Four (4) Legal Arguments for Modern Monetary Theory (MMT)

Today, many of the core propositions of MMT can be understood as essentially legal arguments. Here are a four examples:

    • MMT’s determination that that a Job Guarantee is necessary because the state creates unemployment by imposing a non-reciprocal liability (i.e. a tax) that can only be satisfied by obtaining its tokens (i.e. tax credits), and thus owes individuals the ability to work for those tokens, is an argument about legal systems design. That is to say, the Job Guarantee is a legal remedy to the problem of legally-created unemployment. This framing echoes the legal arguments made by the British peasantry in response to the 18th century enclosure movement. When the state privatized farming and hunting lands previously considered part of the commons, peasants demanded compensation. Although the enclosure story focuses on the coercive creation of private property rights and the Job Guarantee story focuses on taxation , the underlying legal reasoning is the same: when the state prevents its subjects from subsisting independently from the state-controlled, monetarily driven, social provisioning process, it cannot exclude them from equitable participation in that process.
  • MMT’s observation that the state has a “monopoly” over money can be understood in relation to the longstanding legal prohibition against counterfeiting–not only of currency, but also of private monetary instruments issued under state sanction. For example, laws against securities and wire fraud, as well as regulations prohibiting non-banking institutions from issuing demand deposits, are all examples of the state’s power to delineate the scope of legitimate monetary transactions. From this perspective, the notion that money is a public monopoly supports, rather than contradicts, Minsky’s famous dictum that “anyone can create money, the challenge is to get it accepted.” After all, the question of acceptance is, ultimately, one of legal legitimacy. Indeed, we see this quite clearly in current regulatory debates over financial technologies. For example, while the U.S. Treasury has classified bitcoin as a “currency,” the Commodity Futures Trading Commission continues to treat it as a “commodity,” and the Internal Revenue Service taxes it as “property.” Together, these legal classifications determine bitcoin’s ‘moneyness’ by establishing the boundaries of its legitimate commercial use.

    • MMT’s recognition that certain operational constraints on macroeconomic policymaking are merely “self-imposed,” rather than intrinsic to the monetary system, reflects a sophisticated legal understanding of the varying malleability of constitutional versus statutory provisions, as well as administrative rules, regulatory guidances, and mere informal conventions. For example, while the minutiae of the Federal Reserve Act may be highly restrictive to the day-to-day activities of a bureaucrat operating in the bowels of the St. Louis Federal Reserve, they don’t present any ‘deep’ constitutional barrier to a member of Congress contemplating reform of the Federal Reserve System itself. With these distinctions in mind, MMT’s tendency to analyze Treasury-Central Bank operations from both a “consolidated” as well as a “deconsolidated” approach is not a technical weakness but a visionary strength. MMT economists are not ignoring institutional granularity, they are appropriately acknowledging the plasticity of law and the power we have to change it.
  • Finally, MMT’s embrace of Minsky’s balance sheet view of the monetary economy and its commitment to stock-flow consistent models implies recognition that finance is governed by man-made accounting laws, rather than natural laws. These accounting laws are ultimately subject to the same legislative, administrative, and judicial input as any other laws. They are also subject to constant manipulation: a notion intrinsic to the concept of control fraud. . Whereas it is mathematically impossible to make 2+2=5 in the real world, such an outcome is easily achievable in the nominal realm of legal accounting and thus throughout the financial system and the monetary economy overall.

Rohan Grey is a Doctoral Fellow at Cornell Law School, where his research focuses on the legal design and regulation of digital fiat currency.

This article extract is republished from New Economic Perspectives under a Creative Commons license. Read the original article in full.