marxian monetary theory as compliment and impediment to crisis theory

Many years ago I wrote a short paper on the division between Marxian theories of crisis (or aggregate economic behavior in general) that emphasize value, and those that distance themselves from it. Many different specific traditions and thinkers could fit into each. In general, those that emphasize the organic composition of capital (falling rate of profit) best exemplify the former. In the latter category, I was thinking of work that emphasizes the anarchy of the market, demand problems, profit/wage dynamics, etc. I’ll give some specific examples, but let me touch on my motivation first.

I did not take this division as necessary. I largely work within the overdeterminist Marxian tradition that emphasizes value, but views crisis as a complex phenomena that cannot always be traced back to one essential cause. Value matters. Other things matter too. I am also influenced by people on both sides of this divide. I had sympathies with Marxian economists who wanted to maintain the uniqueness of a value-based analysis, against tendencies to collapse the potential overlaps between Marx and Keynes into simple Keynesianism (with a left-ish heart). I also learned quite a bit from people working outside of value theory. For example, the paper was written for Jim Crotty’s Macro 2 class. I haven’t re-read all of his work to double-check, but if his analysis ever mentioned value theory it was never integral. I’ll return to Crotty in a second.

In the paper I gave two specific examples of such a divide. First, I discussed Brenner’s dismissal of falling rate of profit, value-based crisis theories (link) and the Marxian response (articles in the journal Historical Materialism as one example). I also offered the difference between the regulation school and the social structures of accumulation school. Ultimately my motivation was to bridge this divide, but also account for the existing chasm. A large part of my accounting involved methodology. Long story short, it is a case of the classic divide between a theoretical formalism and a empirical substantialism.

I’m not sure I was wrong. I never said an allegiance to a particular methodology explains all difference. However, there was definitely something I missed, and bumped into in my dissertation – there are (at least) two sides to Marx’s account of money, and each (taken alone) leads to a very different view of the relationship between money, value, and the macroeconomy.[1]

Let me return to Crotty. Here he is in the 1985 “The Centrality of Money, Credit, and Financial Intermediation in Marx’s Crisis Theory: An Interpretation of Marx’s Methodology” (link):

On the other hand, the Marxian crisis theory literature has had very little to say about monetary and financial aspects of capitalist macro-dynamics. Issues of money, credit, financial intermediation, inflation and the institutional structure of domestic and international financial regimes pass almost unnoticed as debate rages intensely around impediments to accumulation in the sphere of production. Yet a well-developed, rich monetary and financial theory is essential to the construction of a Marxian theory of accumulation and crisis adequate to comprehend the complex and threatening events of the current era.


And the degree and character of the anarchy and incoherence …of capitalism depends upon the relative importance and particular institutional underpinnings of the various functions performed by money in each mode. Thus, before Marx even begins his analysis of specifically capitalist production relations he has established that the theory of money and credit and the theory of crisis are so intimately intertwined that they are analytically inseparable.

This is a long essay, but if you’re reading this (post) may have already read it (the article). A key point he makes is that the first part of Capital is not just about value theory. It is also about the “centrality” of monetary factors in the analysis of crisis. Marx is essentially criticizing variants of Say’s Law. Because a monetary economy is not a barter economy, and money is not just a means of exchange, the supply and demand for (non-money) commodities may differ on the aggregate. The lesson is not that value is insignificant, but rather that monetary and financial institutions and conditions are also significant. Nonetheless, Crotty’s later work does the monetary-financial without the value (I only point this out because the gap between the two is the principle interest here – it is not a criticism).

The point I want to make is that at least one reason for this absence of value, or conversely the absence of the monetary-financial in the Marxism Crotty is criticizing, is that although the notion of money as a condition of the possibility of crisis is developed along-side money as an element of value theory, they are theorized under different conditions. They exist alongside in the text, but are not necessarily close neighbors theoretically.

The point of money as a condition of crisis is that goods don’t exchange directly for other goods, so things could go wrong. However, when Marx presents money’s various functions (in relation to value theory) he assumes things don’t go wrong. This is what he calls the “normal” (Capital p.203):

The division of labour converts the product of labour into a commodity, and thereby makes necessary its conversation into money. At the same time, it makes it a matter of chance whether this transubstantiation succeeds or not. Here, however, we have to look at the phenomenon in its pure shape, and must therefore assume it has proceeded normally.

Now this is fine for me, and maybe someone wants to criticize Marx for normalizing the temporary harmony of a capitalist economy, which is also fine with me, but not really my interest here. For me, we just need to remember that the discussion of the hierarchy of money’s functions and forms, as well as the relationship between these functions/forms to the quantity of money and aggregate levels of output in terms of use-values, value, or price largely assumes this normal functioning.

We assume a monetary economy to explain the possibility of crisis. We (temporarily) assume no crisis to produce a baseline theory of money. I have no problem with Marx’s use of this assumption since it is appropriate to the tasks at hand – explicating an understanding value and theorizing capitalism at a very abstract level. When we move from these tasks, to the analysis of capitalism at a different level of abstraction (with abnormal functioning), something must be done to amend or modify the initial view of money.

This is not easy. The initial view might appear to be the essential view. Modification and amendment might appear as abandonment.

