An MMT vs Austrian Debate Post-Mortem Part IV of V: The (Legal) Extension of the MMT Case

By Rohan Grey

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

“Don’t be confused by surfaces; in the depths everything becomes law.”
– Rainer Maria Rilke

As noted at the end of the previous section, I found the debate engaging but ultimately frustrating, as Murphy’s critique of the coercive nature of our modern monetary system, while morally seductive, begged the question: “Ok, but what is your alternative?”

As the debate went on, it became clear to me that this was the critical question that Murphy needed to answer to move opposition to representative government beyond mere ideology and into the realm of actionable policy prescription. Unfortunately, the closest Murphy got was during the following exchange:

Murphy: Most Austrians would say with regard to money that the government shouldn’t be involved in it. . . . Austrians would say they don’t want the government picking what the money is.

Mosler: So there’d be no more taxes. 

Murphy: No. No taxes.

. . .

Mosler: I was just wondering if there was government spending. If there’s no taxing, are they spending? How does this work?

Murphy: Again, we’re getting into Austrian economics versus what political views do most Austrians have.

And so, yeah. Many modern Austrian economists, or people who like that school of thought, do think that everything should be done in the voluntary private sector, and they think that a lot of the alleged horrors of what would happen if we didn’t have government providing police and militaries is actually that there’d be fewer wars, there’d be fewer police beatings of people and so forth, and that free people can voluntarily solve a lot of those problems. And yeah, there’d be crazy things happening, but it might not be as crazy as world war, which is what happens when governments provide those services.

But that’s not all – some Austrians are classical liberal nightwatchman-state, that sort of thing.

This answer was confusing to me, for two reasons.

First, I could not work out whether Murphy’s last sentence was intended as a vicarious defense of the Misesean-Friedmanite-minarchic classical liberal position, or merely an acknowledgment of the internal ideological pluralism of the Austrian School. I expect it was the latter, as I cannot see how one could provision a nightwatchman state without taxation, which would lead to the currency monopoly dynamics described by Mosler and discussed in Part II.

Second, it was unclear how Murphy’s ideal non-coercive system would establish and enforce the system of property titles necessary for a “market anarchist” economy without recourse to an overarching state-like entity with law enforcement power and plenary jurisdiction.

Luckily, I was able (with a bit of digging) to find an answer to the latter query in one of Murphy’s blog posts from the Mises Institute, titled “Law Without the State.” In this essay, Murphy sketches the basic features of what he believes a non-coercive rule of law might look like. The article is long, however I have reproduced the introduction and (in my opinion) key extracts below with the recommendation that everybody read the article to understand his position in its entirety: 

Without question, the legal system is the one facet of society that supposedly requires state provision. Even such champions of laissez-faire as Milton Friedman and Ludwig von Mises believed a government must exist to protect private property and define the “rules of the game.“

However, their arguments focused on the necessity of law itself. They simply assumed that the market is incapable of defining and protecting property rights. They were wrong.

In this essay, I argue that the elimination of the state will not lead to lawless chaos. Voluntary institutions will emerge to effectively and peacefully resolve the disputes arising in everyday life. Not only will market law be more efficient; it will also be more equitable than the government alternative.

The central claim of Murphy’s model is that a system of contractually-derived property titles would serve as a jurisprudential kernel upon which an entire “market anarchist” legal system could then be constructed:

Keep in mind that wherever someone is standing in a purely libertarian society, he would be on somebody’s property. This is the way in which force could be brought to bear on criminals without violating their natural rights.

. . .

Some readers may wonder how I can propose a replacement for the state’s “justice” system when I haven’t first offered a rational theory of the source and nature of legitimate property rights.

The answer is simple: I don’t have such a theory. Nonetheless, I can still say that a market system of private law would work far more effectively than the state alternative, and that the standard objections to anarchy are unfounded.

Unfortunately, at the crucial moment in constructing his case, Murphy opts for ideology over analysis and simply asserts that markets are non-coercive, and hence a “market” system of law would be non-coercive as well:

There is widespread distrust of allowing the market to “determine” something as crucial as, say, prohibitions on murder. But “the market” is just shorthand for the totality of economic interactions of freely acting individuals. To allow the market to set legal rules really means that no one uses violence to impose his own vision on everyone else.

The premise of this claim is flatly wrong. The “market” is not “shorthand for the totality of economic interactions of freely acting individuals.” Rather, it is – as Karl Polanyi observed many years ago – a socially (and legally) constructed institution embedded in a broader constellation of other social (and legal) institutions, many of which exert coercive pressure (often through law) on their often-unwilling participants.

