The Monetary Expression of Labor Time in a Dynamic Leontief model

Abstract

In this paper, I present a dynamic linear production model of value and growth that explicitly incorporates the monetary expression of labor time (MELT) as an endogenous variable. The MELT is modeled as being determined by credit flows to the economy, given total current social labor. And the credit flows are formalized as the monetary base multiplied by money multiplier. In contrast to the standard money multiplier mechanism, the money multiplier in this paper is shaped by the combination between, on the one hand, capitalists’ demand for credit, which fluctuates in line with growth and profitability, and, on the other hand, the banking system’s capacity and willingness to accommodate the credit demand. Through a formal analysis and numerical simulation exercises of the model, it is found i) that the MELT converges to a constant steady state in the case of a balanced growth between output and monetary base while the steady state level is affected by the demand and supply conditions in the credit market, and ii) that, consequently, a divergence between the real growth and monetary growth is what makes the MELT change either at a constant rate or at a non-constant rate while the specific growth rate is affected by the growth differential and by the demand and supply conditions in the credit market.