The Determination of the Monetary Expression of Concrete Labor Time under the Inconvertible Credit Money System

Transcription

1 The Determnaton of the Monetary Expresson of Concrete Labor Tme under the Inconvertble Credt Money System Dong-Mn Reu* Keonbeom Lee** Hyeon-Hyo Ahn*** Abstract Ths paper tres to answer the mportant queston: how s the monetary expresson of labor tme (MELT) determned under the nconvertble credt money system? We provde a clear defnton of the nconvertble credt money system by dfferentatng four monetary regmes. It s argued that the dynamc between changes n the quantty of money and prces should be explaned on a sectoral level. A key element n explanng ths dynamc s found n the decomposton of the MELT nto the monetary expresson of value (MEV) and the value expresson of labor tme (VELT). In so dong, Marxan value theory s shown to supersede the quantty theory of money because t can explan not only the general prce level, but ndvdual prces as well. JEL classfcaton: B51, E11 Keywords Marxan value theory, the New Interpretaton, nconvertble credt money, monetary expresson of labor tme * Correspondng author. Chungnam Natonal Unversty. Emal: reudm@cnu.ac.kr. ** Hanshn Unversty. Emal: kblee@hs.ac.kr. Ths study was funded by Hanshn Unversty. *** Daegu Unversty. Emal: harryahn65@gmal.com. 1

2 1. Introducton In ths paper, we try to provde an answer to the mportant queston: how s the monetary expresson of labor tme (MELT) determned under the nconvertble credt money system,.e. when money s not gold? The MELT, a parameter connectng total workng hours wth total money value-added, represents how many unts of money correspond to one hour of labor tme. In the lterature on Marxan value theory, the MELT has been a key concept. In partcular, the MELT was the most mportant workng tool of the New Interpretaton (NI) rased by Duménl (1980), Foley (1982) and others snce the 1980s. Frst of all, n order to avod unnecessary confuson, t should be made clear that there are two dfferent defntons of the MELT. In the lterature of Marxan value theory, the MELT s a parameter representng how many unts of money correspond to a unt of abstract labor or value-creatng labor. On the other hand, we can also defne how many unts of money correspond to a clock-hour of concrete labor. As suggested by Duménl, Foley and Lévy (2009), t can be called the "monetary expresson of concrete labor tme." On an aggregate level, these two dfferent defntons of the MELT do not make any analytcal dfference because t can be safely assumed that the total amount of abstract labor tme s equal to that of concrete labor tme. However, thngs are much dfferent on a mcroeconomc level whch explans the determnaton of the MELT n dfferent branches of producton. Followng Reu (2008), ths paper wll show that t s crucal to decompose the MELT nto the "monetary expresson of value" (MEV) and the "value expresson of labor tme" (VELT). It must be noted that the MELT, therefore, mples the "monetary expresson of concrete labor tme" throughout ths paper. In partcular, ths decomposton s mportant n regards to Marx's crtque of the quantty theory of money. In the 1 st volume of Captal, Marx actually talks about the monetary expresson of abstract labor tme because he assumes that the reducton of concrete labor to abstract labor was already done. Under the gold standard system, as was assumed n Marx's Captal, t s relatvely easy to explan the determnaton of the MELT; money tself s gold, the MELT s nversely related to the socally necessary labor tme to produce a unt of gold. In the nconvertble money system, however, ths concept breaks down because the systematc relatonshp between money and the condtons of the producton of gold no longer exsts. The NI theorsts were also aware of ths problem (e.g., Foley 2005). However, they dd not provde a theoretcal answer to t. Recently, Saros (2007) and Moseley (2011) 2

3 tred to address ths ssue. Moseley s (2011) contrbuton s especally worth examnng because t provdes the determnng equaton for the MELT under the nconvertble money system as follows: M V MELT = p p L (1) where MELT represents the MELT n the case of government-ssued fat money, M s p p the quantty of paper money forced nto crculaton, V s the velocty of money crculaton and L represents total labor. The surprsng result (Moseley 2011: 99) of equaton (1) s that, under the nconvertble money system, the MELT does not depend on the labor tme contaned n a unt of gold. Therefore, f M were doubled, then p MELT p would also be doubled. Ths concluson rases an old ssue regardng the dffculty of applyng Marx's crtque of the quantty theory of money to the case n whch money s not gold. Marx argued that the prce level s not determned by the quantty of money, but by processes that work n the nverse drecton. If, however, the MELT does not depend on the quantty of socally necessary labor, but drectly reflects the quantty of money, Marx's crtque does nothng to nvert the drecton of causalty rased by the quantty theory of money. If ths s the case, how can Marx s crtque be justfed? Moseley (2011) argues that Marx's theory of money s stll superor to the quantty theory of money n that t can explan not only the general prce level, but ndvdual prces as well. Ths dea s descrbed below n pont (2). Marx s theory s superor to the quantty theory n the followng mportant respects: (1) Marx s theory also explans the necessty of money n a commodty economy, and the quantty theory does not ; (2) Marx s theory explans not only the general prce level (by the MELT), but also explans ndvdual prces, as determned by the MELT and quanttes of socally necessary labor-tme, and the quantty theory does not; and, most mportantly, (3) Marx s theory of money also provdes the bass for a theory of surplus-value and for a theory of the dynamcs of captal accumulaton, and the quantty theory does not. (Moseley 2011: 99) 3

