry. Once all these elements of capitalism are reintroduced into his argument, that argument collapses and must collapse. Now, the circulation of commodities is no longer smooth and unvarying, but subject to interruptions, imbalances, even periodic collapses. During these periods of crises what serves as money is of acute importance — it cannot be symbolic or token money, but must be actual gold.

During crises, the nominal value of token money, bills of exchange, derivatives, bonds, etc. vanish — as is happening right now in Europe. This devaluation of token money and credit money is expressed as the sudden appreciation of gold “prices” against all symbolic monies.

What remains to be shown is that even if we assume no overaccumulation, crises or industrial stoppages, Moseley never shows in his paper that symbolic or token money can not only serve as measure of the value of commodities, but actually materialize this value in its own form — these two are not the same thing.

To understand the difference consider the difference between labor power employed to produce an automobile or a manicure, and that employed to clear an occupation, or a village in Afghanistan. In the first case labor power is employed to produce a thing having value — even if this employment itself produces no material object. In the second case labor power is not employed to produce anything but broken bones and corpses. In either case tokens can be used to purchase the labor power employed, but only in the first case does the labor power replace its value.

If we consider the capitalist mode of production as the continuous circulation of value through the process of self-expansion the result is obvious: in the first case we get not only the replacement of the value of the labor power, but an additional surplus value; while, in the second case, we get neither replacement of the value of the labor power, nor any
surplus value — just piles of dead bodies.

The quantity of value in circulation has undergone a contraction in the second case of unproductive employment of labor power. Yet, there is no alteration of the quantity of symbols of money in circulation. While it is true these symbols of money now expressed the diminished quantity of values in circulation just as readily as they did the larger quantity previously, it is also clear that they express it the same way a bucket expresses the quantity of water it contains. There is, in fact, no way to tell how much water there is in the bucket merely by examining its outside. Is the bucket full? Half full? Or, empty? Does the bucket contain only water, or does it also contain oil or some other contaminant? If the bucket contains both water and oil, in what proportion are the two liquids present in the bucket.

The fact is, according to Marx’s theory of money, with debased tokens of money it is impossible to separate the socially necessary expenditures of labor time, from labor time that is wasted and unproductive. Without the ability to distinguish between the productive expenditure of labor time and unproductive expenditure of labor time we are led into the fallacy of neoclassical economic theorists who propose the prices of commodities are identical with their values. And, that the total sum of prices of commodities in circulation is identical with the total sum of values of those commodities.

When Andrew Kliman admitted that MELT is not a diagnostic tool, he was admitting that MELT was unable to distinguish socially necessary labor time of society, from labor time that is totally wasted and unproductive. But, the entire point of the social revolution is predicated on just this material differentiation. The whole of the struggle between the two great classes of capitalist society is a fight over what is socially necessary labor time. This takes the immediate form of the fight over the division of the social labor day between wages and profits, i.e., between value and surplus value. But, in the final analysis, it is a fight over labor time that is socially necessary in both these categories, and labor time that is superfluous to either category.

“Here, Fred. Fixed that for ya!”

February 3, 2012 5 comments

In his paper, THE “MONETARY EXPRESSION OF LABOR” IN THE CASE OF NON-COMMODITY MONEY,, Fred Moseley admits Marx argues money is a commodity, but Moseley wonders if this was not just due to the fact Marx was trying to explain 19th Century capitalism.

Some critics of Marx claim his theory is invalidated by the contemporary use of worthless paper money, and Moseley takes exception to this argument. Moseley is clearly trying to salvage Marx’s theory in the age of digital currency, and, I think, his heart is in the right place. But, somehow he just screws up early on in his argument, which leads him off along a tangent wide of his mark. Moseley tries to salvage Marx by throwing out the one thing that is unique to Marx’s labor theory of value — his labor theory of value.

