Episode 271 – Defining Value with L. Randall Wray

Macro N Cheese – Episode 271
Defining Value with L. Randall Wray
April 6, 2024

[00:00:00] Geoff Ginter [Intro/Music]: Here’s another episode of Macro N Cheese with your host, Steve Grumbine.

[00:00:46] Steven Grumbine: All right, this is Steve with Macro N Cheese. Today’s guest is going to be Randy Wray. You know him, you’ve heard about him. Randy is a senior scholar and professor of economics at the Levy Economics Institute of Bard College. He is one of the developers of modern monetary theory and his newest books on the topic are Making Money Work For Us, Polity, November 2022, which we did a book club on, and a companion illustrated guide to MMT, Money for Beginners with Heske van Doornen, and Polity, May 2023, which we also got out to many people. I’m very excited to have Randy on because as you know, we’ve been dealing a lot with class, the relationship with modern monetary theory, and also the constant rejoinder that brings us back to Marx’s labor theory of value.

Many times when we’re talking to Marxists about MMT, the concept of labor theory of value comes up. And it’s tough one to crack because they hold tightly to this, this is core to their philosophical beliefs. And MMT takes a different approach to this in a modern money economy, which I think is really important, not only for myself to understand better, but I think for everybody out there that’s struggling with trying to identify the concept of value and how we get wages and how we determine what the worker’s share is and pricing.

These concepts to an economist are probably simple, although I see a million different versions of how to get to the same answer from a million different schools of thought. I happen to believe that modern monetary theory has done the most rigor and digging into this. And that’s why I want to bring Randy on to discuss his most recent paper released from EDI [Economic Democracy Insititute at Bard College]

His Working Paper 18: Reviving Value Theory. This just came out in March, which is actually right now. So without further ado, let me bring on my guest, Randy Wray. Thank you for joining me again, sir.

[00:02:47] L. Randall Wray: Thanks for having me on again.

[00:02:49] Grumbine: Absolutely. This is a very difficult subject. We find ourselves talking past one another. Not us per se, but out in the world, when we’re sharing our beliefs and we’re trying to negotiate an understanding of the world we live in as it relates to a modern fiat world that we’re currently a part of. And much of the learning that people that we talked to about this come from hundreds of years ago, sometimes during the Marx’s writing, Engels writing, goes back even further to Ricardo and others.

And we’re constantly being told this conclusion that MMT is voodoo. It doesn’t have a theory of value. How in the world can you possibly have a monetary system that doesn’t have a theory of value? What is it undergirded by, et cetera? And your paper, I thought was really great because you tied together a number of schools of thought, including the contributions of Marx.

Could you give us a high level overview of what the paper entails? And what insights you hope your readers would glean from it.

[00:03:57] Wray: Well, yes, I think that economics does have to have a value theory, and I think that we actually need more than one. I simultaneously adopt several. So, labor theory of value, it came from the classical school that begins with Adam Smith, who’s called the father of economics. Of course, he was not an economist, he was a moral philosopher. And morality played a role in his approach to economics. And the labor theory of value dominated early economic thinking through Ricardo, as you said, and finally to Marx, who resolved some of the problems with the early explications of the labor theory of value. And we can get to what those problems were. But he also talked about exploitation of labor.

He denied that the capitalist class and the landlord class create value. All value is created by labor. This was not, let’s say, a popular view among the opponents, of capitalism. And so they reacted strongly against this and created a completely different approach in neoclassical economics. That began just a few years after Marx’s Capital.

And they threw out the labor theory of value. They substituted a utility theory of value. And then about two decades later, they came up with the justification for paying supposedly every factor of production according to its contribution to the production process. So suddenly the landlords and capitalists become productive in their approach.

So they resolve all of these critical problems with capitalism that were raIsed by Marx. So anyway, I have accepted the labor theory of value since the early eighties when I first came across it. It just made sense to me. Later in the mid 1980s, studying with Jan Kregel, who’s a post Keynesian. I came across an article by an economist, Nate Townsend, who was interpreting Keynes’s General Theory right as it came out. And he said, ‘Oh, what he has is a liquidity preference theory of value.’ And so I also adopted that. And finally, I also studied the institutional economics, [Thorstein] Veblen and institutionalists have an instrumental theory of value. I think all of these play a useful role in looking at the economy and doing economics.

