Three Books on Marxist Political Economy (Pt 9)

Last month, we saw that Shaikh’s view of “modern money” as “pure fiat money” is essentially the same as the “MELT” theory of money. MELT stands for the monetary expression of labor time.

The MELT theory of value, money and price recognizes that embodied labor is the essence of value. To that extent, MELT is in agreement with both Ricardian and Marxist theories of value. However, advocates of MELT do not understand that value must have a value form where the value of a commodity is measured by the use value of another commodity.

Supporters of MELT claim that since the end of the gold standard capitalism has operated without a money commodity. Accordingly, prices of individual commodities can be above or below their values relative to the mass of commodities as a whole. However, by definition the prices of commodities taken as a whole can never be above or below their value.

Instead of the autocracy of gold, MELT value theory sees a democratic republic of commodities where, as far as the functions of money are concerned, one commodity is just as good as another. Under MELT’s democracy of commodities, all commodities are money and therefore no individual commodity is money.

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2 thoughts on “Three Books on Marxist Political Economy (Pt 9)

  1. Bravo! This has encapsulated all of my misgivings about Shaikh’s book to a T. I feel like this is a post that brings many of the threads of your writing together. This is one that I will share with comrades widely.

  2. By the way, when talking about the response to the crisis in 2008 and QE, you need to make sure to take into account the effect of paying banks interest on excess reserves in order to quarantine much of the expanded monetary base as idle reserves not serving as collateral for loans. That is one additional part of the mystery for why the dollar did not depreciate versus gold even more than it did.

    Of course, payment of interest on excess reserves is not some “fountain of youth” that the Federal Reserve can draw on forever. It steadily cuts into the Fed’s remittances to the Treasury and into the solvency of the government’s consolidated balance sheet (i.e. the government’s balance sheet when considering the Fed and the Treasury as one unit). As interest rates increase, there will come a time when the Fed is actually paying out as interest on excess reserves more than it is receiving from interest on its assets. At that point, it will either have to stop paying interest on excess reserves (which threatens to unleash the quarantined idle reserves to be used as collateral for loans), reverse the QEs (to vacuum up some of that expanded monetary base…which might cause another “taper tantrum”), or get continual bailouts from the Treasury (i.e. from taxpayers). The latter will, of course, not be popular or politically sustainable.

    Figuring out how the Fed wants to extricate itself from paying interest on excess reserves (so called “normalization”) is probably going to be the trickiest task yet faced by Janet Yellen and company.

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