The Emergence of the Law of Value in a Dynamic Simple Commodity Economy

Abstract

A dynamic computational model of a simple commodity economy is examined and a theory of the relationship between commodity values, market prices and the efficient division of social labour is developed. The main conclusions are: (i) the labour value of a commodity is an attractor for its market price; (ii) market prices are error signals that function to allocate the available social labour between sectors of production; and (iii) the tendency of prices to approach labour values is the monetary expression of the tendency of a simple commodity economy to allocate social labour efficiently. The model demonstrates that, in the special case of simple commodity production, Marx's law of value can naturally emerge from multiple local exchanges and operate ‘behind the backs’ of actors solely via money flows that place budget constraints on their local evaluations of commodity prices, which are otherwise subjective and unconstrained.     

Using Micro Data to Test the Divergence between Prices and Labour Values

An extremely robust finding in Marxian empirical economics is the 'Shaikh result' that estimates of labour values are closely correlated with prices. This result is established using input-output data together with a standard procedure in which variations in money wages are assumed to reflect labour quality. Two problems with this standard procedure can be identified. First, there is no translation between money units of wages and labour value units of output produced by different types of heterogeneous labour. Second, the standard procedure assumes perfectly competitive labour markets. In this paper, a new micro procedure for estimating labour values is developed in which both of these problems are addressed. To translate between money wage rates and the labour value of outputs a practical starting point for empirical analysis is suggested using some of the readily available tools of neoclassical economics. The assumption of perfect competition is accordingly relaxed by estimating a microeconometric wage equation using data from the UK Family Expenditure Survey. Conjoining this micro data with input-output data, estimates of labour values are used to test the Shaikh result, which is found not to hold in this particular exercise; with labour values diverging substantially from money prices.     

Central Banking and Post-Keynesian Economics

Abstract

The Post-Keynesian theory of endogenous money has given much attention to the role of the central bank in the money creation process. Circuit theory has neglected this role, in so far as it has focused on the relationship between banks and firms within a monetary production economy. The aim of this paper is therefore twofold. First, it intends to fill this gap in circuit theory, by providing a role for the central bank in settlement of interbank debts. Secondly, it aims at reinforcing the Post-Keynesian analysis of central bank money by considering both the money-purveying and the credit-purveying roles of the settlement institution in the interbank market. The result of this analysis is a more comprehensive theory of endogenous money, where the lender-of-last-resort facilities of a central bank are viewed as an endogenous phenomenon involving both a money creation and a credit operation between the central bank and the domestic banking system. In such a framework, monetary policy consists of setting the base rate of interest at a level that enables banks to limit their bilateral debt position in the interbank market, so as not to disrupt the workings of the payment system by either an illiquidity or an insolvency crisis.     

Value and Exploitation: A counterfactual approach

A deconstruction of the Marxian theories of value and exploitation is attempted by arguing, first, that the labour theory of value is logically and methodologically inconsistent as a basis for a theory of capitalist exploitation and, second, that it is founded on an ontology of the social being which is not plausibly justified. A counterfactual model economy is then built, called Utopia, in which the workers receive the whole net output while commodities exchange at labour values. This model is used as a benchmark to evaluate a capitalist economy where commodities exchange at production prices and workers are exploited. It is shown that the factor of exploitation can be expressed as a ratio between the labour commanded by, and the labour contained in, the net output, or between the value added produced in a capitalist economy and that produced in Utopia. The resulting theory of exploitation entails a weak ontology of the social being, expressing a worker's point of view.     

Does Price Stability Exacerbate Labour Market Rigidities in the EMU?

How will the commitment to price stability affect labour market rigidities in the European Monetary Union? I explore a model where firms choose between fixed wage contracts (where the employer cannot lay off the worker, and the wage can only be changed by mutual consent), or contracts where employment is at will, so that either party may terminate employment (with strong similarities to temporary jobs). A fixed wage contract provides better incentives for investment and training, while employment at will facilitates efficient mobility. Inflation erodes the real value of a fixed contract wage over time, and badly matched workers are more likely to quit for other jobs. Disinflation has opposing effects on labour market rigidity: fixed wage contracts become more rigid in real terms, but fewer firms will choose fixed wage contracts.     

James Steuart and the making of Karl Marx’s monetary thought

Abstract

This paper analyses the influence of James Steuart on Karl Marx’s monetary thought. It deals more specifically with Marx’s rejection of an automatic mechanism that links variations in the quantity of money to their direct impact on prices. Steuart’s pioneering discoveries in economics inaugurate an anti-quantity theory tradition that Marx supported and which fed his own conception of money and credit. Here, we deal with the criticism of the assumptions of the quantity theory of money (QTM), the specifically social character of labour which creates exchange value, the distinction between the functions of money, the difference between income spending and capital advances, and the difference between simple circulation and reflux of money credit.     

