[OPE-L:3538] Monetary Expression of Value

Duncan K. Fole (dkf2@columbia.edu)
Sun, 27 Oct 1996 07:12:25 -0800 (PST)

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Some comments on Alan's [OPE-L:3402]:

Alan proposes another example. (I'm not sure this is the most efficient
mode of discussion of the issues, since every time we have a new example we
have to clarify the exact assumptions being made. I think if we reach
clarity in one modeling environment, we can rather easily see the
ramifications of the various points of view in generalizations.):

I'll try to illustrate this. Suppose [by popular demand] a
two-sector economy that pays non-zero wages. Suppose in
1990 it produces goods C1, C2.

I write exchange values in money with a dollar sign,
exchange values in hours with the word 'hrs' after, and use-
values without a dollar sign, implying measurement in the
natural unit of the use-value concerned. As per convention
C1 is an investment good and C2 a consumption good. The
numbers are generally arbitrary and were chosen only so as
to get a few round figures for profits, values and the mev,
to make the example easier to follow. It's a bit hasty so
if some of the sums seem wrong, it may be my arithmetic.

Consume C1 Labour Time output (units)
C1 producers 27[$27] 6 66
C2 producers 29[$29] 10 39

I take this to mean that "investment goods" are circulating capital, which
must be present at the beginning of the production period, and are entirely
incorporated into the finished product. Thus I interpret the table to mean
that 27 units of C1 combined with the 6 hours of labour time yields 66
units of C1 at the end of the period, and that 29 units of C1 plus 10 hours
of labor time yield 39 C2 at the end of the period.

The Table also seems to imply that the C1 was purchased at $1/unit.

Alan continues:

Suppose we know from past data that at the beginning of
1990 one hour was expressed monetarily as $1. Then each $
represents 1 hour and the labour-value accounts read:

I'm trying to focus on the exact way in which TSS defines the monetary
expression of value, but this formulation left me in the dark about how
Alan defines the monetary expression of value, or, to put it another way,
how he would go about calculating it from data on prices and quantities of
inputs and outputs in a real economy.

Alan continues:

Consume C1 Labour Power Output (hrs)
C1 producers 27 hrs 6 hrs 27 + 6 = 33 hrs
C2 producers 29 hrs 10 hrs 29 + 10 = 39 hrs
Society 56 hrs 16 hrs 56 + 16 = 72 hrs

Hence new unit value of C1 = 33hrs/66units = 0.5 hrs/unit
Hence new unit value of C2 = 39hrs/39units = 1 hrs/unit


(1) The production of machinery has become more efficient
since it is now valued at 0.5 hrs/unit whereas it was 1
(2) Inputs were nevertheless valued at historical cost.
Inputs to C1 were valued at 1 hr/unit, outputs at 0.5
(3) Value is prior to and independent of the price for
which these goods actually sell (not yet known or stated)
(4) Finally I would indicate to Duncan that the new value
created in hours is by definition the total living labour
expended during 1990 so there is no violation of

My view is that the new monetary expression of value only
becomes known when the goods are sold, or to be more
precise, priced by the market.

There is thus now an infinite range of possibilities
corresponding to all possible sale prices for the
commodities. Let us consider some of these possibilities.

If there were a constant monetary expression of value, 1
hour would still be expressed in $1. In that case the goods
would sell for a total of $72. However due to the effects
of competition, supply and demand or what have you, C1
might have realised more than $33 by say Delta($C1). In
that case C2 would have sold for Delta($C1) less than $39,
the differences balancing out by Marx's first equality.
Nevertheless, their total monetary value prior to sale,
under this assumption, is a consequence of the assumption:

I don't think you can calculate the monetary expression of value in the New
Interpretation method from the assumptions made so far. The New
Interpretation defines the mev as the ratio of the money value added (the
value of the net product at market prices) to the social labor time
expended. Here we know that the social labor time expended is 16 hours, but
we don't know the value of the net product at market prices, because we
don't know the prices of the two commodities. If C1 continued to sell at
$1, and C2 at $1, which is consistent with, but not implied by Alan's
assumptions, then the value added would be $16, and the mev in the New
Interpretation sense would be $1/hr.