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The Trouble with Marxism (Part Four): Moseley, Marx, Money and Symbols

February 1, 2012 Leave a comment

This section of my critical analysis of Fred Moseley’s “THE ‘MONETARY EXPRESSION OF LABOR’ IN THE CASE OF NON-COMMODITY MONEY” is presented after the generous input of Kirsten Tynan (twitter: @KirsteninMT), who gave up her time to help me decipher the silly equations Moseley uses to illustrate his argument. I take back what I said about the relation between math, autism and mental illness. In fact, @KirsteninMT took time from pressing personal concerns to give me her valuable input — and I want to acknowledge that.

In this section of my critical analysis of Fred Moseley’s MELT theory, my objective will be to get at the argument, behind MELT, that non-commodity money alone can serve as money. Once I have done this, I will be able to show that the confusion of price with exchange value prevent Marxism from making a materialist analysis of the role of the fascist state in the economy, capitalist overaccumulation, and to underestimate the possibility for realization of communist society.

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The Trouble with Marxism (Part Three) or, How Fred Moseley M.E.L.T.ed Karl Marx

January 30, 2012 Leave a comment

Saint Denis, Bishop of Paris

Pardon the extensive quotes of Marx here, but I need to establish a theoretical basis for my argument that will follow:

In Capital, Volume One, Chapter 3, Marx argues:

The price or money-form of commodities is, like their form of value generally, a form quite distinct from their palpable bodily form; it is, therefore, a purely ideal or mental form. Although invisible, the value of iron, linen and corn has actual existence in these very articles: it is ideally made perceptible by their equality with gold, a relation that, so to say, exists only in their own heads. Their owner must, therefore, lend them his tongue, or hang a ticket on them, before their prices can be communicated to the outside world. [2] Since the expression of the value of commodities in gold is a merely ideal act, we may use for this purpose imaginary or ideal money. Every trader knows, that he is far from having turned his goods into money, when he has expressed their value in a price or in imaginary money, and that it does not require the least bit of real gold, to estimate in that metal millions of pounds’ worth of goods. When, therefore, money serves as a measure of value; it is employed only as imaginary or ideal money. This circumstance has given rise to the wildest theories. [3] But, although the money that performs the functions of a measure of value is only ideal money, price depends entirely upon the actual substance that is money. The value, or in other words, the quantity of human labour contained in a ton of iron, is expressed in imagination by such a quantity of the money-commodity as contains the same amount of labour as the iron. According, therefore, as the measure of value is gold, silver, or copper, the value of the ton of iron will be expressed by very different prices, or will be represented by very different quantities of those metals respectively.

Perhaps, I am misinterpreting what Marx is saying here, but it seems to me he is stating what serves as money has significance to consideration of the price-form itself. If an ounce of gold has 15 times the labor contained in it as is contained in an ounce of silver, the price of a commodity denominated in units tied to an ounce of gold will be 1/15th that of a price tied to an ounce of silver. On the other hand, a given price using the gold standard, will have 15 times the value of that same price using the silver standard.

In both cases, the price of the commodity may be one dollar, but one dollar using the gold standard contains 15 times the value of one dollar using the silver standard. In both cases, one dollar may be the “money name” of an ounce of gold or an ounce of silver, but the value differs significantly depending on which metal serves as the standard of price. The term “one dollar” will represent more or less labor time depending on the commodity serving as the price standard. This relation, of course, is entirely independent of the commodity to which the price $1.00 is attached, although it has significance for it as well.

If it takes 15 hours of labor to produce one ounce of gold, 1 hour to produce one ounce of silver and ten minutes to produce one ounce of copper; the same price $1.00 will express far different labor times when an ounce of gold, silver or copper is the standard for one dollar. The same “money name”, $1.00, will alternately represent 15 hours, 1 hour, or ten minutes of labor. We cannot know what $1.00 signifies in terms of labor time, unless we know the standard to which this price refers.

