Sunday, 28 February 2016

Marx, Fiat Money and a Simple Business Card Economy.

Jehu: "LK gives what I think is incontrovertible evidence for this view: Fiat contains only a vanishingly small quantity of living human labor: 
Lord Keynes (?!): "[The] amount of labour needed to create $1 of fiat money is hardly different from that needed to create $1 million or $100 billion (namely, a few extra key strokes). Yet obviously one dollar of high-powered money and $1 million buy commodities with vastly different quantities of abstract socially necessary labour time in Marx's sense of this concept. You cannot explain the exchange value of fiat money by appealing to the abstract socially necessary labour time needed to create it."

A few years ago, to illustrate the logic of a fiat money economy, Prof. Bill Mitchell offered the following example ("A Simple Business Card Economy", Mar 31, 2009)

"Imagine the economy is my household which is comprised of me (the parent) and you (the kid)! As the parent I assume the role of 'government' and you thus comprise the non-government (private) sector. As the government I decree that I will offer 100 of my business cards per week, if you agree to tend the garden on a weekly basis. These are the cards I exchange at meetings with business associates outside of the household. They are normal size rectangles of cardboard.
"You say, naturally: 'Why would I want your worthless business cards?'
"I reply …: 'because to stay living in the house I expect 100 business cards a week to be paid in taxes'.
"You say: 'when do I start work!'
"Immediately, by imposing tax obligations in the currency of issue (the business cards) I have created a demand for the currency and this allows me to transfer private resources (your work in the garden) to the public sector (the nice garden). However, also note that I have to spend the 100 cards each week before you can pay the tax of 100 cards - which clearly means that the taxation can never be considered a source of revenue which 'finances' or allows me to spend the cards in the first place. The cards come from no-where and I have the monopoly rights to spend them. I am never financially constrained in my own business cards (the currency).
"So this sort of currency is what we call a fiat currency - being made legal by legislative fiat. It has no intrinsic worth and its value is tax driven. Just like the Australian dollar!"
I trust MMTers have seen it before (although they sure have forgotten it), so I won't explain it to them. It's more dubious Marxist critics of MMT (or post Keynesian critics of Marxism/MMT) have seen it, although other Marxists, better disposed towards MMT, certainly remember it (those critics are advised to check the original post in its entirety).

Beyond its specifics (kid, dad, cards), its logic seems unassailable and extensible to a real economy. This is the logical sequence of events:

     0. Dad creates a tax/weekly rent, 
     1. Kid works (living human labour spent), 
     2. Dad pays Kid (cards pop up into existence), 
     3. Kid pays Dad (cards vanish).
     4. Kid has home for a week. 

That's represented graphically below (the second time I draw one such diagram in this blog), one step at a time, from 1 to 4 (step 0 not represented). In red are financial flows; in blue are real resources flows (work and lodging): tit for tat and tat for tit.

I draw the readers' attention back to the text emphasized. The words "worth" and "work" appear twice each in that passage and unless it's a nervous tic Prof. Mitchell has, I suppose he wrote them for a reason, even if his readers prefer to ignore them. The word "resource" also appears.

One of the points of the example is that, per se, business cards are worthless "normal size rectangles of cardboard": useless to the Kid. They could be made of better quality cardboard, plastic, gold, electronic impulses in a hard drive, or desiccated pieces of shit, it would make no difference. In other words, they have no intrinsic use value. This is a point Keynes' disciples understand: the lack of worth bit. Financial flows (in red).

Worthless cards, however, become useful to the kids when board and lodging are made dependant upon the payment of 100 cards (i.e. tax). They acquire use value by Dad's fiat. With some effort, even internet post Keynesians/MMTers may understand this.

That's probably as far as most go. The now useful cards also acquire exchange value: (A) 100 BC exchange for the rent payment/tax … (at best, this is as far as the brightest of them may remember) … and (B) they also exchange for the labour required to tend the garden on a weekly basis, as the diagram above shows and as Prof. Mitchell himself wrote: "I will offer 100 of my business cards per week, if you agree to tend the garden on a weekly basis".

I'd bet not one in 100 internet post Keynesians/MMTers remembers (B).

It may take a government clerk no effort at all to type "$1,000" in their terminals, as the opening quote says; but it does take the Kid plenty effort to earn that sum. It's the Kid's effort that counts, imbecile. In the list: Kid's labour (step 1) is logically prior to money creation (step 2) or, if you prefer, see the picture, with pretty colours.

Fiat money does not destroy the Labour Theory of Value; lack of brains should destroy you.

