What Modern Monetary Theory Can Teach Us about Criminal Justice

I delivered the talk published below as part of a panel at Yale’s annual Rebellious Lawyering Conference, on February 17th, 2017. The panel, entitled “Financing Criminal Justice”, co-hosted by The Modern Money Network, focused on the connections between fiscal austerity and the horrors of the U.S. criminal legal system. I was joined on the panel by Thomas Harvey, Co-Founder and Executive Director of ArchCityDefenders, Judge Jaribu Hill, Director of the Mississippi Workers’ Center for Human Rights, and Mitali Nagrecha, Director of Harvard Law School’s National Criminal Justice Debt Initiative.

Together, we discussed how financially-strapped local government entities, charged with public safety, perpetuate social violence, especially upon low-income communities of color. My presentation focused on macroeconomic context. More specifically, I attempted to build a bridge between the insights of a school of thought known as Modern Money Theory (MMT) and arguments asserted by opponents of mass incarceration, police brutality, and criminal justice debt.

Although primarily known as a set of macroeconomic ideas, MMT is rooted in the law. It begins with the premise that a monetary sovereign, such as the United States government, does not need to collect funds in order to spend funds. More specifically, because the U.S. government issues currency backed by its own full faith and credit, denominates its debts only in that currency, and floats its exchange rates, it does not face a solvency constraint. It cannot, legally speaking, “go broke.” In this way, it is profoundly unlike a local government, business, or household. It need not fear its own debts in the same manner. It need not balance its budget — in the short run or the long run. Perhaps most importantly, it need not tax, borrow, or fine in order to “afford” social programs… or social punishment.

Overall, MMT presses us to reimagine money as a public tool rather than a private commodity, and meditate on what exactly this should mean for society. Historians, and historians of law, especially, should have much to say about all of this. In many ways, the United States has an ineffective and unjust public financial system due to a history of legal idiosyncrasies. There is malice in monetary policy. But there is also misinformation and misunderstanding. It is only through a deeper understanding of how we got into this mess that we can move forward.

Monetary Sovereigns, Monetary Subjects: Modern Money & The Criminal Legal System

Good afternoon, everyone. Buenas tardes. In my short legal career, I have had some hands-on experience with these issues. After law school, I joined the Enforcement Division at the Consumer Financial Protection Bureau. We did (some) work at the intersections of private consumer debt and criminal justice debt. I’m currently at New Economy Project, an anti-poverty organization, in New York City. Some of our clients do wind up behind bars because of failures to appear and failures to pay. Some do leave incarceration only to return home to frozen accounts and judgment liens in addition to the fees they were charged for their time in the system. I’m not here to speak about all that, though. I’ll leave it to the experts.

Today, I’m here on behalf of The Modern Money Network. MMN began as a group of rebellious students at Columbia Law who had some previous experience studying macroeconomics. In the past three to four years, we’ve grown into a national 501(c)3, hosting events in the U.S., Europe, and Australia. We first hosted a panel here at RebLaw in 2014. We essentially try to provide spaces for people interested in a more comprehensive counter-narrative to the Chicago School style Law & Economics. Specifically, we try to build an interdisciplinary “systems design” perspective, highlighted not only how law governs the economy, but constitutes and constructs it.

Perhaps most importantly, we try to provide auxiliary support for social justice lawyering. We don’t say people really should focus on capitalism or neoliberalism rather than white supremacy or cis-hetero-patriarchy. In fact, I don’t think it’s really possible to understand the economy without thinking about racial subordination, social reproduction, or the fact that our planet is baking. But also vice versa. A lot of us are here because we can’t afford to struggle in silos anymore.

So, I’m going to discuss a macroeconomic prism for looking at these issues. I’m going take us on a journey to the center of our monetary earth. We’ll first take a look at the core, then we’ll go to the peripheries and move back in again. So you know the main points I’m going to make on this journey, there are really just two. The first point is conceptual 1): lawyers need to be thinking in terms of balance sheets. Criminal justice debt means someone’s has criminal justice assets. The second point is programmatic, 2): without sufficient federal financing, the only way courts are going to fulfill their function in the criminal legal system is by imposing fines and fees, and this will inevitably disproportionately hurt poor communities of color.