This point is well understood by left-anarchists like Proudhon, who were acutely sensitive to the coercive origins of proprietarian economic systems such as Murphy’s proposed “market anarchism.” An excellent articulation of this view can be found in Columbia Law Professor Robert Hale’s 1923 article, “Coercion and Distribution in a Supposedly Non-Coercive State,” a brief reflection on which can be found here.

Murphy, to his credit, acknowledges that questions of allocation, definition and enforcement of property titles are politically sensitive issues.  Sadly, his solution is, again, self-referential, in that he argues the problems of equitable market design can be solved by the market itself:

“In market anarchy, who would define property rights? If someone hands over the money to purchase a house, what guarantees does he have?

This is a complex issue, and I won’t be able to give specifics, since the actual market solution would depend on the circumstances of the case and would draw on the legal expertise (far greater than mine) of the entire community. I can, however, offer some general remarks:

Whatever (if any) the abstract or metaphysical nature of property law, the purpose of public titles is quite utilitarian; they are necessary to allow individuals to effectively plan and coordinate their interactions with each other. Specialized firms (perhaps distinct from arbitration agencies) would keep records on the property titles, either for a specific area or group of individuals. Title registry would probably be accomplished through a complex, hierarchical web of such firms.

The fear of rogue agencies, unilaterally declaring themselves “owner” of everything, is completely unfounded. In market anarchy, the companies publicizing property rights would not be the same as the companies enforcing those rights. More important, competition between firms would provide true “checks and balances.” If one firm began flouting the community norms established and codified on the market, it would go out of business, just as surely as a manufacturer of dictionaries would go broke if its books contained improper definitions.

This response is rhetorically effective, but obscurantist. Even if the assertion that “competition between firms would provide true ‘checks and balances’,” since “[i]f one firm began flouting community norms established and codified in the market, it would go out of business” were true, it ignores the more fundamental risk that one or more private individuals will use their political and economic influence over a number of firms to design legal structures conducive to the accumulation of monopolistic control over some scarce resource, and then exploit that monopoly to establish and defend a permanent oligarchy.

This issue was recently explored in detail in a blog post by Mike Konczal at Next New Deal, titled “We Already Tried Libertarianism – It Was Called Feudalism.” I reproduce the relevant portion below:

For liberals, basic rights are fundamental, in the sense that they can’t be compromised or traded against other, non-basic rights. They are also inalienable; I can’t contractually transfer away or otherwise give up my basic rights. To the extent that I enter contracts that do this, I have an option of exit that restores those rights.

. . .

When libertarians say they are for basic rights, what they are really saying is that they are for treating what liberals consider basic rights as property rights. Basic rights receive no more, or less, protection than other property rights. You can easily give them up or bargain them away, and thus alienate yourself from them. (Meanwhile, all property rights are entirely fundamental – they can never be regulated.)

Additionally, since all social norms in Murphy’s utopia are subordinate to contract and property, there is no equitable check on bad common law. Taken together, these features mean that if a monopolist were to emerge, the average person would –  in a dynamic resembling Mosler’s taxation story – be required to accept whatever terms he or she set in order to access the basic means to survive, including, potentially, slavery and/or debt-peonage.

One possible response to this critique is that while this outcome is conceivable, competitive pressures will prevent it from ever occurring. That is an empirical claim, and perhaps it is right – I can’t be sure. However, as was pointed out by an excellent article in Harpers Magazine in October, 2012 about the board game Monopoly, there is reason to believe otherwise:

Sixteen minutes into the game Doug offered Billy a trade. (“The propensity to truck, barter, and exchange one thing for another,” writes Adam Smith in The Wealth of Nations, “is common to all men, and to be found in no other race of animals.”) Land was already growing scarce, and as land becomes scarce in Monopoly—as in the real world—its market value rises, often beyond its nominal value. “This,” said Doug, holding up one of his yellow deeds, “for that,” pointing at one of Billy’s slum deeds, “plus three hundred bucks.”

In what amounted to open conspiracy, Billy then told Eric that if they made a trade and each received a monopoly as a result, they’d share a “free ride”—no rent would be charged—when they landed on one another’s monopolies: a corrupt duopoly, in effect, targeting Doug and Trevis.

Doug shrugged as Eric pondered the deal, but Trevis was aghast. “You can’t do that—it’s against the rules.”

“Rules!” said Billy. “I’m gonna set my price.”

“Bullshit!”

“Ref!”

A referee, whistle around his neck, hurried over—the judge with the gavel had disappeared—to decide on the matter as the players barked at each other. “You can’t do that,” he said finally.