I didn’t really go into the instrumental theory of value in that paper. What I was trying to do was to show how we need both the labor theory of value and liquidity premise theory of value to look at the role that money plays in the economy. And so both of those approaches are critical to understanding how money works in a capitalist economy.

[00:07:08] Grumbine: When people talk about the economy, I think it’s important to say right up front that we are in a capitalist economy, that regardless of what we may want it to be, what we’re currently living in and the rules that are governing it are rules based on capitalism and based on the power of law to enforce those contract relationships and force the money story via tax driven money, then all the regulations there within, are creatures of law. And so none of this is just a natural thing. All of it has some component of the state putting its hand in the pie and making it do and say what the state wants it to do and say. Before we get into the paper a little deeper, what do you feel is the role of government, in terms of setting this concept of value, both from a production standpoint and from a income or a labor standpoint? And from that other desire, which is the liquidity standpoint and the ability to save.

[00:08:20] Wray: Well, we can’t have money without a state, it’s fundamental because all of our monies are state monies, and the money of account has always been chosen by authorities. Temples in the beginning, but today, of course, it’s states. And from the very beginning, the state was involved in the development of capitalism, so the state chose the money unit.

And it is critical to understand that what we’re talking about is a capitalist economy. And this was Marx’s criticism of Smith. Smith’s approach to a labor theory of value was not an approach consistent with the way that capitalism works. That was the main problem with Smith and even Ricardo’s version of labor theory of value.

And that’s what Marx had to resolve. In Smith, we have two problems. He gives the example of people who are hunting deer and other people who are hunting beavers. And he says, well, it takes twice as many hours to kill a beaver as it takes to kill a deer. And therefore, the exchange ratio should be two deer to one beaver.

This is barter, so we’re bartering two deer for a beaver, and we go from there to the money value. So therefore, the price of a beaver should be twice the price of deer. So there are two problems here. First, he’s imagined we’ve got a barter society, and that it pre exists the existence of money. And then we all know the Robinson Crusoe story that they choose some handy medium of exchange, seashells in the beginning, and then we’ve got a money price in terms of seashells. So that’s the logic that he’s going through. This clearly is not a capitalist economy. And Marx says it can’t possibly work because what you’re forgetting is that these hunters don’t kill the beaver and deer with their bare hands.

They’ve got to have capital, maybe guns. There’s a manufacturer there. There’s machinery. And how do we deal with that? Well, it’s dead labor. That dead labor has to get a return. So the capitalist owns all the dead labor. And the capitalist is going to get a return. And this is what Smith is leaving out. And then this leads to the analysis of how we Distribute surplus labor value among all the capitals so that they all get an equal profit rate. And then we get the transformation problem and all that stuff.

[00:11:20] Grumbine: So you based your approach on a gentleman named Robert Heilbroner. I’ve never heard of Robert Heilbroner, who is he?

[00:11:30] Wray: Oh, well, my goodness, he probably sold more economics books than any other author. John Kenneth Galbraith would be close to the equivalent. He was a fantastic economist and writer. He could write for the general public. That’s part of the reason why he sold so many books. He had a big influence on me. I think his book, Money and the Logic of Capitalism is 1985. So I read that when I was writing my dissertation and I have a chapter in my dissertation, which became my 1990 book on the logic of capitalism and the labor theory of value, helps us to understand what that logic is all about. It’s about labor plus dead labor producing value. And then we’ve got to allocate the money returns across both living labor and dead labor. One of the things I really liked and I used it in the paper was Heilbroner was quoting Adolf Lowe. So this is a way to think about why we needed value theory. And Adolf Lowe also was a very important economist and institutionalist who was at the New School with Heilbroner.

Lowe said, what if tomorrow we wake up with a collective amnesia and we don’t remember the price of anything? Would we be able to reproduce the prices that we had the day before? Is there some kind of a logic to that? And Heilbroner says, this It’s the way to start thinking about what value theory does for us.