4 Moseley s ponts (1) and (3), however, are not self-evdent to those who do not accept Marx s value theory. In ths sense, they are subject to pont (2). Therefore, everythng hnges on whether the determnaton process for ndvdual prces can be satsfactorly explaned from the perspectve of the Marxan labor theory of value. Moseley's (2011) L n equaton (1) mplctly ndcates the total amount of abstract labor. In order to crtcze the quantty theory of money from the perspectve of Marxan value theory, however, t s necessary to explan the sectoral determnaton of the MELT. We wll pursue ths pont further. The paper s organzed as follows: secton 2 provdes a clear defnton of the nconvertble credt money system by dfferentatng four monetary regmes. Secton 3 ntroduces the decomposton of the MELT nto the monetary expresson of value (MEV) and the value expresson of labor tme (VELT). The determnng elements of the MEV and the VELT are specfed here. Secton 4 explans the determnaton process of ndvdual prces, and the crucal dfference between Marx s value theory and the quantty theory of money s clarfed by specfyng the four dfferent cases. Concludng remarks are provded n secton The defnton of monetary regmes Conceptually, we can dfferentate four monetary regmes accordng to the orgn (or fundamental source) of money and the role of fnancal nsttutons (banks). Frstly, there are two sources for the base money supply: commodty money and government fat money. Commodty money, the frst source, s the commodty monetary standard based on gold or slver. Asde from the forty or ffty years snce the demse of the Bretton Woods system, commodty money was understood to be true money, and other types of money were seen as symbols or tokens of commodty money. The supply of commodty money was constraned by the new gold mnes and by producton costs. However, the dffcultes n handlng commodty money, the restrcted supply of metal and natonal governments growng confdence contrbuted to commodty money beng substtuted wth government fat money. At frst, the credblty of government fat money was so fragle that only the guarantee of converson to gold sustaned the natonal currency. As the government fat money was substtuted for commodty money, the central bank s supply of ths monetary base was no longer restrcted by the supply of metal. The only restrcton on supply was the consderaton of the nternal and external value of the natonal currency because ncreasng the money 4

5 supply decreases ts value. It s mportant to also note the government s role n the changng value of the natonal currency and the potental mpacts on sectors of the economy. A redstrbuton of wealth could be nduced between debtor and credtor, between fxed ncome earners and the owners of assets, and between export frms and domestc demand frms. The second crteron of monetary regmes s the role of fnancal nsttutons, partcularly n the supply of money or money substtutes. Two cases are possble: n the frst, passve banks wth 100% reserve requrement do not contrbute to the supply of money. Except for prvate transacton-related credt nstruments, such as prvate blls, new fnancal nstruments that may be used as money substtutes cannot emerge n ths stuaton n a systematc way wthout the actve role of banks. Even f banks ssue bank notes, the 100% reserve requrement restrcts money creaton. Fnancal nsttutons are warehouses for base money (n the form of gold or government fat), and bank notes are just the symbol of ths base money. In the second case, actve banks partcpate n money creaton. A partal reserve system (or fractonal reserve bankng), wth depost money or bank notes, creates a new money supply through the process of bank lendng and the reflux of lendng as new deposts. Regardless of the types of base money (commodty money or government fat money), the role of banks and fnancal nsttutons as the sources of money or money substtutes ncreases ther mportance n ths monetary regme. We can call ths regme a credt money system because credt creates money and because there s the possblty of a sudden nterrupton n the creaton of ths credt money due to the fact that the fractonal reserve requrement cannot guarantee the full wthdrawal of deposts. Moreover, n ths credt money system, the (credt) money supply s endogenous: banks can nfluence the quantty of money gven the condton of the base money supply. There s also the possblty that banks choose to create money through non sector-neutral practces. Unlke the passve bankng scenaro, wth ts full reserve requrement and tradtonal real blls doctrne, banks extend loans as a way to make proft n condtons of uncertanty and nformaton asymmetry. 1 Industres wth advantageous fnancal condtons have easy access to these loans. Large frms wth hgh proftablty and more fxed captal, whch may be used as collateral, ncrease ther debt capacty, 2 and t s relatvely easy for them to fnance ther new nvestments wth these loans. 3 1 For the nformaton asymmetry n the fnancal market, refer to Stgltz and Wess (1981). 2 Rajan and Zngales (1995) show the determnants of captal structure. 3 As we wll show, these factors have a dverse sectoral mpact on the MEV. However, t s not clear f a monetary regme change could contrbute to the equalzaton of the proft rate. The development 5