Alright. So according to the Modern Money view, the core of any given economy is a legal entity known as a “monetary sovereign.” What is that? Monetary sovereigns have the power, to not only issue their own currency, but collect taxes, fines, and fees, in their own currency, float their exchange rates, and denominate their debts in their own currency.

Most monetary sovereigns are political states, but not all political states are monetary sovereigns. For example, Greece, which uses the Euro, does not have monetary sovereignty. The European Central Bank ultimately controls money in Greece. Senegal, which uses the CFA Franc, does not have monetary sovereignty. The French Treasury (and ultimately the European Central Bank) controls money in Senegal.

Who is sovereign? The governments of the U.S., the UK, Japan, are truly sovereign, for example. The U.S. issues its own currency, the U.S. dollar. It also taxes and fines in U.S. dollars. The payments that are due to the holders of U.S. Treasuries are all paid in dollars. Since the U.S. government abandoned the gold standard in 1971 and committed to not pegging the value of the dollar to anything else, it has achieved full “monetary sovereignty.”

This means as long as we’re talking dollars, U.S.government payments can be met. During the debt ceiling debates, even the crustiest, vanilla-iest elites pointed this out: Greenspan, Bernanke, Krugman, Buffet. As far back as 1945, in a talk delivered to the American Bar Association, New York Fed Chair Beardsley Ruml stated flat out, we do not collect federal taxes in order to spend federal money.

The U.S. government can never run out of money in the same way that the NBA can never run out of points. In 1995, Paul Samuelson, a Nobel Prize winning economist, acknowledged that the “superstition” that the federal budget must be balanced is part of an “old fashioned religion,” meant to hush people who might otherwise demand the government create more money.

Politicians may act like the U.S. government has the same constraints as a household or business, but the U.S. government can’t go broke. It can impose silly constraints on itself, like the debt ceiling, but people who actually know how monetary operations work know the U.S. government cannot run out of dollars. If you’re unlucky enough to take a Corporate Finance class at a law school, one of the first things they’ll tell you is to assume zero risk when accounting for U.S. Treasury bonds. This is because U.S. government can “inject” too much money into the system and destabilize prices, but the payments are always going to clear.

This is true financial power. And we’ll return to it later.

What about the rest of us? Monetary sovereignty implies that there are monetary subjects.

Monetary subjects need to collect legal tender. We can’t just print it or mint it or create it in on a spreadsheet with keystrokes. Just as we exist in a field of white supremacy, of patriarchy, we also exist in a field of monetarily-driven coercion. In the United States, you need dollars to eat, and unless you steal the dollars, you generally have to find a way for someone to give them to you. The government also protects property rights with cops, courts, and the clink, so most of us can’t just go get some land and live off it. Generally speaking, you’ve gotta hustle for the almighty dollar, because the strong men with the guns have told us “you have to pay us with dollars and dollars only when the time comes.”

This is how contemporary economies work. For better or worse, this is just the air we breathe. How do we deal with this?

Modern Money encourages people to think of every actor as having a balance sheet. Balance sheets can help lawyers understand the essence of money, because they are two-sided. It’s give and take, simultaneously reciprocal and adversarial. If we have financial liabilities (debt), they correspond to someone else’s financial assets. Everything nets to zero.

Many legal problems, especially ones we are discussing today, occur when your personal balance sheet is lopsided, when your liabilities outweigh your assets. Or in an immediate sense, you may not be liquid enough to satisfy an obligation enforced by the state. You may be stuck with medical debt; you may just be walking too noisily in the wrong part of town. To avoid problems, you need cash inflows to meet cash outflows. The economist Hyman Minsky called this problem a “survival constraint.”

Some entities’ survival constraints are more dire than others. Very wealthy entities can often get forgiveness from the state. We saw this during the Wall Street bailout. In a pinch, some of us in the middle might be able to liquidate a car or a house. Some of us are not so lucky at all.