It’s looking beneath the surface phenomena to try to understand the structure of the capitalist economy, why prices are what they are. And the labor theory of value helps us to try to figure that out.

[00:13:33] Steven Grumbine: Help me understand, when I hear Krugman talk, he tends to not really understand money at all. And in your paper, you talk immediately after this, that to the orthodoxy, money plays no role in their processes. Help me understand how the orthodoxy comes up with their theories. Is it just hand waving and mysticism, or is there some logic behind their approach to this?

[00:13:57] Wray: We go back to the 1870s. Neoclassical revolution, which was a revolution against classical thinking, which ended with Marx. They wanted to do a real analysis, completely ignoring money and ignoring money prices. So that begins in the 1870s. And by the 1890s, they realized that they needed to demonstrate that this system that they’re supposedly looking at, they like to call it a market economy.

Capitalism became a bad word because that’s a word Marxists use to criticize it. So it’s called a free market economy. Well, everybody loves markets and they love freedom. So that was a better way to try to sell this system that we live in. It’s a free market. And they realized they needed to demonstrate that the free market would come to an equilibrium where all the markets clear.

And where all the prices are set so that each market clears, but these prices are not money prices, they’re relative prices. It’s beaver versus deer prices. So we have a relative price for everything that gets traded. And they needed to be able to demonstrate that the market could work this way. Remember, Adam Smith said the invisible hand guides individuals who are only interested in maximizing their own enjoyment, into behaving in a way that maximizes enjoyment for the society as a whole.

This was called general equilibrium. We need to demonstrate that we could get a vector of prices, which is just a list of these relative prices that would clear all markets simultaneously. So, [Leon] Walros, who was one of the early developers of neoclassical economics, was the guy who really understood this and understood that you would need pretty complex mathematics to prove that this could exist.

It wasn’t finally proven until the late 1950s, so that gives you some idea of how difficult it was. And so, finally, we have proof of the existence of a vector of relative prices that will simultaneously clear all markets. It’s very interesting that you could not have money in this model. If money is introduced, you can’t ensure that there will be an equilibrium.

So it’s not just that they’re assuming it away because it’s not relevant. You have to assume it away because you cannot prove equilibrium if money exists.

[00:16:56] Grumbine: So it is hand wavy.

[00:16:58] Wray: Yeah. It’s the basis for all modern mainstream economics, because they want to say the free market works well. It has only been demonstrated in a model with no money.

And of course we do have money in the real world. So to try to make it a little more realistic, they’ll put money in, even though they know that it destroys the whole edifice of what they’re trying to do. But they would be pretty irrelevant as economists if they completely ignore money. So they put it in and they say, ‘well, in the long run, it doesn’t matter.’

So in the long run, we get the general equilibrium, but in the short run, money can temporarily matter, and it prevents us from getting that equilibrium. So it screws up the works, but in the long run, it won’t have any impact. So that’s the way the money is dealt with in these models. And so it’s sort of ironic.

These are the models that are used by central banks. And of course, what are central banks all about? Monetary policy. They use a model that really has no room for money in it. No room for banks, no room for central banks. In other words, everything that they’re supposed to be paying attention to, cannot really be put in the models.

So it’s ironic. And Krugman really isn’t one of these people. He’s working at a much more lower brow, and not saying that as a negative thing, lower brow where the real world exists, where banks exist, and all of that. He’s really in a completely different space. He wants to provide policy advice and all of that.

[00:18:45] Grumbine: Okay, fair enough.

[00:18:47] Wray: But it is true that he does not understand how banks operate. He writes these pieces. Hyman Minsky, who is my professor. “Minsky is wrong. He thinks that banks create money out of thin air.” Well, of course they do. They just keystroke credits to your bank account. That’s where money comes from. He still believes the deposit multiplier story and all that.

Very few economists who work in the monetary sphere believe in that deposit multiplier anymore. He’s one of the last ones.

