An MMT vs Austrian Debate Post-Mortem Part III of V: Democracy, Taxes, and the Currency Monopolist

By Rohan Grey

[Part I] [Part II] [Part III] [Part IV] [Part V]

As mentioned at the end of the preceding section, Murphy’s major outstanding critique of the MMT analysis was that it presumed the existence of a state with a currency monopoly by virtue of its taxation power – or, as Murphy’s described it, MMT was “in favor of robbing liquor stores” in order to ensure a demand for its currency. In my opinion, this critique was underdeveloped, since it did not articulate why the problems identified were worse than the problems of any other feasible system.

In fact, the closest Murphy came to articulating an alternative vision of economic governance was when he compared the government activities with that of a corporation: 

Murphy: Let me give you a hypothetical scenario . . . there is a hypothetical CEO and 60 minutes is doing an expose, and they get the guy on camera and they think they got him good, because they say  our auditors went in – he’s the CEO of a major corporation – and they said “for decades you’ve been taking ten percent from their paychecks to put aside to fund their pensions, and you’ve promised them specific payments. Our auditors came in and looked at your books and we found you haven’t been investing in outside assets, you’ve been giving it as dividends to your shareholders to boost your stock prices and giving yourself bonuses, and investing a little bit in the factory, now you’re an underfunded pension by about $10 billion. What do you have to say for yourself before you go to prison?”

Before getting to Mosler’s response, it is worth briefly unpacking this hypothetical (and in particular, the emboldened phrases), as the corporate metaphor concealed a number of highly ideological characterizations of government action that, even if accurate, warrant recognition.

First, Murphy negatively characterizes the corporation’s decision to pay dividends to its shareholders rather than investing in “outside assets.” In real terms, however, the “employees” and “shareholders” of a state are one and the same – its citizens. Hence, paying dividends means, simply, giving citizens a share of the social surplus produced as a result of state-facilitated economic coordination. This is, at least in my opinion, almost tautologically a good thing.

Second, Murphy describes the corporation using its profits to “boost [the corporation’s] stock prices and [give itself] bonuses, and [invest] a little bit in the factory” in a way that implies these actions are contrary to what we would expect a corporation to do. In the context of the state, however, “boosting stock prices” is similar (if not equivalent) to maintaining the value of the currency, “bonuses” is equivalent to paying good public sector wages, and investing in the “factory” is equivalent to investing in social infrastructure. These are, in my experience, widely considered to be normal state functions.

Third, Murphy’s final question – “what do you have to say for yourself before you go to prison?” – presumes that the entity being audited is subject to a higher law than its own. However, beyond individual public officials actually breaking laws on the books, or a legislative body somehow violating the Constitution (as determined by the Judiciary, or in the final analysis, in the court of public opinion), the terms “crime”, “prison” or “lawbreaking” have no analogy when evaluating the domestic actions of a sovereign, self-governing republic.

Hence, when separated from its metaphorical clothing, Murphy’s question can be reframed the following way:

“Our auditors have come in and found that the state hasn’t been investing the real social surplus, created by the citizenry and captured by government through the monetary system, in outside assets foreign nations and businesses. Instead, it’s been distributing it as dividends income to its shareholders citizens to boost stock prices its currency value and giving yourself bonuses pay public sector workers, and invest in the factory public infrastructure. Now the state has an underfunded pension by about $10 billion insufficient spare capacity to meet all of its real resource obligations without higher inflation or without requiring a tax increase. What do you political leaders have to say for themselves before you go to prison? we vote whether or not to keep you as our elected representatives?

This framing is far less loaded than when the question presented through the metaphorical prism of a corporation – indeed, I have trouble distinguishing it from questions of budget policy that arise during the natural course of campaign politics.

Ok. Let’s pick up where we left off:

Murphy: . . .Now you’re an underfunded pension by about $10 billion. What do you have to say for yourself before you go to prison? And the CEO says “woah, woah, woah. I’ve been reading Warren Mosler, and let me tell you something. This is just a completely arbitrary thing. If the Congress would just let us print our own $100 bills, there would be no underfunded pension. This is all a fake crisis, and in fact because demand right now is insufficient, we would be doing the economy a favor if Congress would just go ahead and change the rules which make it illegal for us to run the copier and print off a hundred dollar bills.

How come the Treasury or the Fed can do it and we can’t, that’s stupid. It’s not like it has to be a piece of gold – it’s just paper with symbols on it. If Congress would just change its arcane rules saying that their money’s good and ours isn’t legal tender, all of a sudden this underfunded pension disappears like that and we create jobs, so there we go.

Of course, the 60 minutes guy is floored. 

Readers may recognize Murphy’s hypothetical as a prime example of the logical category error most criticized by MMT proponents: analogizing the role of the government to that of a corporation or household:

Mosler: I’d sentence that guy to 30 years in the electric chair. [laughter]. 

Murphy: Because why?

Mosler: He’s demanding the ability to counterfeit. He knows there’s no counterfeiting rule. He knows or should have known that you’re not allowed to counterfeit money. He’s committed fraud for his employees. He’s a user of the currency. He can’t spend it until after he gets it. He’s not the issuer. That’s how the game is set up.

You could be playing in a poker game and say “hey, this is not fair, give me the deck and let me put any cards I want in my hand” . . .

Carney: The follow-up, I guess, is – if it’s fraud when a person does it, why is it ok when the government does it?

