Reply to LK: How labor theory of value destroys fiat ‘money’
It’s not very often that I agree with Keynesians about anything, but this post, Fiat Money Destroys the Labour Theory of Value, comes real close. The writer of the post, LK, who has a surprisingly good grasp of labor theory basics, argues that fiat money destroys labor theory of value and I completely agree with him/her on this point.
“Marx’s whole explanation of the emergence of money in Chapter 2 of Capital assumes that money must be a commodity. … So only if money is a special commodity that itself has a labour value can it function as a universal medium of exchange and numéraire. You couldn’t have a clearer expression of Marx’s view: money must by necessity be a produced commodity with a labour value in order to even function as money, because, in Marx’s view, all commodity exchange is founded on the fact that commodities (including money) are made commensurable by having quantitative labour values.”
If Marx appears to be demonstrably wrong about anything in economics, this is likely the single most glaring example. However being wrong about money is not like being wrong about your prediction for GDP next year. Everything Marx argues in Capital is built on his arguments in the first three chapters, including his analysis of money. For Marx to be wrong about money has implications at least as profound as establishing beyond all doubt that value has nothing to do with labor. It is not as though Marxists could admit labor is not the source of value, but maintain Marx was still right “overall”. In that same sense, there is no way you can pretend Marx was wrong about money being a commodity, but right about most everything else. You can’t do it and LK isn’t going to let Marxist economists try to put that weak bullshit over on us.