[00:19:18] Grumbine: He’s like the last member of the members only jacket club. What I found fascinating, cause I’m just now getting my feet wet in trying to understand Marx. I’ve read a bunch of it and most of it went right over my head. I think the toughest read of my life was going through Capital. I guarantee you, I skipped probably half of it and I even had the benefit of listening to it in audio book. And I tried to follow along and it was an incredible challenge to slug through. From what I read, it was interesting because most of it felt like it was living in a gold standard, commodity money era and everything about it was based on commodities. And in your paper, you talk about there being two Marxian approaches to the value of money.

One was labor hours, and the other was social value. Can you describe the two approaches that Marx took?

[00:20:19] Wray: Yes, Marx is extremely difficult reading. I have friends who can read German. And they say it makes a big difference if you can read the original German, the translations are very difficult and not necessarily good translations. So I think that’s part of the problem. Another part of the problem was he was a philosopher.

I have a lot of trouble reading philosophers. It’s very difficult going. And so I’m sympathetic to what you are saying. And then furthermore, there were three volumes of Capital. And I think only one was published when he was alive and the rest are thrown together and published. So that’s another part of the problem.

So yes, there has always been these two views of how Marx is treating money and you can find evidence to support both. So one would be really following Smith’s. We’ve got ‘gold is money, it’s just another commodity and it takes labor hours to dig the gold out of the ground and I guess melt it and put it into bars.’

And so, the value of the gold money is determined by the number of labor hours, and then we get the deer, beaver, and gold equivalents determined by the labor hours. This is completely inconsistent with capitalism because we’ve got to take account of the capital involved in producing all the commodities.

And the other interpretation is that Marx realized you have to have an external measure of value in order to measure the value of the labor hours involved in commodity production, you need two measuring units. And I read Marx before Keynes because that was the sequence at Sacramento State when I studied, we did the history of thought. And the first semester was the classicals up through Marx.

And the second semester was the neoclassical through Keynes. So I had read Marx. Labor theory of value. It became more clear when you read Keynes, because in Keynes, Keynes says, if we’re going to measure the value of output as a whole, there are only two possible measuring units. One is the money value, and we can reduce all of those down to the wage unit, because the wage unit is measured in money value, $8 an hour, let’s say.

So we’ve got one measuring unit. And then the other measuring unit is labor hours, the quantity of hours it takes to produce output. So those are the only two measuring units that Keynes uses in the general theory. And we can aggregate up the number of labor hours multiplied by the labor unit. Well, how do you get the labor unit, because we have lots of different wages? Well, we reduce labor to, Marx says, “socially necessary labor time.” Keynes says we reduce it to the “ordinary labor.” One hour’s skilled labor might be worth three hours ordinary. Same in Marx. We reduce it down to “simple labor.” So Keynes used the two measuring units that Marx uses.

So then we’ve got to get to the value of money, and that is simply going to be the total money value. Keynes was writing before we had GDP measure, because it was before we had national accounting. So Keynes came up with his own way to measure output, and GDP sort of follows it. So we’ve got a total value of national output.

And then we’ve got the total number of ordinary labor hours it took to produce that, and that will give us the value of money. Because we have the aggregate 27 trillion or whatever it is. And then the number of hours that it took to produce that gives us the wage unit. So it’s much more obvious in Keynes. Keynes took the same path because there is no other choice. Why is there no other choice? Because there’s no other way to compare different products than the hours that it took to produce them and the money value that you can get when you sell them. There’s no other possibility. And so you end up there.

And that’s why you get the labor theory value.

[00:25:18] Intermission: You are listening to Macro N Cheese, a podcast by Real Progressives. We are a 501(c)(3) nonprofit organization. All donations are tax deductible. Please consider becoming a monthly donor on Patreon, Substack, or our website realprogressives.org. Now back to the podcast.

[00:25:41] Grumbine: For myself, I really want to get my arms wrapped around some of these concepts, and it’s speaking multiple languages. Clearly, this is the curse and the blessing of following MMT because you guys never skip the lessons on all these other schools of thought so that you can explain it away or integrate it.

