LINK TO ARTICLE (ENLACE AL ARTÍCULO): https://doi.org/10.31219/osf.io/eskmx
PROBLEM STATEMENT AND OBJECTIVES
The article addresses the relationship between money and prices, analyzing the validity of two main theories: the quantitative theory of money (neoclassical) and the quantitative theory of prices (Marxist). The main objective is to determine which of these theories better explains economic reality and the practical implications of this relationship.
THEORETICAL FRAMEWORK The study starts with a critique of David Hume’s quantitative theory of money, the basis of neoclassical monetary theory. It is contrasted with Marx’s theory, which posits that prices determine the quantity of money in circulation and not vice versa. The role of gold as the foundation of money’s value is analyzed, even after the abandonment of the gold standard, arguing that there exists a “flexible gold standard” in current monetary policy.
METHODS AND TECHNIQUES
The study uses quarterly data from the United States (1959-2022), Canada (1961-2022), United Kingdom (1986-2022), and Brazil (1996-2022). Various econometric and machine learning techniques are employed:
- Univariate Bayesian regression
- RESET tests for non-linear relationships
- Bayesian generalized linear models (BGLM)
- Empirical distribution fitting
- Bayesian cross-validation
- Machine learning and deep learning models (random forests, Bayesian neural networks, support vector machines)
- Model ensemble through boosting
RESULTS
The econometric and statistical learning analyses consistently show that:
- Money is not neutral in either the short or long term.
- There is a non-linear feedback relationship between prices, quantity of money, and the price of gold.
- The relationship between money in circulation and the price of gold varies according to the time segment, sometimes being direct and sometimes inverse.
- The direct relationship between money in circulation and prices is confirmed. The developed models show high predictive and explanatory performance for all countries analyzed.
CONCLUSIONS
- The neutrality of money postulated by neoclassical theory is rejected.
- The Marxist theory that prices determine the quantity of money in circulation is confirmed, but a complex and feedback relationship between both variables is recognized.
- Gold continues to play a fundamental role in the international monetary system, albeit more flexibly than in the past.
- The relationship between money, prices, and gold constitutes a complex system in the sense of chaos theory.
- The effectiveness of controlling prices directly or through the contraction of the money supply is theoretically justified. The article concludes that this approach is not only consistent with observed facts but also provides a broader and deeper explanation of monetary phenomena than neoclassical theory.
PLANTEAMIENTO DEL PROBLEMA Y OBJETIVOS
El artículo aborda la relación entre el dinero y los precios, analizando la validez de dos teorías principales: la teoría cuantitativa del dinero (neoclásica) y la teoría cuantitativa de los precios (marxista). El objetivo principal es determinar cuál de estas teorías explica mejor la realidad económica y las implicaciones prácticas de esta relación.MARCO TEÓRICOEl estudio parte de una crítica a la teoría cuantitativa del dinero de David Hume, base de la teoría monetaria neoclásica. Se contrasta con la teoría de Marx, que postula que los precios determinan la cantidad de dinero en circulación y no al revés. Se analiza el papel del oro como fundamento del valor del dinero, incluso después del abandono del patrón oro, argumentando que existe un “patrón oro flexible” en la política monetaria actual.
MÉTODOS Y TÉCNICAS
El estudio utiliza datos trimestrales de Estados Unidos (1959-2022), Canadá (1961-2022), Reino Unido (1986-2022) y Brasil (1996-2022). Se emplean diversas técnicas econométricas y de aprendizaje automático:
- Regresión bayesiana univariada.
- Pruebas RESET para relaciones no linealesModelos lineales generalizados bayesianos (BGLM).
- Ajuste de distribuciones empíricas.
- Validación cruzada bayesiana.
- Modelos de aprendizaje automático y aprendizaje profundo (bosques aleatorios, redes neuronales bayesianas, máquinas de vectores de soporte).
- Ensamblaje de modelos mediante boosting.
RESULTADOS
Los análisis econométricos y de aprendizaje estadístico muestran consistentemente que:
- El dinero no es neutral ni a corto ni a largo plazo.
- Existe una relación de retroalimentación no-lineal entre precios, cantidad de dinero y precio del oro.
- La relación entre el dinero en circulación y el precio del oro varía según el segmento temporal, siendo a veces directa y a veces inversa.
- Se confirma la relación directa entre el dinero en circulación y los precios.
Los modelos desarrollados muestran un alto rendimiento predictivo y explicativo para todos los países analizados.
CONCLUSIONES
- Se rechaza la neutralidad del dinero postulada por la teoría neoclásica.
- Se confirma la teoría marxista de que los precios determinan la cantidad de dinero en circulación, pero se reconoce una relación compleja y de retroalimentación entre ambas variables.
- El oro sigue jugando un papel fundamental en el sistema monetario internacional, aunque de manera más flexible que en el pasado.
- La relación entre dinero, precios y oro constituye un sistema complejo en el sentido de la teoría del caos.
- Se justifica teóricamente la eficacia de controlar los precios directamente o mediante la contracción de la masa monetaria.
El artículo concluye que este enfoque no solo es consistente con los hechos observados, sino que proporciona una explicación más amplia y profunda de los fenómenos monetarios que la teoría neoclásica.