DISTRIBUTION OF ECONOMIC RESOURCES: IMPLICATIONS OF INCLUDING HOUSEHOLD PRODUCTION

The value of household production is estimated to 40–50 percent of GNP in most western countries, and because the distribution of this income-in-kind is different from ordinary income distribution, the concept of economic well-being may include household production. The monetary value of household production is evaluated by a market alternative principle and an opportunity-cost principle. In the last case a reservation wage is estimated, and integrated in a modified opportunity principle, which means that household work of non-working women is evaluated by the reservation wage, and household work of working women and men by their wage-rate. The conclusions are among others, that the inclusion of household production reduces the inequality, and that the women's contributions—money income and household production—functions as income equalizers.     

The Holy Grail of Crypto Currencies: Ready to Replace Fiat Money?

Abstract:

This article suggests that current forms of crypto currencies will fail to complement or replace fiat money. We show that fixed-supply coins like bitcoin suffer from an inherently speculative and deflationary design and are not backed by a “We Owe You”. Stablecoins, i.e. coins that rely on flexible supply designs, are also not backed by a “We Owe You” and cannot achieve price stability because they build on outdated monetarist theories. Moreover, the algorithmically planned allocation of new coins, which is characteristic of stablecoins, is not market-based. As such, it is inferior to contemporary ways of money creation. Regarding price stability, we suggest that (crypto) monetary policy needs to overcome the illusionary dichotomy between the real and the financial circuit by accounting for systematic coordinated wage bargaining mechanisms to reflect that firms set prices according to cost-based pricing rules.     

Money Creation in the Eurozone: An Empirical Assessment of the Endogenous and the Exogenous Money Theories

ABSTRACT

The aim of this paper is to strengthen our understanding of the money creation process in the Eurozone for 1999–2016 period, through an empirical assessment of two main monetary theories, namely the (Post Keynesian) endogenous money theory and the (Monetarist) exogenous money theory. By applying a VAR and VECM methodology, we analyse the causal relationship among monetary reserves (or monetary base), bank deposits and bank loans. Our empirical analysis supports several propositions of the Post Keynesian endogenous money theory since (i) bank loans determine bank deposits, and (ii) bank deposits in turn determine monetary reserves.     

Nominal uniqueness and money non-neutrality in the limit-price exchange process

We define continuous-time dynamics for exchange economies with fiat money. Traders have locally rational expectations, face a cash-in-advance constraint, and continuously adjust their short-run dominant strategy in a monetary strategic market game involving a double-auction with limit-price orders. Money has a positive value except on optimal rest-points where it becomes a ??veil?? and trade vanishes. Typically, there is a piecewise globally unique trade-and-price curve both in real and in nominal variables. Money is not neutral, either in the short-run or long-run and a localized version of the quantity theory of money holds in the short-run. An optimal money growth rate is derived, which enables monetary trade curves to converge towards Pareto optimal rest-points. Below this growth rate, the economy enters a (sub- optimal) liquidity trap where monetary policy is ineffective; above this threshold inflation rises. Finally, market liquidity, measured through the speed of real trades, can be linked to gains-to-trade, households?? expectations, and the quantity of circulating money.     

A post‐Keynesian model of output,employment and monetary demand

This paper presents a simple model based on three broad Post‐Keynesian hypotheses: (1) the economic process develops over time; (2) money is endogenous; and (3) producers are price setters. To make the analysis easier we also assume (4) that firms are vertically integrated. Producers assess the expected demand and ask banks for credit in order to start production; banks create credit at the request of producers to finance the wage bill; workers buy goods sold by firms; firms must repay banks the amount borrowed plus interest and earn a target rate of profit. Since firms have created only as much purchasing power as they have advanced to workers in the form of the wage fund, equilibrium requires that there is an amount of autonomous monetary demand equal to profits and interest. Furthermore, in order to make the value of supply equal to the value of effective demand, firms will employ the number of workers necessary to create the purchasing power which, when added to the anticipated autonomous demand, enables all costs to be covered and the planned rate of profits to be attained.     

On Realizing Profits in Money

A basic if neglected step in monetary theory is to show that a given amount of money will enable all transactions to take place in money. But if the money advanced is no more than current costs, how are profits to be realized in money? The answer requires tracing the pattern of circulation, which, in turn depends on the structure of production and distribution. The sectors have different patterns of interdependence, so imply different sequences of transactions. Borrowing is costly, so the amount of money must be minimized. These issues have been brought into focus in the interesting article of J-F Renaud.     

我国劳动价值论战:1996-2006

坚持和发展马克思的科学劳动价值理论,仍然是一个关系重大、需要深入研究的基础理论问题。为此需要全面把握劳动价值理论的主要观点。本文结合现时国内外实际,论述了近十年来我国劳动价值论的论战,及劳动价值论对现实现象的解释力,强调坚持和发展劳动价值论具有重要的理论和实践意义。     

Spillovers of Equal Treatment in Wage Offers

We analyse a labour‐matching model with wage posting, where – reflecting institutional constraints – firms cannot differentiate their wage offers within certain subsets of workers. Inter alia, we find that the presence of impersonal wage offers leads to wage compression, which propagates to the wages for high productivity workers who receive personalized offers.     