And I find that fascinating. But also, what a heavy lift of academic research you put into synthesizing these things. This fetish of commodities, commodity production, pricing of gold or cotton or the big one, oil. Is this just a search for something tangible to tie everything to? Is that what the rationale for focusing on commodities is, or is it because they’re so ubiquitous that they run through everything that at some point they touch everything and create a stable foundation for analysis?

I just don’t understand what the desire for looking at commodities is. What is the reason for that?

[00:26:45] Wray: So, of course, labor is a commodity, as Marx argued. If we’re trying to look at the economy as a whole and output as a whole, what you want to do is find the inputs to the production process that go into producing everything. I have heard people take the approach that, well, we should have an energy theory of value because energy, oil, solar power, all of that goes into the production of everything.

And it makes some kind of sense and for some questions, maybe having an oil theory of value would be good for some questions. But it’s clear labor goes into production of everything until the robots produce all the robots that produce all the other stuff. And then I guess maybe we’ll need a robot theory of value, labor goes into the production of everything. So it makes sense to focus on the labor unit that is going into production. And that’s why it was chosen and why when MMT comes along, so we say as shorthand taxes drive money. So we want to ask the question, why would anyone accept money that has no intrinsic value?

The other problem with the interpretation of Marx that he’s got gold money is that using gold as money, even stamping gold coins and those becoming money is fairly rare in monetary history and clearly it no longer exists. So if that is your labor theory of value, it has no implication for the modern world at all.

And I would argue that it has no implication really for any economy that ever existed. Because the value of gold coins was not determined by the embodied gold, even though everyone thinks that it was, that’s just not true. Coins themselves were always nominal. So anyway, it couldn’t be the gold commodity.

So MMT says that. It has value because you can pay your debts with it. And we give examples, actual historical examples, where a colonizer come across a people that had an economy that wasn’t monetized. They had no money and they wanted the people that they were colonizing to do work for them. So they would impose a hut tax or maybe a head tax on them, and then tell them what they had to do to get the money to pay the tax. And if they didn’t do that, then the hut was burned down or their head was chopped off. So, it’s a story that has some historical relevance. And then you come to the conclusion, well, it’s the effort that goes into doing whatever the colonizer forces you to do in order to get money.

Well, that’s the labor theory of value. So it makes sense. And then the job guarantee, as you mentioned, is the main policy proposal, which is establishing a value of labor and helps to stabilize wages on the downside. In a recession, wages won’t go below that wage paid in the job guarantee. And in an expansion, the private sector can hire workers out of the labor pool in the job guarantee at a slight markup over what you’re earning in the job guarantee program. So you can see how it helps to stabilize the value of labor. So that’s how you get to something like a labor theory value in MMT, but it’s not really getting into MMT applied in the context of a capitalist economy.

We have to go deeper than that. We have to look at the structure of how capitalism works and do more historical research on how capitalism was created in order to see what role money plays in the economy and what really determines the value of money.

[00:31:22] Grumbine: Now you spoke of a gentleman named Foley and I don’t know who Foley is. Can you tell me a little bit about who he is and then we can touch on some of his thoughts.

[00:31:33] Wray: Duncan Foley is a professor at the New School where Heilbroner was, where Adolf Lowe was. He used to teach at Stanford when I first started studying economics and one of his students was Steve Fazzari, who was one of my professors. Tracy Mott was one of his students and he was a good colleague in Boulder when I taught at Denver.

So anyway, I had known about Foley for a long time. And he, doing fairly conventional stuff, got tenure and got published in all the top journals. And then I think he more or less announced, I’m actually a Marxist. So he’s written very interesting stuff on Marx, especially last 20 or 30 years. And I think his major contributions to understanding the value of money consistent with the labor theory of value. It was eye opening, I think, making things much more clear than they had been.

[00:32:39] Grumbine: In the paper you wrote, labor values are preserved in exchange, but exchange occurs at money prices. Money prices redistribute value to equalize money profit rates across processes with different organic compositions of capital. While all value is created by labor, money values drive production decisions.