6 Hence, we can assume four monetary regmes; (a) a commodty money system wth no credt creaton, (b) a commodty money system wth credt creaton, (c) an nconvertble (government) money system wth no credt creaton and (d) an nconvertble (government) money wth credt creaton, whch s called an nconvertble credt money system. Ths classfcaton s purely conceptual, and actual monetary hstory does not correspond to ths order of classfcaton. The beneft of ths classfcaton les n the ablty to dentfy the dfferent determnants of the MELT accordng to the monetary regme. Comparng regme (a) wth regme (d), we fnd that the role of government (or central banks as creator of government fat) and the actve partcpaton of fnancal nsttutons (especally banks) are promnent n the nconvertble credt money system. In ths case, the money supply s endogenous wth exogenously gven base money The decomposton of the MELT nto the MEV and the VELT In ths secton, we ntroduce the decomposton of the MELT nto the MEV and the VELT. The MEV represents the number of unts of money that correspond to one unt of abstract labor,.e. value. The VELT s the parameter expressng the reducton of an hour of concrete labor to the correspondng unt of abstract labor. The MELT s, therefore, the product of the MEV and the VELT. 5 of a credt system mght enhance the equalzaton of proft by easng the transfer of fnancal resources. It could also deter the equalzaton process due to the wdenng fnancal capabltes among sectors. 4 In Moseley (2011: 101), ths pont s stated as follows; One mportant dfference between nconvertble fat money and nconvertble credt money s that the quantty of money s determned dfferently. In the case of nconvertble fat money, M p s determned exogenously by the state. In the case of nconvertble credt money, the determnaton of M p s much more complcated: t s partly exogenous (nfluenced by the state through ts monetary polcy) and partly (and perhaps prmarly) endogenous. We can consder the nconvertble fat money n Moseley (2011) as case (c) n our regmes. 5 Formally, VELT and MEV are defned as follows, where VNP, R and LL denote value of net produ ct, net revenue and the total amount of concrete lvng labor, respectvely (Reu 2008: 565). MELT = R/LL, VELT = VNP/LL and MEV = R/VNP. An addtonal mportant pont should be noted. The NI, unlke Marx, argues that total prces are equal to total values regardng net product, not gross product; therefore, equaton (1) should be modfed. F or analytcal smplcty, ths ssue s gnored here wthout a loss of generalty. Throughout ths paper, t he MELT wll be defned usng the lvng labor, not total labor ncludng the dead labor. 6

7 Ths decomposton does not matter on an aggregate level because the MELT s constant at a gven pont n tme, and t can be drectly computed from money value-added and total labor tme data. On a sectoral level, however, ths decomposton does matter. The mportance of the decomposton s shown n the followng example. Assume that these two sectors carry the same weght n a certan economy. The total workng hours are assumed to equal 1,000. Example A sector 1: MEV 1 = 1. VELT1 = 1. labor tme = 500 hrs. sector 2: MEV 2 = 1. VELT2 = 1. labor tme = 500 hrs. Example B sector 1: MEV 1 = 2. VELT1 = 0.5 labor tme = 500 hrs. sector 2: MEV 2 = 0.5. VELT2 = 2 labor tme = 500 hrs. In both examples, 1,000 total workng hours are represented by the same amount of money,.e., 1,000 dollars, wth one hour equal to one dollar. The MELTs are equal to 1. In example A, the dstncton between the MEV and the VELT does not gve any mplcaton because all the MEVs and all of the VELTs are equal. In example B, however, the quantty of value produced n Sector 2 s four tmes the quantty found n Sector 1. Although far more value s produced n Sector 2, both sectors have the same amount of money on the market because Sector 1 s capable of takng n more money than t produces. The conventonal use of the MELT, especally n the NI lterature, s actually premsed on the assumptons n example A. 6 As Marx assumed somethng lke perfect competton 7 n the 3 rd volume of Captal, the MEVs are only determned by market forces equalzng sectoral rates of proft. The so-called transformaton of Marxan values nto prces of producton descrbes the process by whch 6 In the NI lterature, there have been two streams. Mohun (2004) argues that the NI s only focused upon the relaton between aggregate varables. In contrast, Foley (2005) consders ths as an econometr c problem and ntroduced a theoretcal assumpton that every sector has the same composton of labor complexty. Duménl, Foley and Lévy (2009), however, mplctly admtted the dstncton between the MEV and the VELT. 7 Wthout doubt, ths s only n a lmted sense, not n the sense of neoclasscal economcs. 7