Mosler: So let’s say we’re at a card game, and I’m the scorekeeper. It’s like, how many points do I have? I don’t have any. Well then how do I give you 100 points? I just write it down in your account. Do I have fewer points? No. And somebody else has a bad hand and I take points away. Do I have more to give to the next person? No.

And somebody in the card game says “that’s not right, I should just be able to change my own score.”

Fine, you want to have a card game where people can change their own score? It’s not going to work. It’s not going to function.

Murphy’s only response to this clarification, as far as I could tell, was to repeat his earlier claim that the coercive use of taxation to establish a currency monopoly is equivalent to theft:

Murphy: If any other entity did the sorts of things, and then tried to justify them, or just explain what they are doing the way in [Mosler’s] writings he talks about what the government’s doing – whether it’s the household worrying about their financing, whether it’s the CEO who is not contributing to the pension plan – if they defended what they are doing the way Professor Mosler is talking about the government with respect to its budget, with respect to social security and so forth, clearly that would be fraudulent. . . .

The fundamental way that he came back and said “there’s a distinction here that you’re not getting, Murphy, is that it’s like there is a scorekeeper, and obviously there is a distinction between the people playing the game and the referee setting up the game.”

But then that just begs the question – why are we playing this game in the first place? Why is that guy the scorekeeper? According to his own analogy, it’s because they have guns, and are pointing them at us and saying “You’re going to play this game. The reason my business card is going to work is because you’re going to get shot otherwise.”

. . . It seems to me that it’s kind of a big deal that by his own admission the system we are already in and that he wants to tweak a little bit is one where there it all rests on the fact there are these guys with guns that set it up a certain way.

Judging from the running commentary of the debate, many supporters of “free markets” are very sympathetic to the “taxation is theft” view.

Unfortunately, it is at best, misleading, and at worst, completely incorrect.

Taxation is not theft. It’s taxation. They are distinct legal concepts. Taxation is the legal exercise of a power expressly granted to a sovereign state; theft is the unilateral act of one or more non-state actors in violation of law. The claim that “taxation is theft” this requires an extra-legal justification for the existing distribution of private property titles, whereas claim that “robbing a liquor store is theft” can be justified on the basis of the state’s own criminal and property law.

Thus, if one believes that the state’s claim to be able to tax property is illegitimate, he or she should really be leveling criticism against the rule of law itself (unless, of course, there is reason to believe the particular tax law was improperly passed according to existing rules of legislative procedure).

This point was eloquently made by prominent legal scholar Cass Sunstein in a pithy 1999 article titled “Why We Should Celebrate Paying Taxes,” part of which I reproduce here:  

Without taxes there would be no liberty. Without taxes there would be no property. Without taxes, few of us would have any assets worth defending.

Indeed, property owners are more deeply “dependent” on government than food-stamp recipients. The man who purchases several news organizations owes more to legislative, adjudicative and administrative action than the woman who sleeps under one newspaper at a time.

. . .

Homeowners . . . do not depend only on fire and police departments and competent management of the registry of titles and deeds. . . . [T]hey also depend on taxpayer-funded armies, manned largely by low-income citizens, to protect their homes from drunken and ruthless marauders.

And government does not “merely” protect property; it also defines and assigns property, setting forth the maintenance and repair obligations of landlords, for instance, and deciding whether the employer or the employee “owns” the inventions of the employee. To imagine property owners without government is therefore like imagining chess players without the rules of chess.

. . .

It may be reasonable, in some cases, to cut tax rates. What is unreasonable and, in fact, preposterous is the all-too-familiar conservative rhetoric that flatly opposes individual liberty to the government power to tax and spend. You cannot be for rights and against government because rights are meaningless unless enforced by government.

. . .

In any case, to recognize the dependency of property rights on the contributions of the whole community, managed by the government, is to repel the rhetorical attack on welfare rights as somehow deeply un-American, and totally alien or different in kind from classical or “real” rights. No right can be exercised independently, for every rights-holder has a claim on public resources–on money that has been extracted from citizens at large.

. . .

As Oliver Wendell Holmes, the great Supreme Court justice, liked to say, taxes are “the price we pay for civilization.”


Perhaps Murphy’s real point was that the principle of “No Taxation Without Representation,” often considered a fundamental precondition to republican government, contradicts some higher form of natural law based around an inalienable right to private property ownership. Unfortunately, however, he did not make or defend that argument.

Consequently, Murphy’s critique of taxation as coercive left me wondering “so what? If the state shouldn’t be able to use the rule of law to impose taxes on property owners, why should it be able to use the rule of law to impose access-and-use restrictions on non-property-owners?”

If Murphy had taken his anti-coercion position to its logical conclusion and denounced private property rights and, more generally, representative government, the debate would likely have progressed significantly. As it was, however, the substantive political clash ended when Mosler expressed sympathy for Murphy’s position, but conceded, along the lines of Churchill’s reasoning that “democracy is the worst form of government, except for all those other forms that have been tried from time to time,” that he could not come up with a feasible and more preferable alternative.

Perhaps it was merely due to Mosler’s exceeding politeness, but I was left at the end of the debate with the uneasy feeling that Murphy had somehow managed to place the burden of proof onto Mosler to affirmatively defend representative self-government, rather than taking it on himself make an affirmative case for his alternative system. This was, in my opinion, quite an unsatisfying conclusion to an otherwise refreshingly frank discussion of the political values that undergird so much of economic discourse.

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