Production starts with money to end up with more money later. Money value of profits is the only measure of success from the point of view of capitalists that organize production. So in this capitalist organization of production, it’s all about profit. How do we marry a labor theory like today, a modern society, with a system that prioritizes profit maximization? You see Isabella Weber’s work on seller’s inflation. We see all kinds of other excesses of capitalism. I know people like to say there’s no such thing as capitalism. I just can’t wrap my head around that one. I’m not going to try. Whatever we’re seeing right now is a gross abuse of the working class, of regular people, of Main Street.

We watch vaunted economists say what a wonderful economy it is, but they’re looking at their own bank account and they’re saying, I’m not seeing this beautiful economy. Something about labor theory is not quite right in this country or in this world, actually. People oversimplify that and say, it’s just a product of capitalism.

Maybe that’s correct. Maybe when it all comes down to it, that’s what it comes down to. Something’s not right. What would you say, based on the conversation that we’ve had so far and the writing you’ve done, when people say there’s clearly something amiss?

[00:34:31] Wray: Well, let’s go back a little bit. So Marx says that Smith’s approach to labor theory of value isn’t consistent with capitalism. We have to take account of the machinery of the capital. And when Marx says “capital,” really he’s talking about a fund of money that can be used to build and own the equipment, the manufacturing equipment, and so on.

And they need to get a profit on that capital that they have used to fund the production of the machinery and ownership. So when we apply labor to the machines, we’ve got to pay that labor for the value that is required to reproduce the laboring class at the socially necessary standard of living. So that generally goes up over time.

And labor has this ability to produce a surplus, and this goes back at least to the beginning of agriculture. So that an individual working, of course, in a social setting, because there’s no such thing as production by individuals. The laborers can produce more than is necessary to sustain them. When you have an egalitarian tribal society

that surplus is accumulated collectively and used to get you through the droughts. So you have a seven year ever normal greenery. You set aside enough grain to get you through seven bad years. That was the rule of thumb in tribal society. So that surplus is owned collectively. But what happens with the rise of a ruling class is they take a portion or maybe all of the surplus for themselves.

And that’s what we call exploitation. It’s a natural ability of humans, once they’ve discovered agriculture, at least by then, to be able to produce more than is required to reproduce the laborers. With the rise of class society, it’s the upper class or classes that grab that. So the rentier class plus the capitalist class grab the surplus and that’s called exploitation.

Then we have a rate of exploitation. And people try to estimate what this is Anwar Shaikh, who’s also at the New School, and Duncan Foley and Marx. Let’s say that the rate of exploitation is about 50%. So in four hours of work, the average laborer can produce enough value to support the laborer and the family, because you have to be able to reproduce the labor power, you have to raise children to replace you. And that means that the rate of exploitation is 50%. The second four hours of labor time goes to the surplus that is then taken by the upper classes. And what Foley’s big contribution was arguing that From Marx we know that there has to be a tendency to equalize the profit rate across every line of production.

Otherwise, capitalists who have this fund of capital that they’re looking to invest will shun the employments that have a lower rate of profit. So profit seeking behavior is going to tend to equalize profit rates across all sectors of the economy. So that’s in Marx, but it’s also in many other approaches to studying capitalism.

There should be a tendency to equalize profit rates. It’s a tendency, we’re never going to observe it at a point in time. There are always new employments coming along, new ways of producing. There also is market power, which is one of the things you’re getting to. The ability to set your price a bit higher because you’re Coca Cola, not Royal Crown Cola. You’re able to get a higher price for your stuff. All of those complications mean we’ll never observe it, but it is a tendency. What Duncan did was said that there has to be a similar mechanism to equalize the rates of exploitation. So if the average rate of exploitation is this 50% that I was just talking about, there will be a tendency for the struggle between workers and capitalists to equalize the rate of exploitation across different sectors of the economy, too. So the new thinking about the labor theory of value is it’s not only the profit rate, but it’s also the rate of exploitation that tends toward equalization. And then finally, a point you’re making, and Duncan makes it. I think we all need to think more about it. Which is this tremendous overhead that has been developed in the modern capitalist economy.

We call it financialization a lot, where a greater and greater proportion of the surplus is going to these essentially a rentier class that actually don’t contribute anything to production and in fact, negatively, greatly negatively impact production. Make it much less efficient. That is what has been depressing living standards of workers because more and more surplus, higher and higher rates of exploitation are required to keep this functionless superstructure adequately compensated for screwing up the economy.