Pigou on business cycles and unemployment: an anti-gold-standard view

Abstract

This note examines A. C. Pigou's views on the practical issue of high unemployment in the 1920s. In his Industrial Fluctuations, Pigou emphasized that the monetary aspect of business cycles was much more important to fluctuations in unemployment than wage adjustment. In a journal article, however, he stated that major part of the high unemployment should be attributed to the failure of money wage adjustment. I argue that, on balance, Pigou attached greater importance to monetary problems than to the wage rigidity.     

Firm ownership and internal labour practices in a transition economy

One feature common to many post‐socialist transition economies is a relatively compressed wage structure in the state‐owned sector. We conjecture that this compressed wage structure creates weak incentives for work effort and worker skill acquisition and thus presents adverse consequences for the entire transition economy if a substantial portion of the labour force works in the state sector. We explore firm wage incentives and worker training, as well as other labour practices and outcomes, in a transition setting with matched firm and worker data collected in one of the largest provinces of Vietnam – Ho Chi Minh City. The Vietnamese state sector exhibits a compressed wage distribution in relation to privately owned firms with foreign ownership. State wage practices stress tenure over worker productivity and their wage policies result in flatter wage–experience profiles and lower returns to education. The state work force is in greater need of formal training, a need that is in part met through direct government financing. In spite of the opportunities for government financed training and at least partly due to inefficient worker incentives, state firms, by certain measures, exhibit lower levels of labour productivity. The private sector comparison group to state firms for all of these findings is foreign owned firms. The internal labour practices of foreign firms are more consistent with a view of profit‐maximizing firms operating with no political constraints. This is not the case for Vietnamese de novo private firms that exhibit much more idiosyncratic behaviour and whose labour practices are often indistinguishable from state firms. The exact reasons for this remain a topic of on‐going research yet we conjecture that various private sector constraints, including limited access to formal capital, play an important role.     

Pasinetti,Keynes and the multiplier

This paper explores the relationship between the Keynesian multiplier and Pasinetti's model of pure production. Key assumptions of Pasinetti's model are its multisectoral structure, the definition of all income as a reward to labouring activities and, as a consequence, the operation of a pure labour theory of value. A translation between these models is effected by introducing investment as an exogenous determinant. By drawing from Keynes to apply his concept of the wage unit, it is possible to aggregate from Pasinetti's multisectoral model to a genuinely macroeconomic multiplier. This provides a way of using the scalar Keynesian multiplier without making the restrictive one-commodity assumption. In addition, this formal demonstration enhances our understanding of the relationship between the wage unit and the labour theory of value. Finally, critics have argued that Pasinetti downgrades the importance of institutional analysis; in contrast, the derivation of a scalar Keynesian multiplier contributes to an understanding of how relevant Pasinetti's approach is to the analysis of a monetary production economy.     

The Significance of the Monetary Context of Economic Behavior

The dominant paradigm in economics views economic behavior as allocative activity in a neutral, C-M-C' economy. As a consequence, money is treated as a veil that is inessential to the real functioning of the economic system. This paper argues that one of Keynes's fundamental insights is the significance of the monetary context of economic behavior. This insight has been developed by the post-Keynesian theory of money as a "time-machine vehicle" that provides the causal link between uncertainty and unemployment. The Circuitist theory of money as the means of final payment provides a complementary radical perspective on the significance of the monetary context. This paper investigates the methodological and theoretical implications of these radical monetary theories and assesses their contribution towards the development of a general theory of a monetary production, M-C-M' economy.     

Sraffa’s Constructive and Interpretive Work,and Marx

ABSTRACT

This article provides a summary account of Piero Sraffa’s constructive and interpretive work on the classical approach to the theory of value and distribution and its relationship with Marx’s contributions. It is shown that in the early phase of his constructive work Sraffa developed his equation systems by adopting a ‘physical real cost’ approach and a strictly objectivist point of view, and completely eschewed Marx’s labour-based approach and the related Marxian concepts. Only at a later stage did he explore systematically the relationship between his own modern re-formulation of the surplus approach to the theory of value and distribution and Marx’s contribution. He considered Marx’s most important analytical contribution to the further development of the surplus approach to consist of the re-integration of circular production relations, which allowed him to see the existence of a maximum rate of profits and its role in an analysis of accumulation and technical change.     

Causal Relationships in Australian Wage Inflation and Minimum Award Rates*

When variables are correlated in time-series studies, it is often difficult to determine which is cause and effect, and in what sense. This paper applies multivariate time-series tests of causality to Australian wage, price, minimum wage award, labour demand and strike (working days lost) variables for 1953-76. The results provide tentative support for a model in which strikes are exogenous:the size of Arbitration Commission awards is determined by strikes (suggesting that a trade union capture theory of Arbitration Commission regulation may apply):money wages are determined by minimum wage awards; and the demand for labour variable (measured in this paper by the ratio of actual to potential output) is determined (in a negative relationship) by money wages.