I will be doing a talk on the theory of money at Historical Materialism debunking the myth that it is a thing rather than a social relation peculiar to market economies. The problem is this, when we posit the Marxian assumption that prices determine the amount of money circulating we have to know where this money comes from. Over 90% of deposits or M2 comprises unspent revenues or what is the same thing unspent legacy value. Bank credit, that is temporary money is only a tiny fraction of deposits. Thus legacy value acts as the ballast stabilizing prices and setting the limits more or less of how much money can be sucked into circulation. This understanding of money must come first before we discuss how it relates to prices. Here is a link to one of my articles: http://theplanningmotive.com/2021/05/14/modern-marxist-monetary-theory-or-mmmt-the-role-of-legacy-value/
Viewed this way the act of exchange is the process whereby legacy value is spent in the form of revenue extinguishing it, while new revenue is created through the act of selling. Thus value on both sides, old for new.
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I appreciate your valuable perspective on the nature of money as a social relation, as well as your highlighting of the enormous relevance (and brilliant, by the way) that knowing the origin of the circulating money and linking it to the labor theory of value has in a comprehensive analysis (would be interesting an econometric study of the legacy value). In fact, the view of money as a social relation is consistent with the approach adopted in the referenced research (and in other research by the same author, such as https://revistas.ucr.ac.cr/index.php/filosofia/article/view/28262), which is based on Marx’s analysis in “A Contribution to the Critique of Political Economy”. The study implicitly recognizes money as a peculiar social relation of market economies, as it is a continuation of the research “Quantitative Theory of Prices: An Econometric Validation: El Salvador (1990-2011)” (https://www.amazon.com/Teor%C3%ADa-Cuantitativa-los-Precios-Econom%C3%A9trica/dp/3639604253), in which this is explicitly stated.
However, I would like to argue that, while understanding the origin of money is valuable, it is not an absolute prerequisite for analyzing the relationship between prices and circulating money for several reasons:
1. Methodological abstraction: In the study of complex economic phenomena, it is often necessary and fruitful to isolate certain aspects for a more focused analysis; this is because the economy can be studied at different levels of abstraction. Marx himself used this approach on several occasions (and it is a common practice in science, even in mathematics, for example, when talking about a “partial derivative with respect to a variable”), such as when analyzing in “Capital” the formation of production prices without considering the leveling of wage rates, or when analyzing in “A Contribution to the Critique” the subordination of circulating money to prices without delving into the origin of said circulating money. While your approach provides a more detailed view of monetary mechanisms (offering a more microscopic and detailed view of how the monetary system works), the study referenced in this entry offers a broader perspective on the relationships between key monetary variables (adopting a more macroscopic view, focusing on general relationships between important monetary variables at the aggregate level); clearly both micro and macro are relevant and complementary.
2. Historical and geographical variability: The origin of circulating money can vary significantly between economies and historical periods. A comprehensive analysis of this would require an extensive comparative study of multiple capitalist economies (sufficiently representative of the total set, both qualitatively and quantitatively) over a considerably large period.
3. Focus on fundamental relationships: The study focuses on the fundamental relationship between prices and circulating money, which can be fruitfully examined even without a detailed analysis of the origin of money.
4. Complementarity of approaches: Instead of viewing these analyses as mutually exclusive or sequential, I suggest they are complementary. Both lines of research are valuable as they are necessary and complementary.
5. Robust empirical validity: The various econometric results presented demonstrate the validity of the adopted approach, even without explicitly incorporating the analysis of the origin of circulating money.
6. Analytical flexibility: This approach allows for greater flexibility in applying the analysis to different economic contexts without the need to consider the specific characteristics of the origin of circulating money, thereby avoiding significant variability in the theoretical framework and variables to be considered.
7. Practical implications: The approach adopted in the research referred to here has direct implications for monetary policy and understanding economic cycles, even without an exhaustive analysis of the origin of money, which is also necessary for more robust monetary policies in the same direction (here again, complementarity is observed). This is especially valuable for economies seeking a transition to socialism from the development of capitalism, such as China.
8. Historical continuity: This study builds on and extends a long tradition of monetary analysis, providing new perspectives on classical and contemporary debates (from the perspective, of course, of classical Marxism).
9. Potential for future research: The results of this study can serve as a basis for future research that incorporates a more detailed analysis of the origin of money, thus creating a bridge between your research and other investigations such as the one referred to in this blog entry.
In conclusion, while your approach offers valuable insights into the nature and origin of money, I believe that both lines of research are complementary and necessary for a comprehensive understanding of monetary phenomena in capitalist economies.
I would appreciate if you could provide me with your upcoming talk through any means, so that I can study it carefully. Warm regards, comrade.
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Thank you so much for your well though out and detailed reply which I deeply appreciate. There is little I disagree with, and much I agree with. I will therefore examine the original work in greater detail and report back to you. I will also forward my talk and slides to you well in advance of the Conference for your comment which I would value. My main concern for focusing on legacy value was primarily to explain that coming off the gold standard did not rob money of value. That modern money was generally based on crystalized value and it was this fact alone which explained why after a decade of turbulence following the collapse of the gold standard, prices stabilized, that the limiting of prices was due to something deeper and more fundamental than central bank monetary policy, which more often than not, sought to raise inflation rather than reduce it. It was clear they were fighting some kind of push back and indeed they were, in the form of legacy value, which once produced is finite and invariable. It is my hope that the understanding I have provided will become the currency of the left (pun intended). Kind regardsBrian.
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Thank you very much for your response. I would also appreciate discussing the disagreements, which is always a valuable exercise. What you propose about legacy value as a kind of “substitute” for the gold standard could be compatible with what the paper proposes regarding the “underlying gold standard” following the fall of Bretton Woods, which could open up a line of theoretical and econometric research between you and me. I would be delighted to read your presentation and send you my comments, as well as to ask you questions should they arise. Please send them, if you wish, to the email isadorenabi@pm.me and I will give you my feedback as soon as possible. Best regards, comrade.
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