8 the same quanttes of produced value are changed to sectorally dfferent quanttes of money. For example, the sector wth a hgh organc composton of captal would get more of the money equvalent to ts value than the quantty of value t produced. However, under real-lfe condtons of mperfect competton, there are many other factors that cause dfferences n the sectoral MEVs. Gouverneur (1983) used the expresson, degree of protecton. If, for example, Sector 1 n case B s protected by a certan knd of entry barrer, then t has enough monopoly power to fght aganst the proft-rate-equalzng forces. Monopoly prce, defned as the excess over the prce of producton, mples that the MEV n that sector s larger than the socal average. Conclusvely, equaton (2) shows the decomposton of the MELT on a sectoral level. MELT = MEV VELT (2) Frst, VELT s determned by the complexty of labor. The more complex or sklled the labor that s used n the -th sector, the larger the VELT grows. One clock hour of sklled labor corresponds to more abstract labor tme. Labor productvty s another complcated factor. Accordng to Marx n the 1 st volume of Captal, the same amount of labor tme always produces the same amount of value rrespectve of labor productvty. Although ths statement s true on the abstract level of total socal captal, labor productvty operates dfferently on the level of many captals. 8 An ncrease n the labor productvty of a certan sector mples that the sector can produce more use value and n most cases can get more revenue wthn the same length of tme, although ths revenue ncrease s not proportonal to the ncrease n use value producton. On a sectoral level, therefore, the development of labor productvty n the -th sector, ceters parbus, mples the ncrease n the VELT. In other words, the VELT s an ncreasng functon of labor productvty n the partcular sector n whch t s found. Labor productvty data are usually measured by money value added per worker n real condtons; t s emprcally dffcult to dstngush real labor productvty from monetary labor productvty. For example, the ntensfcaton of labor n a certan 8 As Klman (2011: 131) noted, Marx also mplctly abstracted from changes n the MELT. Although Klman (2011) s based upon the Temporal Sngle-System Interpretaton (TSSI) whch crtczes the N I, the dscusson here s not related to the conflct n Marxan value theory. 8

9 sector produces more value, and t wll be represented as the ncrease n the monetary labor productvty. In sum, VELT can be represented as follows: VELT = f (LS,LP ) f 1 > 0, f 2 > 0 (3) where n the -th sector, LS denotes the skll ndex of labor and ncludng labor ntensty. LP s labor productvty Secondly, as noted above, the sectoral organc composton of captal s a basc element determnng the MEV. In the case of a sector wth hgher-than-average organc composton of captal, the prce of producton s greater than ts value equvalent. Ths mples that the sector has greater MEV than the other sectors. Therefore, MEV of the organc composton of captal denoted as OCC. Furthermore, s an ncreasng functon MEV s determned by the degree of protecton and the sectoral fnancal capablty, respectvely denoted as and F. Although these two elements are closely ntertwned n realty, we dstngush them from one another to emphasze the role played by fnancal factors. Ths role s partcularly mportant under the nconvertble credt money system. Furthermore, exchange rate s also an mportant element partcularly n small economes. Currency deprecaton makes export ndustres get more money equvalent wth the same quantty of abstract labor tme. P MEV = g(occ, P, F ) g 1 > 0, g 2 > 0, g 3 > 0 (4) Transformaton of monetary regme from regme (a) n whch the MELT s determned by the socally necessary labor tme requred to produce a unt of gold (or other metal) to regme (d) n whch the MELT no longer depends on the value of gold and s nfluenced by the government monetary polcy and the behavor of the fnancal nsttutons has a sgnfcant mplcaton on the redstrbuton of surplus value among sectors, f we assume these two regmes have dfferent degrees of nfluence n value redstrbuton among sectors. Assumng that the complexty of labor n each sector s determned by technologcal factors, the transformaton of a monetary regme may have a sgnfcant nfluence on the redstrbuton of 9