Monetary subjects on the periphery must often rely on whatever credit they can get it. Throughout American history, power has been wielded by those who can play on people’s survival constraints. In the era of Jim Crow, Jane Crow, Juan Crow, farmers could only get necessary equipment from one person: the local traveling merchant. A white farmer might call him “the furnishing man,” a black farmer might call him another simpler name, “the Man.” And people would go into debt to “The Man”, who was not the sovereign, but someone further up the hierarchy. Today, some things haven’t changed. If you’re on the periphery, you deal with pawn shops, check cashers, payday lenders, or whomever happens to have financial power on your block, in whatever terms they dictate.

prison bars 2
A metaphor for orthodox economics

If you’re lucky you deal with the national banking system. You have access to banks, chartered, licensed, enfranchised by the sovereign to make legal tender available. They’re not merely financial “intermediators”, as many people will tell you. Banks do not lend out of a pile of deposits or even necessarily key their lending to a pile of deposits. What they do is generate credit and because they have special legal privileges, their IOUs are very valuable. They lend and borrow whenever they see a profitable opportunity to do so, knowing the state will back them up if things go really poorly. They’re higher up on the food chain.

Just as banks create asset-liability pairs out of thin air, so do other creatures of the state. In our federal system, state and local government entities do not have full power to issue currency. Mississippi has police power, but it can’t issue Mississippi Marks and is in fact constitutionally prohibited from doing so. It has some legal sovereignty, but not monetary sovereignty.

Likewise, courts. Most people think about courts “moderating” the payments system by settling disputes. They indeed do this. If you are a monetary subject and you have a dispute with another monetary subject, you can go to court. There are obviously exceptions. If you have a contract for illegal drugs or sex, for example, you may not be able to seek redress, but for the most part a court will settle your beef with another subject.

Like banks, courts have certain privileges. Just as a bank can create a debt for you and an asset for someone else, so can a court. The court may hold that asset, that money might go to another government entity or a private corporation.  Unlike banks, though, courts can even generate new obligations between you and the state itself.  And they can often take advantage of their power to load up their own balance sheets, which they do all over the country.

Why? Part of this is because courts face their own survival constraints. No matter how they do that, whether it’s by preying on poor people or via some other method, they are faced with this balance sheet logic at the core of the system. As even Chief Justice Roberts admitted during the sequestration, courts face particular pressures “because virtually all of their core functions are constitutionally and statutorily required.” If they do not get money from the sovereign, they will get it from other monetary subjects.

Other people will get much more into this, but since the financial crisis, we have seen how courts and other municipal bodies have turned to bleeding the poor. Poor folks are in the carceral system partially because cash-strapped entities cannot fund basic operations. Financial crisis begets austerity which exacerbates the criminalization of poverty. The Ferguson Report made it crystal that the City relied upon cops as collectors. Even though it’s not even clear that some other municipalities are actually making any money this way, the driving logic remains. Courts, cops, and the clink try to get blood from stones, money from empty pockets.

So, there’s financial domination intertwisted with carceral domination. So what? Why should we care about looking at things this way? Because it affects our strategy. As the saying goes, “if you don’t know where you’re going, you’ll end up somewhere else.”

In an article in the Boston Review last fall, Donna Murch, a Professor of History at Rutgers, said that we need:

a larger reexamination of the economic and extractive dimensions of mass incarceration… apart from establishing more equitable means testing of people brought before the courts.

I strongly agree. I would obviously propose the Modern Money view as the method of reexamination. Ultimately, we need to argue the case that monetary subjects should not be footing the bill for either punishment or rehabilitation. Who should be footing the bill? The monetary sovereign.

Looping back, unlike you or me, the monetary sovereign does not face a survival constraint. It can always pay. On the asset side of the federal government’s balance sheet is essentially a massive INFINITY sign. It not only has the Article I, Section 8 power to tax and spend for the general welfare, it has the operational capacity to spend or lend as much money as it wants. Although it has a price stability constraint it does not have a survival constraint. So why doesn’t it spend more money?