There was, after all, a reason Prof. Mitchell wrote "work" and "resources": he is not writing about the "vanishingly small quantity of living human labor" Dad spends handing out his cards, but the real effort the Kid puts in earning them.

That's the flow of real physical resources, the work bit (in blue) internet post Keynesians/MMTers are blind to: they -- obviously -- never had to work. The business card's exchange value is given by the Kid's labour, exactly like Marx's law of value needed it to be.


But you are an internet Lord, and you refuse to accept such a simple, didactic example. Yes? You imperiously demand a more scientific explanation.

It's fitting then that such explanation should come from Warren Mosler (not only a leading MMT expert, but also a capitalist). This is part of Mr. Mosler's case for the ELR ("Full Employment and Price Stability", Feb 2, 1997: ironically, it's labelled "mandatory reading"):
"The value of a currency is determined by what the government demands the private sector must do or sell to obtain it. Unemployment compensation is payment for not working. If everyone could simply stay home and collect a government check, not be stigmatized, and thereby obtain all currency necessary to pay all taxes due, the currency would have no value. Therefore, under current policy unemployment compensation must be limited, temporary, and an insufficient source of revenue for the private sector to meet its tax obligations and desired H(nfa)." (Emphasis added)

As I remarked above, this is the second time I'm forced to draw circular flow diagrams to debunk elemental mistakes internet post Keynesians make: they don't know their own stuff, but think themselves qualified to pontificate about Marxism. The notions of "work" and "real resources" are alien words to those people. Diagrams like that used to be part of Macro 101 and were popular among Keynesians. You could find them in any textbook. Not anymore, it seems.

Either that or internet post Keynesians/MMTers are suspiciously dumb.

Legitimate discussion of Marx's law of value is not the only to suffer. In fact, some of the controversies involving foreign trade and balance of payments ("exports are real costs; and imports are real benefits") reveal exactly the same kind of rhetorical tricks, deliberate ignorance, and/or appalling obtuseness, by the same people.

It's getting boring. I'd suggest leading MMT proponents explain their internet following this stuff.


To misinformed Marxists:

Dear comrades, you cannot critique what you don't understand. You need to read more. If you want to have an opinion on MMT, read real professors, people with a professional reputation, not the first charlatan you come across. Otherwise, you will be doing a disservice to yourselves and to our own common cause.

You really, really, really need to choose better sources. It's a matter of common sense: the very handle "Lord Keynes" should have been a huge red flag (pun intended), if not to internet post Keynesians/MMTers (evidently), at least to you. Would you have taken seriously anything coming from an Evangelical blogger pompously calling him/herself "Lord Jesus Christ, the Messiah", "Yahweh", "The Last Prophet", or simply "God"? See what I mean?

Be as critical with the fair dinkum experts as you were uncritical with the charlatans.

You may want to begin with this (keep Mitchell's model in mind):

Mathew Forstater. 2005. "Taxation and Primitive Accumulation: The Case of Colonial Africa" (Research in Political Economy, 22, pp.51-64: paywalledfreely availablemy own take).

Best regards.


I fucking hate long posts.


  1. Thanks for this post, LK & Jehu's misapprehensions needed some corrective. I merely started writing some but don't think I posted anything & yours is better. I think if people are exposed to all these views, they can see for themselves which is the real thing.

    For Marx & MMT/(neo)chartalism fit hand in glove. Not so surprising, since they (& modern differential geometry) have a common direct ancestor. (Must write a post on my moribund blog about that.)

    I'd bet not one in 100 internet post Keynesians/MMTers remembers ... I might be slightly more optimistic, but I agree entirely about the urgent need for such reminders.

    Diagrams like that used to be part of Macro 101 and were popular among Keynesians. You could find them in any textbook. Not anymore, it seems.

    Yes, Wray says MMT is basically just remembering stuff that was forgotten. He also recently said (a) I / we're doing moral philosophy & (b) I'm not doing philosophy. One of these is correct :-)

    1. No, Calgacus, thank you for your kind comment. I'm happy you enjoyed it.

      But you shouldn't give up your blog.

  2. Just never get the time - trying to say I will to give myself a kick in the pants. Thanks for that.


    You made my day!

    1. Thanks. Much appreciated.

      But credit where credit is due and all that, this wouldn't have been possible without "Lord Keynes".

      We ought to thank him/her/it/them. :-)

  4. I didn't find it long Magpie - you told a story and made sense; made it interesting and a bit funny. Our ancestors sat around fires and did exactly that for a really long time ....

    1. Thanks, jrbarch.

      I always try to stick to a 500-word limit. I find it a bit frustrating when I exceed that limit.

      Kind of silly, maybe?