So, the Marxist theoretician Fred Moseley is almost entirely wrong when he states non-commodity money can express the value of a commodity. He is right insofar as the price of the commodity expresses the value of the commodity but he is wrong to assume this expression is equal generally to the socially necessary labor time contained in the commodity itself. Non-commodity money does indeed always express the value contained in the commodity, but it always express this quantity as zero hours of labor time. No matter the quantity of non-commodity money we are dealing with — the price of a pair of shoes, a house, an aircraft carrier, or the US trade deficit with the People’s Republic of China — the quantity of non-commodity money to which we refer expresses the value of any of these as zero hours of labor.

This does not mean the commodities have no socially necessary labor time, nor that their values have ceased to exist; it simply means, this value was detached from the price of the commodity, when token money was detached from its commodity.

Value, socially necessary labor time, is dark matter in our economy — we cannot see it, but can only infer its existence. We infer its existence from the countless acts of exchange of unlike use values in the market. Since these use values are themselves not commensurable, we infer there is some hidden thing allowing us to compare them as trade-able goods. Money relations make this hidden other thing, socially necessary labor time, visible to us, but in a way this hidden other thing appears as a quality of money.

Moseley has absorbed this much of Marx’s theory, but then he stumbles, and, facing the puzzle of non-commodity money — he seems to forget the function of money in expressing socially necessary labor time, depends entirely on the thing serving as money. The circulation of commodity money is a reflex of the circulation of commodities themselves and dependent on this latter. In Marx theory, when the circulation of commodities increase, all things being equal, the amount of commodity money pulled into circulation must increase, when the circulation of commodities decreases, the quantity of money in circulation decreases.

There are, of course, a number of qualifiers to this which do not concern me right now — I am trying to get the general drift.

Generally speaking, just as the value of the commodity is expressed in a definite quantity of gold, so the total value of commodities in circulation, determined the total quantity of gold in circulation. This rule, however, DOES NOT apply to non-commodity money — and Moseley should know this. He should know it, because in chapter three of Capital Marx states:

The State puts in circulation bits of paper on which their various denominations, say £1, £5, &c., are printed. In so far as they actually take the place of gold to the same amount, their movement is subject to the laws that regulate the currency of money itself. A law peculiar to the circulation of paper money can spring up only from the proportion in which that paper money represents gold. Such a law exists; stated simply, it is as follows: the issue of paper money must not exceed in amount the gold (or silver as the case may be) which would actually circulate if not replaced by symbols. Now the quantity of gold which the circulation can absorb, constantly-fluctuates about a given level. Still, the mass of the circulating medium in a given country never sinks below a certain minimum easily ascertained by actual experience. The fact that this minimum mass continually undergoes changes in its constituent parts, or that the pieces of gold of which it consists are being constantly replaced by fresh ones, causes of course no change either in its amount or in the continuity of its circulation. It can therefore be replaced by paper symbols. If, on the other hand, all the conduits of circulation were to-day filled with paper money to the full extent of their capacity for absorbing money, they might to-morrow be overflowing in consequence of a fluctuation in the circulation of commodities. There would no longer be any standard. If the paper money exceed its proper limit, which is the amount in gold coins of the like denomination that can actually be current, it would, apart from the danger of falling into general disrepute, represent only that quantity of gold, which, in accordance with the laws of the circulation of commodities, is required, and is alone capable of being represented by paper. If the quantity of paper money issued be double what it ought to be, then, as a matter of fact, £1 would be the money-name not of 1/4 of an ounce, but of 1/8 of an ounce of gold. The effect would be the same as if an alteration had taken place in the function of gold as a standard of prices. Those values that were previously expressed by the price of £1 would now be expressed by the price of £2.

Note here, Marx does not state the quantity of tokens of money in circulation is determined by the sum of values in circulation; rather, he says a given quantity of tokens will represent a greater or lesser quantity of value depending on fluctuations in the circulation of commodities. Token money, therefore, does not behave at all like commodity money, because it has no value of its own and cannot reflect in itself the value of the commodities for which it is exchanged.