[00:40:54] Grumbine: it seems like the government is always willing to make that rentier class whole. I want to walk through a scenario to take us out in a real world approach to things. We know that through our understanding of modern money, which a lot of this have gleaned from you, Randy, is that the government spends money into the economy when it writes a bill and issues contracts.

And that’s how money gets into the economy. There’s different things like the job guarantee’s automatic stabilizer-type spending. But in actuality, the government puts bids out there. People apply for those bids and that’s when money is spent into the economy. With that in mind, help me understand the government as the price setter. It agrees to pay these companies a certain rate, which is a de facto price setting. Is it not? Is that how it shows itself in practice?

[00:41:54] Wray: Unfortunately, a lot of what the government buys, it is setting the quantity, not the price. So it’ll say we need 50 new tanks and then maybe it’s going to take the lowest bidder. Maybe it won’t. But it is setting the quantity, not the price. The job guarantee is different. The job guarantee, we set the price.

We’re going to pay $25 an hour in the job guarantee program. And then we take the quantity that shows up. But most government spending is not that way. And so we’re clearly not setting the price. And generally you’re going to get prices rising if you’re just setting the quantity. So it’s a real problem.

Now, I think that having the government try to set the price of everything that it buys would be extremely difficult and probably very disruptive. I don’t see that as a feasible option, but the government should exercise more control over the prices it pays and it should have a job guarantee program where it definitely is setting the price it pays.

That would help to stabilize the prices and help prevent the price gouging where so much of what the government buys is cost plus markup, which then leads to an incentive to increase your costs, the higher the cost, better. You get 50 percent markup over whatever the costs are, which is a lot of government spending.

[00:43:27] Grumbine: You said the third segment of this was your view of modern money and you go into some great detail. We talked about taxes driving money, but you said MMT emphasizes the state’s money as the unit of measure of the value of obligations, the money of account. From inception, it is the measure of the obligation to the state, taxes and so on.

Currency is accepted because it is valuable in meeting the obligation imposed by the state. However, that raises two questions. How much demand for the currency can be created through tax obligations? And how much will the currency be worth, that is, what determines the value of money? Can you take us through this portion of it?

[00:44:18] Wray: Yeah. It turns out it’s extremely difficult to say that the government is determining the value of money. The government chooses the money of account and it imposes obligations in that money of account. And if you don’t have a capitalist economy, then you have much more leeway in determining how much you can spend by setting that tax obligation.

But once you’ve already monetized the economy, things aren’t simple at all. When we say taxes in dollars, drive the dollar, and then someone will say, but hold it, I want the dollar to buy ice cream. I don’t want the dollar to go pay taxes. I want the dollar to buy gasoline for my car. We have all sorts of reasons why you want dollars because we are a thoroughly monetized economy, and we’ve become more and more monetized all the time. When I was a kid, probably when you were a kid too, people mowed their own lawns. You live in the suburb now, and most people don’t mow their lawns. That has become a monetized activity and on and on.

So someday you’re going to hire someone to brush your teeth every night before you go to bed, I suppose. So more and more, everything that we do becomes monetized. So there’s all sorts of reasons why we want money. And so that opens more space for government spending on the one hand, because our demand for money is almost infinite.

If we had our little hut society that I talked about before, a colonized, where you monetized economy, then the government is going to be pretty much limited in its spending to the tax obligation, because people don’t have another use for money. But in our economy, the dollar is always going to be demanded in a way that makes government spending essentially unlimited.

The problem is inflation. If the government spends too much, it won’t be that the dollar is not acceptable. And then on the other hand, there also are many ways to get dollars other than from the government. In fact, most of the dollars you get don’t come from the government. And even the dollars you’re using to pay your taxes don’t come from the government.

They’re created by the banking system. And so things are much, much more complex in a capitalist economy, and some of the simplifications that are made to introduce the concept of MMT can get in the way, I think, of the messaging. That’s what I’m trying to point out. That we lose the direct relationships between the taxes and the money that enters the economy from government spending, because we live in this system that is completely monetized.