A few weeks before the tournament, I’d had a conversation with Richard Marinaccio, the 2009 U.S. national Monopoly champion. “Monopoly players around the kitchen table”—which is to say, most people—“think the game is all about accumulation,” he said. “You know, making a lot of money. But the real object is to bankrupt your opponents as quickly as possible. To have just enough so that everybody else has nothing.”

In this view, Monopoly is not about unleashing creativity and innovation among many competing parties, nor is it about opening markets and expanding trade or creating wealth through hard work and enlightened self-interest, the virtues Adam Smith thought of as the invisible hands that would produce a dynamic and prosperous society. It’s about shutting down the marketplace. All the players have to do is sit on their land and wait for the suckers to roll the dice.

Smith described such monopolist rent-seekers, who in his day were typified by the landed gentry of England, as the great parasites in the capitalist order. They avoided productive labor, innovated nothing, created nothing—the land was already there—and made a great deal of money while bleeding those who had to pay rent. The initial phase of competition in Monopoly, the free-trade phase that happens to be the most exciting part of the game to watch, is really about ending free trade and nixing competition in order to replace it with rent-seeking.

Indeed, real “market anarchy” would likely be even more self-destructive than in Monopoly, as property claims would persist forever rather than resetting every generation.

Perhaps surprisingly, Murphy’s response to path-dependency concerns is to advocate a hearts-and-minds revolution:

The route to a free society will vary according to the history of a region, and consequently no single description will do. The path taken by North Korean market anarchists will no doubt differ from the course of similarly minded individuals in the United states. In the former, violent overthrow of unjust regimes may occur, while in the latter, a gradual and orderly erosion of the state is a wonderful possibility. The one thing all such revolutions would share is a commitment by the overwhelming majority to a total respect of property rights.

All societies, no matter how despotic their rulers, must possess a basic degree of respect for property rights, even if such respect is given due to custom rather than intellectual appreciation. All people know that it is a crime to rape or murder; even rapists and murderers know this.

Such universal, intuitive notions of justice would constitute the foundation for a system of private law. This widespread agreement would allow for more specific, contractually defined rights to evolve. The process would be continuous, with one stage of codified property titles and legal rules forming the basis for the next generation of judges and scholars to systematize and extend. 

Putting aside the anthropologically incorrect assertion that “all people” consider rape and murder criminal and the equally problematic claim that a respect for private property rights is “universal” and “intuitive,” I find it unlikely that Murphy’s revolution would be supported by the “overwhelming majority” of people, either today or in the future. Even if it were, however, such uni-generational support would not, in my opinion, justify the creation of a permanent, undemocratic, proprietarian world order. As far as I can tell, it would only take one dissenter for this system to be guilty of the same sins of coercive majoritarianism that libertarians place at the feet of liberal constitutional republicanism.

Finally, even assuming Murphy’s revolution were possible and likely to be universally popular, his proposed post-revolutionary legal system needs a lot of development:

A sophisticated critic may charge that my proposal rests upon a circular argument: How can people use contracts to define property rights when a system of property rights is necessary to determine which contracts are valid? After all, Smith can’t sell Jones a car for a certain sum of money, unless it is established beforehand that Smith is the just owner of the car (and Jones the owner of the sum of money).

To see the solution, we must break the problem into two parts. First, we should ask, “Could the free market provide a foundation for social interaction?” I believe the previous sections have demonstrated this. That is, I have shown above that if we had a system of property titles recognized by competing firms, then a contractual system governing the exchange of those titles would form a stable basis for private law.

Now, it is an entirely different question to ask, “How are these titles initially defined and allocated?”

This is a broad topic, and it will be addressed in the next section. But to deal with the issue as it relates to the alleged infinite regress, let us consider contract law.

Contract law is a specific branch of law, much as tort law or constitutional law. It is used, for example, to determine whether a contract between two parties is legally binding. Now surely contract law can’t be established in an anarchist system of contractual law, for wouldn’t this beg the question?

No. The contractual pledges made by individuals would contain provisions for all of the contingencies handled by today’s contract law. For example, the insurance company backing up a customer would be promising, “We will make good on any debts that our client fails to pay, so long as the obligations have been spelled out in a valid contract, according to the terms described in the Standard Contract Law pamphlet published by the Ace legal firm.”

This pamphlet would perhaps require signatures in black ink, notarized oversight for large sums, and that the signers to a contract were of sufficient age and sobriety, and were not under duress, when the contract was made. As with all elements of private law, the precise rules governing contract interpretation would be determined by the (possibly conflicting) desires of everyone through the profit-and-loss test.