Alan continues:

Now suppose that, due to monetary changes, they actually
sell for the following prices:

C1: $0.625 per unit($41.25 total)
C2: $1.25 per unit ($48.75 total)
Total price: $90

Now we can calculate the mev. The value added in sector 1 is sales revenue
less the cost of inputs at current prices (making the inventory valuation
adjustment), or $41.25 - 27($.625) = $24.375, and the corresponding
calculation for sector 2 is $48.75 - 29($.625) = $30.625, for a total of
$55. The labor time is still 16 hours, so the mev is $55/16 hours =
$3.4375/hour. To put this another way, this economy used 56 units of C1 and
16 hours of labor time to produce 66 units of C1 and 39 units of C1, so its
net product is 10 units of C1 and 39 units of C2, which has a value at the
prices assumed of $55.

Alan continues:

If they had sold for their value at the 1990 MEV they would
have realised

C1: $1 per unit ($33 total)
C2: $1 per unit ($39 total)
Total price: $72

Clearly, there has been inflation (decline in the value of
money or rise in the monetary expression of value). What is
the new mev? To put it another way, how do we measure this
inflation? Let us consider a number of possible answers to
this question.

This way of putting the questions seems to confuse the measurement of the
price level, the cost of a unit of use values, with the monetary expression
of value, which establishes an equivalence between labor time and money
value. The mev in fact can be decomposed as follows:

mev = Money Value Added/Labor Time =
(Money Value Added/Index of Net Output)(Index of Net Output/Labor Time) =
(Price Index)(Index of Labor Productivity)

The exact price index and index of labor productivity you get depends on
your index of net output, or the "basket of goods" you use to measure price
changes. For example, if you take net output itself as the basket, the
price index will be the "GDP deflator" and the labor productivity index the
usual measure of average labor productivity.

But notice that it is not necessary to choose a price index basket in order
to calculate the mev according the the New Interpretation. All we need for
that are data on net output and market prices.

Alan continues:

Neoclassical price index theory can only answer this in
relation to some ideal basket of consumption.

Duncan: I'm not sure why the use of a price index is particularly
"neoclassical". A Marxist economist who wanted to answer a question like
"what has happened to the standard of living of workers in the U.S. over
the last decade" would have to use a price index, too.

Alan continues with some price level calculations, which I omit, and then says:

I think the differences which Duncan detects arise in part
from differences between our (common) measure of the
monetary expression of value and the New Solution measure.
Duncan would, if I understand correctly, calculate the
value of money here like this: monetary value added is $90
- $64 = $26. Living labour hours = 16. Therefore

Value of money = 16/$26 = 8/13 hours per dollar, or
Monetary expression of value = $26/16 = $13/8 per hour.

My problem is this: the total product sold for $90. It is
then surely equivalent to $90*8/13 = 55.35 hours. Yet the
inputs were valued at the time of purchase at 56 hours. So
the total new value is negative. This is a bit odd since
living labour is positive. Moreover if we construct an
example in which the productivity of labour falls, rather
than rising, value added so calculated *exceeds* living
labour, so that value is apparently created out of nothing.

I don't understand how Alan gets the $64 he subtracts here, but my
calculation above comes to a quite different answer. This makes me worry
that Alan has not understood the New Interpretation definition of the
monetary expression of value. I hope this reply will make the method clear,
even if others want to use some other definition.

I must confess that I am not clear on how TSS proposes to measure the mev
itself, as opposed to assuming that it has some value in an example.

Duncan K. Foley
Department of Economics
Barnard College
New York, NY 10027
fax: (212)-854-8947
e-mail: dkf2@columbia.edu