My professor, Hyman Minsky, said, anybody can create money. The problem is to get it to accepted. So there’s all sorts of ways money gets into the economy and all sorts of ways you can use money. It’s complicated.

[00:47:43] Grumbine: One of the things I want to close out on, because there’s more to this paper and it’s really fantastic. One of the keys for wanting to do this episode was the question you ask. And that is, how can the heterodox approaches that derive from Keynes’ thought be synthesized with the Marxian approach? And with MMT as our flagship,

is there a way to bring Marxists and MMTers together to help understand how we can survive in this? How can we bring these two together? Is this a peanut butter cup with chocolate and peanut butter or are these oil and water?

[00:48:23] Wray: I don’t think they’re oil or water. I think we need both. There’s an article written by an economist named Fan-Hung. I believe it’s around 1939, that I used to use in my PhD classes, in which he shows you can map Keynes to Marx. Now Keynes, you can call him an apologist. He was trying to save capitalism because in the 1930s, it was plausible that could be the end of capitalism.

You had the Soviet Union. They were not in the Great Depression. The Western world was in the Great Depression. Unemployment was at least 25%. And people were starving. It was possible that it could be the end. He wanted to save capitalism. And Marx, on the other hand, thought he was seeing the end of capitalism and had no interest trying to preserve it.

But they both reached the same conclusions because they both were trying to describe the way capitalism works. The way it works is it’s a monetary production economy. Thorstein Veblen, by the way, also had the same view of the way capitalism works, and you could also map him to Marx, and he also was hostile to Marxian thought, like Keynes.

But they reached the same conclusions because they’re all looking at the same elephant. It’s a monetary production economy that starts with money to try to end up with more money. That’s what capitalism is all about. And so if we want to understand it, I think we can get a lot from all three of these people.

They’re writing in different times, and capitalism changes over time and it’s changed a lot since the time of the general theory of Keynes in the 1930s. The government plays a much bigger role in the economy for better, I think mostly, but also for worse in some ways. And that’s changed the way that the capitalist system operates.

And you referred to, you didn’t put it this way, but always bailing out the financial system, no matter what it does, has changed the nature of capitalism and has encouraged continued financialization of the economy, which I think is really bad and needs to be reversed. But anyway, I think that we can use something from all three schools of thought to try to understand the nature of capitalism and try to make things better for workers.

[00:51:01] Grumbine: Randy, I want to thank you so much. Please, by all means, check out this paper. It’s at edi.bard.edu/research/notes/value-theory. Of course, this will be part of our show notes as every week when we produce these podcasts, we have fully edited transcripts and we have an extras page that ties the links to each of the things we talk about in the podcast.

So by all means, check this out. Randy, I want to thank you so much for going over this with me. I’d be a liar if I said I have this down, but I really appreciate what you’ve said, because I’m going to take some time to dig. And this really matters to me. I want to see people come together. And work together to create a better future.

And right now I think people are losing hope. The inflation has not been good to them. The markets have not treated them well, and many of them have not received the benefits of the interest rate hikes that seem to funnel money to other rich people. So at this point, I think that there’s no greater thing than to get regular people in that regular labor category to be able to understand the world around them better and to be able to organize and to make the changes that they think need to be made.

So, Randy, thank you so much again for joining me today. Tell folks where they can find more of your work.

[00:52:25] Wray: Well, there’s a lot at the Levy Institute. It’s just levy.org will get you there. And there will be a more polished and longer version of this labor theory of value paper eventually at Levy when I get some time to finish it up.

[00:52:44] Grumbine: Very good. All right. Well, folks, my name is Steve Grumbine. I’m the host of Macro N Cheese with my guest, Randy Wray. We are out of here.

[00:53:04] End Credits: Production, transcripts, graphics, sound engineering, extras, and show notes for Macro N Cheese are done by the fantastic team of volunteers at Real Progressives, serving in solidarity with the working class since 2015. To support our work, please go to patreon.com/realprogressives, realprogressives.substack.com or realprogressives.org