But, surprisingly, Moseley takes this very section of Capital and attempts to erect a theory for how non-commodity money can serve as its own measure of value, and standard of price. And, he does it by turning Marx completely on his head, by proposing something he and other Marxist academics call, The Monetary Expression of Labor Time (MELT). This argument says Marx held to the idea that money had to be a commodity, but this is not a necessary feature of his theory of money. They are, I admit, trying to “salvage” Marx’s theory in an age where non-commodity money is the rule, and to defend Marx against charges his theory is irrelevant or anachronistic.

“Marx,” his opponents state, “said money had to be a commodity, but look — the dollar is just worthless paper. It is money because we all agree it is money, and because the state guarantees it as universally acceptable in transactions.” (See, for instance, my posts on FOFOA.) Rather than making a materialist study of the dollar and other so-called non-commodity monies, MELT tries to twist Marx’s theory to fit these worthless symbols of money. Their starting point in this salvage operation begins where Marx discusses the money closest to debased dollars, inconvertible paper money.

But, in so doing, they neglect Marx’s warning, issued in the words of Marie Anne de Vichy-Chamrond, marquise du Deffand. Madame du Deffand, upon hearing of the miracle of St Denis, who, having had his head chopped off, picked up his severed head and walked six miles, preaching the Gospel, observed:

“The distance is nothing it is only the first step that is difficult.”

Marx’s warning in this regard is apt: the use of non-commodity money is not the least difficult to explain, rather we have to explain how it came to exist in the first place.


The Trouble with Marxism (Part Two)

January 28, 2012 Leave a comment

The portion of the labor day that is socially necessary as a percentage of GDP

So, I got feedback from three people who, in one way or another, say they don’t understand my last post on my conversation with Andrew Kliman. One person posting on Reddit, complained it was too dense; another wondered if I was advocating a return to the gold standard; a third person, who I asked to read it and give me feedback, began to have difficulty with it about halfway through it. Specifically that person had difficulty understanding my discussion of the “transformation problem”.

This is three more examples of my “tin-ear”, which expressed itself in my disagreement with Andrew. I have not been able to explain “my point” in a way that is not abstract, or explain the relevancy of the various statements I make to real events within society. Part of this is because I am a “Marxist” in the same way I could be considered a “Darwinist” — I am not an expert on either. The theory makes sense to me, and I accept it as a reasonable explanation for how the world works.

But, if someone argued a eugenics distortion of Darwin, I could not argue against that person by quoting Darwin. And, if someone argued a Keynesian distortion of Marx, I probably could not argue back using quotes from Marx. Until recently I was more a leninist than a “Marxist”; having read a lot of Lenin, but little more of Marx himself than the Communist Manifesto. And, neither of them had I read for more than two decades.

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The Trouble with Marxism (Part One)

January 27, 2012 2 comments

Well, I have just about had enough of my conversation with The Andrew Kliman, so I thought I would try to assess what it accomplished instead.

My ‘tin-ear’ with Andrew began after a conversation with @skepoet on twitter about the odd divergence between gold and dollar measures of economic activity since the Great Depression of the 1930s. The dollar measure of US GDP has risen almost uninterrupted since the end of the contraction phase of the Great Depression; while the gold measure of GDP rose from 1934 to 1971, then fell until 1980, rose again from 1980 to 2001, and has been falling since.

Interesting enough, the gold measure of GDP exhibits a classic pattern of boom and bust typical of the economy prior to the Great Depression, but the dollar measure of GDP shows an almost disturbingly smooth continuous upward sweep, until the most recent difficulties of 2008. What I find most interesting about the two measures of economic activity is that, until 1933, both gold and the dollar measures of GDP exhibited the same behavior. However, this identical pattern broke down in 1934.

What accounts for this sudden divergence?

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