10 value n the process of the equalzaton of the proft rate. 9 The MEV may also express the non-sector-neutral nfluence of monetary polcy, dfferng fnancal capabltes among sectors and other contrbutng factors, such as monopoly, whch may prevent an equalzaton of proft rates. 4. Explanng the determnaton process of ndvdual prces: four dfferent cases In order to specfy the effect of an ncrease n the quantty of money, we start wth equaton (2). If m and v denote the socal average of dfferentate the followng four cases. MEV and VELT, respectvely, we can Case 1: Case 2: Case 3: Case 4: MEV < m and VELT < v MEV < m and VELT > v MEV > m and VELT < v MEV > m and VELT > v In Case 1, both MEV and VELT n the sector are below the socal average of the overall MEV and VELT (each m and v ). Ths case ndcates that ndustres n ths sector experence decreasng labor productvty wth smple labor as well as a lower degree of 9 If we assume that government has no role n the money creaton (.e.commodty money) and no ban ks, the supply of money s lmted by the producton of commodty money. When the government can prnt money and put t nto the economy, t has dfferent mpacts among sectors because sectors have dfferent degrees of senstvtes to the money creaton. Consder the case of government borrowng m oney from central bank and pourng t nto the nfrastructure and ts mpact on the constructon sector. If, on the other hand, we assume that banks has no role n the money creaton, ths means that banks are just the warehouse of money and credt creaton s zero (.e. zero money multpler). When the ba nks lend money to the producton sectors unevenly, t wll have uneven effects among sectors. Some s ectors are better than other sectors n borrowng money from banks. We can assume that government a nd banks wll not nfluence the dstrbuton of surplus-value among sectors only n the case that they c reate money and dstrbute t evenly among sectors and all the sectors have the same degree of nfluen ce. Ths stuaton s not a common feature of any economy. So government monetary polcy and beha vor of fnancal nsttutons may nfluence the dstrbuton of surplus value among sectors. 10

11 protecton wth nferor fnancal capablty. A good example of ths case s small busnesses n a declnng sector. In Case 4, however, both MEV and VELT are above the socal average m and v. Industres n ths sector enjoy hgher productvty wth a complex labor n the producton process and a hgher degree of protecton wth superor fnancal capabltes. Computer and moble telephone ndustres are examples of ths type of sector. Frms n these ndustres experence a rapd ncrease n productvty therefore; labor n ths sector can be evaluated as complex labor. However, at the same tme, due to ether fnancal capabltes or monopoly power from varous knds of entry barrers, frms n these ndustres can extract monopoly profts from other sectors. Case 2 and Case 3 are nterestng. Case 2 has hgher productvty and a lower degree of protecton than socal average, m and v. A good example of ths may be found n emergng but hghly compettve ndustres, such as manufacturng n developng countres. Case 3 shows that labor productvty s lower than v, but the degree of protecton s hgher than m. Sunset ndustres such as heavy ndustres n advanced countres are examples of ths case. However, n these two cases, contradctory tendences wthn the sectors prohbt MELT unknown. Because the from rsng above the socal average MELT. Therefore, the total result remans MELT s the net revenue dvded by the labor hours n sector, MELT shows the dfference of monetary expresson of labor tme n a specfc sector, whch can be devated from the average MELT. However, the why the dfference occurs from a Marxan perspectve. By defnng of MEV and MELT s for dfferent sectors do not show VELT, we can dfferentate the causes for these varatons n MELT as the product MELT s to the process of the producton of surplus value and the process of the dstrbuton of surplus value. 10 Ths s an mportant dfference between Marxan value theory and the quantty theory of money, even wth ther superfcal smlartes. 5. Concluson 10 Ths dfferentaton s smlar to the dfferentaton between produced value and acqured value (It oh 1980: 74-79). 11

12 In ths paper, we dscussed the determnaton of the MELT ( monetary expresson of concrete labor tme ) under the nconvertble credt money system. We argued that the dynamc between changes n the quantty of money and prces should be explaned on a sectoral level. Furthermore, a key element n explanng ths dynamc s found n the decomposton of the MELT nto the MEV and the VELT. By dfferentatng the MELT nto the sectoral MELT and further dfferentatng the sectoral MELT nto the MEV and the VELT, we can ncrease the level of nfluence of Marx s concepts n the NI. In concluson, Marxan value theory supersedes the quantty theory of money because t s able to explan ndvdual prces based on these dfferentatons. Pursung an emprcal method to estmate the sectoral MEV and the VELT remans the object of further research. 12

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