It’s a mix of malice, miseducation, and misunderstanding. There is a myth that the sovereign cannot afford certain things. Even if you look at things through the Modern Money view, this is often ludicrous. When Cheney went to go to war, he said deficits don’t matter. Bannon also believes in deficit spending. Indeed, the Trump administration has proposed to almost triple federal outlays to state and local governments for policing and civil asset forfeiture. Yet when earnest liberal bureaucrats or even rebellious lawyers make demands on the state they get caught up with the question, “How are you going to pay for it?” as if the government were a household that must collect or borrow before it can spend.

The answer for monetary subjects is to seize control of the monetary sovereign. It is, in essence, just more democracy. I am not pressing for it to pay for more prisons, more cops, more immigration detention centers, but it can spend enough money in a targeted fashion.  

The move is to simultaneously push for decarceration, for demilitarization, etc. AND to push for federal funding of what we do want. We have to claim rights vis-a-vis the monetary sovereign, which partially means marching to the capitol and demanding our checks, like Dr. King said. The monetary sovereign should fully fund the machinery of due process, should spend the money to make sure everyone has employment, decent income, housing, education, healthcare, safe streets, safe water, safe air, etc. Back to the Freedom Budget and the kinds of programs proposed by BLM. Get some “Fiscal Feminism” in the mix. Make the monetary sovereign pay for things that actually make us safe.   

Stopping austerity is not going to eliminate the drive to subordinate women and people of color generally. But the anti-austerity struggle can at least remove a great lie used to justify certain horrors.

To some people this seems like common sense. But a lot of people are going in a completely different direction:  there’s a bipartisan effort to decarcerate as a cost-cutting mechanism to protect the federal budget. I see this is as a trap, as does Dr. Murch. Not only does this buy into the framework that the rightwing turns around to use to gut social services, but it does something even more sinister. In the world of financial regulation, there is something called the Bootlegger-Baptist strategy. The Koch Brothers and Rand Paul are fiery preachers saying that the carceral system is bad because it’s expensive, it’s unthrifty, it’s imprudent etc. But they’re doing this to make room for privatization. They are making space for the “bootleggers” to come in and do the dirty work. They’re making room for CCA, J-Pay, Sentinel, and all the vultures on Wall Street. (This isn’t just a theoretical concern. Gary Johnson did this in my home state of New Mexico).

Holding the monetary sovereign accountable is where it’s at. The struggle against the carceral system must also be a struggle against the cycle of austerity and crisis, which is a large part of why we’re in this mess. From 2010-2016, federal outlays of “state and local law enforcement assistance”, “juvenile justice programs”, “community oriented policing services” all dipped significantly. There all kinds of horrors going on with respect to financing the criminal legal system. But if we’re really to strike at the root, we also have to confront a funding structure that requires subjects to pay for the punishments imposed by the sovereign.

That’s the thesis. Just on a final note, my colleagues and I are trying to connect the dots between struggles and we’re here for anyone who wants to join in on that. Many people study law so as to avoid being tricked by lawyers. We think lawyers should study money so as not to be hoodwinked by financial elites. I hope that people at at least consider our type of thinking as we move along and we’re here to join up with anyone who wants to team up.

Raúl Carrillo is a practicing attorney supporting low-income New Yorkers and community groups. He also serves on the Board of Directors of the Modern Money Network, an interdisciplinary educational initiative bringing accessible knowledge of monetary and financial systems to the broader public

Author: Guest

We are legion.

