[OPE-L:1159] Re: Marx, Ricardo and money

Allin Cottrell (cottrell@wfu.edu)
Tue, 20 Feb 1996 13:34:01 -0800

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Costas quotes me:

> > In a commodity money economy one can ask not only whether
> > relative prices (of commodities other than money) are "right" in terms of
> > relative labour contents, but also whether _absolute_ money prices are
> > "right", given the labour required to produce the money-commodity. But
> > under fiat money or modern credit-money, the latter question loses its
> > meaning.

and asks:

> If this question 'loses its meaning', do we have to go for a
> determination of the price level by the Quantity of Money? Or
> aggregate demand? But then, what does the labour theory of value
> have to do with it? Is there any way of holding on to the critique of
> the Quantity Theory, the labour theory of value, and the direct
> symbolisation of value by money?

This is a large set of questions. My short answer is No, we don't have to
go for the Quantity Theory (we have the critiques of that from both Keynes
-- who stressed the potential variability in the demand for money -- and
the 'post-Keynesians' -- who stress the endogeneity of the supply of
credit money). What does the labour theory of value (LTV) have to do with
the determination of the general price level, as opposed to relative
prices? I think, nothing. The LTV claim is that, however the general
price level comes to be determined, there are forces working to move
relative prices in line with labour-content (or at least, tending to limit
the dispersion of the ratios of price to labour-content across
commodities). I don't think there's a quick answer to the question of
how the general price level is determined in a credit money economy.
It's the result of a complex interaction of the monetary policy of the
State and the forces governing the evolution of money-wages (among other
things). Wicksell had some useful things to say about the _dynamics_ of
the price level in a credit-money economy, but to account for the price
_level_ at a point in time I believe we can't avoid reference to initial

Allin Cottrell