Fiat Currency, Socially Necessary Labor Time, and Other Causes for Revolution

I’m currently reading through Capital, Volume 1 by Karl Marx, and I’ll readily admit that it’s not always an easy read for me. Theoretical complexity isn’t usually an issue for me. I have read and enjoyed Levinas and Hegel, both of whom really demand a lot of your attention as you engage with their philosophies. No, the challenge of Capital for me is the fact that I struggle to care about economics. Chapter 1, where Marx sets a lot of the economic foundation that will underpin the rest of his analysis, was a particularly vicious slog for me.

When Marx arrived at the issue of money as the universal exchange commodity, I came to a screeching stop. “But we’re not on a gold standard anymore!” my mind said, throwing its toys down with disbelief, “We haven’t been on a gold standard for forty years now.”

Thankfully, Dr. Peter Cooper came to the rescue with a blog post titled “Value of Fiat Money on the Basis of Marx in Light of MMT”:

In a fiat-money system, if the minimum wage is ten dollars per hour and minimum-wage labor is considered to represent simple labor, then it takes six minutes of simple labor time to obtain a dollar. Six minutes of simple labor will be the value of the currency. (Workers perform this labor time. Capitalists induce it from others in exchange for a payment of wages.) Similarly, under a gold standard, a certain amount of labor time is performed to produce a commodity that is exchangeable at a fixed rate for the state currency.

This explanation put me back on track to continue my reading, and I powered right on through chapters 1 and 2. However, one bit stuck in my mind and kept me thinking:

The amount of labor required to obtain a unit of fiat currency also typically varies only slowly as the state allows gradual increases in the minimum wage or – in the absence of minimum-wage legislation – as the wage paid to simple labor gradually evolves. In both types of monetary system, the value of the currency will decline as the amount of labor necessary to obtain a unit of the currency declines.

Now, consider this in connection with automation in the workforce. If socially necessary labor time is indeed ultimately still linked to fiat currency, we are on the cusp of a radical devaluation of fiat currency. This is something that I’ve understood academically for some time, but this analysis definitely added more fuel to the fire. If you thought the housing market crisis of 2007 was bad, then get ready for the automation crisis paired with the popping of the carbon bubble.

Our society must be re-imagined and rebuilt in fundamentally different ways. This is, in my view, an unavoidable material reality. We can only argue over whether we intend to do that before crisis forces our hands or after we’ve started picking up the pieces.

“Value of Fiat Money on the Basis of Marx in Light of MMT” by Peter Cooper, BEc (Hons) PhD