In the standard Marxian treatment of money we have (1) the priority of measure of value function, (2) the priority of real gold commodity money, and (3) priority of the right-hand side (nominal level of output) of the equation of exchange.

Typically this gives us some quantity theory type results. Even though the level of output and price is prior to the quantity of money, this is understood in the context of the priority of gold money to token money. A doubling of the supply of non-commodity money doubles prices. How then do we maintain the superiority of a Marxian theory of money over theories that produce similar results? Carchedi (link) and Moseley (link) offer very similar answers that nicely illustrate the particularity of standard Marxian theory.

A change in the quantity of paper money, inasmuch as it is not (de-)hoarded…does affect money prices. However, this effect is not due to money as a means of circulation but to money as a measure of value, given that the value – purchasing power – of money changes. The difference between the monetary and the Marxist view is not that the latter denies that an increase in the money supply can have an (inflationary) effect on money prices. The difference is that in the Marxist view this effect is due to money as a measure of value, rather than as a means of circulation. This is far from a pedantic point. If, as in the quantity theory, money is simply a means of circulation, money prices are not a symbol of value. This theory, then, severs the link between production of value and money prices. (Carchedi, p.166)


However, this extension of Marx’s theory is still significantly different from – and superior to – the quantity theory…in important respects: (1) the quantity of money does not determine prices directly, but rather indirectly through the MELT [monetary expression of labor time]; (2) the necessity of money in a commodity economy is explained; (3) not only is the general price level explained (by the MELT), but individual prices are also explained; and, most importantly, (4) Marx’s theory of money also provides the basis for a theory of surplus-value and for a theory of the dynamics of capital accumulation. (Moseley, pp.9-10)

Although neither explicitly references Marx’s normal functioning, it is without doubt at play. For each, the priority of money as a measure of value is essential. The quantity of money only indirectly influences prices, by changing the amount of value (real gold) each monetary token represents. Since the value a unit of money represents is in part determined by the level of output, we need to leave output independent of the quantity of money in order to maintain the absolute priority of money as measure of value.

While this fits well within Marx’s intitial (at least in Capital) exposition of money-value, it doesn’t fit in the exposition of money-crisis.

A very clear example of this is made by returning to Carchedi’s analysis of money. Beginning on the very same page as the passage we quoted above we find a section entitled “Crises and quantity of money,” including this passage:

We have seen that crises follow from: (a) failure to increase the quantity of money; (b) from such an increase which fails to stimulate demand; or (c) from such an increase followed by the sale of all products (means of production and of consumption), on condition that the output of the next production process remains the same (which means that those extra inputs remain unused).(p.168)

In one case the quantity of token money has no influence on the real economy. In the other is does.

I’m not accusing anyone of holding an absolute neutrality of money position, but I think there isn’t enough recognition that neutrality type assumptions are critical to our standard ways of specifying a Marxian value-theoretic view of money. And it is difficult to criticize people for insufficiently using value concepts in the analysis of money-crisis when the money-value analysis is at such a state.

This topic is always on mind, at least until the dissertation is defended and behind me, but an exchange on a list-serve made me think of it in a different light. The issue that was raised concerned the longer run relationship between money (broadly understood), value, and the macroeconomy from a Marxian perspective. I could answer this question if it was posed on an exam. Well, if we have a post-Keynesian inspired interpretation that views value as superfluous then bla bla bla. If we had a more classic real analysis type of Marxian theory based on value then bla bla bla. Outside of an exam, at least for those interested in value but unsatisfied with the real analysis implications of the normal functioning assumption, I’m not sure there is much consensus.

Now part of this difficulty is unavoidable. Making strong claims about long-term developments requires strong assumptions we may not want to make. But part of this difficulty involves the ambiguities and tensions involved in the theory of money.

I can’t post this without an important qualifier. I’m interested in the problems in the Marxian theory of money because I think it is important. When I talk about an inadequacy or limitation or lack of consensus the reference point is some ideal stage of theoretical development. The reference point is certainly not alternative economic theories. There was a point where I thought money and finance was a particularly weak point for Marxian theory, as compared to alternative theories. I’m not sure exactly where I got this idea from but it is in the social science air we breathe. Sometimes it comes from the sympathetic social scientist (usually outside of economics) who thinks Marx had important things to say about old industrial capitalism but has been rendered obsolete by modern monetary and financial institutions. This is absolutely not what I mean when I refer to Marxian problems.

If you read this far expecting a solution to the problem I posed, my apologies. I’ll have more to say later.

[1] I suppose I could also interpret these two takes on money as methodology distinct along formal-substantivist lines.

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2 Responses to marxian monetary theory as compliment and impediment to crisis theory

  1. Arjun says:

    Hi Joe,
    I’m super happy to see you are blogging. Looking forward to a lot more..


  2. rebellol says:

    Hi Arjun,

    Thanks for the comment. Sorry for leaving it unapproved for so long. I need to change the settings to auto-approve everything.

    In the spirit of rational expectation you might want to look forward to just a “little more” from me…but we’ll see. I didn’t see you on the program for the ICAPE conference, but hopefully we’ll bump into each other eventually.


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