Finally, keep in mind that the ultimate judge in a given case is … the judge. No matter how voluminous the law books, or how obvious the precedents, every case will ultimately depend on the subjective interpretation of an arbiter or judge who must deliver the ruling.

We must never forget that written statutes as such are powerless unless used by competent and equitable individuals. Only in a competitive, voluntary system is there any hope for judicial excellence.

As far as I can tell, Murphy’s utopian system of law would thus adhere to the following basic contours:

1) All laws would be derived from overlapping private legal systems of overlapping, private contracts, interpreted by overlapping private judicial systems, and enforced by overlapping private agencies, all of which would be mutually agreed upon by all affected parties.

I take this to mean that every individual would be presumed to have consented to not only the explicit and implicit terms and foreseen and unforeseen effects of any and all contracts they signed, but also any and all contracts made by their contractual co-parties that directly or indirectly affect any of their interests, and any and all contracts made by those responsible for interpreting and enforcing their contracts. Thus, the legitimacy of the system would ultimately derive from the (implicitly presumed) consent of every individual to the meta-contractual legal clearing system in which every one of his or her contracts was embedded. This is, in my opinion, almost tautologically utopian.

2) Contractual disputes would be resolved in accordance with contingency provisions established by . . . the same contract.

I take this to mean that a dispute between parties over the interpretation and jurisdiction of a contingency clause, such as regularly comes up regarding arbitration clauses in conventional contracts, would be determined in accordance with some sort of meta-contingency clause, the interpretation of which would then be subject to a meta-meta-contingency clause, and so forth in an infinite chain of hierarchically nested contingency clauses. It is hard to see how Murphy’s system avoids this infinite regress, despite his valiant attempt to do so.

3) Disagreements over theories of contractual interpretation would be determined on the basis of the subjective interpretation of judges, whose jurisprudential principles would be determined through a competitive, for-profit market in accordance with the “profit-and-loss” test.

As I see it, this would mean that those who can afford to pay more would be assumed to deserve a higher quality of judicial decision-making. Murphy’s proposed system would be even worse, however, since as a profit-seeking agent, a judge would be free to modify his or her judicial methodology in order to solicit any form of bribery compensation deemed acceptable with the terms of the contract in question. This determination of acceptability that would, in turn, be made by . . . another judge.

Rather than directly addressing the fact that a purely profit-based legal system is inherently prone to corruption, Murphy’s solution is simply to shift the risk around, from lawyers to judges to the press. According to Murphy, this approach mitigates the risk due to – you guessed it! – market forces:

Just because an arbitration agency ruled a certain way wouldn’t make everyone agree with it, just as people complain about outrageous court rulings by government judges. The press would pick up on the unfair rulings, and people would lose faith in the objectivity of Agency X’s decisions. Potential employees would think twice before working for the big firm, as long as it required (in its work contracts) that people submitted to the suspect Agency X.

Other firms would patronize different, more reputable arbitration agencies, and workers would flock to them. Soon enough, the corrupt big firm and Arbitration Agency X would suffer huge financial penalties for their behavior.

This argument relies on a number of assumptions I view as highly problematic, including a) that the public would be able to differentiate between an objective and ethical press and hired propaganda agents, b) that the average person would be able to parse complicated legal arguments to determine whether or not judges and enforcement agents were acting in a corrupt way, and c) that markets for judges, enforcement agencies and the press would remain fragmented, rather than vertically integrating and producing monopolistic agencies that provide little real choice for consumers.

4) Private contractual enforcement agencies would be presumed to be exerting legitimate violence in instances of contractual non-compliance, as determined by a particular judge whose jurisdiction would be contractually determined according to the interpretation of . . . the same particular judge.

As far as I can tell, there is no mechanism in Murphy’s system to protect an individual who, similar to a sovereign head of state facing charges in the International Criminal Court, simply refuses to recognize the authority of a particular contract, judge, or enforcement agency. It is consequently feasible that an individual could find himself or herself imprisoned or coerced by an enforcement agency they never chose, as a result of a decision by a judge whose authority they never submitted to, for the violation of a contractual provision they never thought they’d agreed to – all in the name of the non-coercive, voluntary, market.

Conclusion

Murphy’s proposed system of “private law,” as much as I can make sense of it, raises plenty of jurisprudential and logistical eyebrows. These concerns have mostly been explored extensively in the relevant legal and political science literature, but my comments above provide a general idea of what I perceive to be some of the main issues.

It is possible that Murphy and/or others have answers to these critiques, and that his model will turn out to be a feasible alternative to a state-based rule of law. At this point, however, I see little evidence that is the case.