10 thoughts

  1. I liked many of the problems you pointed out! I also like the point of sovereign MONEY as how the system works. There is a restraint on the sovereign MONEY. It is the belief of the people all over the world of what that MONEY is worth. This is the ultimate weapon used all over the world by the Sovereign MONEY, which is controlled by the 1%. The 1% can manufacture stories and crisis to justify their destruction of the value of other sovereign MONEY or by printing to much money. If one prints to much money then the other people or sovereign MONEY take the position that your sovereign MONEY is not worth as much as it was before. The reason the American sovereign MONEY is so tight with Saudi Arabia and the gulf states is because they agreed to only use US dollars for petroleum and fuel products, thus creating more demand and value for the American sovereign MONEY!
    Incarceration for fees or profit should be ILLEGAL period! They always lead to more corruption! The DRUG war must end NOW! EVERY medical professional knows DRUG use is a mental health issue and not a crime against anyone! One of the major reasons drugs are is illegal is because the CIA OR AS THEY CALL THEMSELVES CRIMINALS IN ACTION ARE THE BIGGEST DRUG DEALERS AND MONEY LAUNDERING TRAITORS ON THE PLANET AND THE BANKSTERS LOVE LAUNDERING ALL THEIR ILLEGAL DRUG MONEY! Read the history of the CIA dealings drugs it is disgusting! Sorry about the caps. We do a false flag like 911 to justify going into Afghanistan. The Taliban had almost WIPED out the POPPY FIELDS. Then we take over and we take the guy in charge of the POPPY FIELDS AND make him the President of Afghanistan. Now POPPY PRODUCTION IS THE HIGHEST IT HAS EVER been AND you can go to the internet to watch videos and pictures of our and British troops GUARDING the POPPY FIELDS! Oh and America has the worst HEROIN EPIDEMIC EVER! Last time I checked 2+2 still equals 4!
    Once someone does their TIME in incarceration their record should be clean and not carry the penalty of never being able to vote again! Also, when it comes to crimes BY law enforcement, they should be held to a higher standard of heavier punishment!
    Now back to the MONEY problem. America spends way to much money on the military industrial complex and their thieving contractors! They also spend to much subsidising the 1% and getting paid way to little for America’s natural resources! We have enough money for free healthcare, education, housing, food and More!
    Unfortunately, our government has been bought and sold for decades and our traitors on our Supreme Court, Congress and White House have sold us out to the oligopolies and the sovereign MONEY! The Supreme Court has been totally corrupted and has been stealing all the rights given the American citizens under their Constitution! This must change or we are doomed!
    The citizens must rise UP and demand all these things and the indictment, ARREST, PROSECUTE and Execute all these psychopathic TRAITORS in the government and the 1%, who own them! It’s called justice and freedom!

  2. “Although [the monetary sovereign] has a price stability constraint it does not have a survival constraint.” I’ve been following MMT for some time and this is the issue I find most interesting. Where does that price stability constraint occur? And to what extent is a price stability constraint a creature of our current monetary structure? i.e., when inflation occurs, people blame it on higher wages, but if the legal-financial structure were such that corporations were made to absorb higher wages through lower profits – rather than retaining those profits by passing on the costs to consumers – then price instability wouldn’t be the result. I’d be interested in knowing if anyone is doing research or publishing work in this area.

    1. The objections to MMT include “B..but if you just print money, you’ll cause [gasp!][hyper-]inflation!!!”

      So let’s admit that, in theory, government could overheat the economy, causing inflation by bidding against / competing with the private sector for limited goods and services. But if government simply made money, then saved it without bidding, no inflation would result, so spending (bidding) is the key to generating inflation.

      Could government mint a few trillion-dollar coins, and pay off national “debt” without causing inflation? The “debt” dollars were spent at the “debt’s” initiation, and have already done their bidding, so no inflation effect would occur if that liability were retired. (True of private debt, too.)

      Says Stephanie Kelton: “Not a single one of … 56 cases [of hyperinflation documented by a Cato study of such episodes] were caused by a central bank that ran amok. In virtually every case, the inflation was not caused by too much money but too few goods.” Farming collapsed in Zimbabwe, France annexed the Ruhr depriving Weimar Germany of goods.

      “Inflation is overwhelmingly driven by cost-push variables… Printing money just doesn’t do it. If it did, Japan would have exploded decades ago, because they’ve been trying quantitative easing for nearly 20 years, and they can’t move the needle on inflation. We’ve been trying it here in the U.S. for about five years, and Bernanke can’t even hit his 2% target.”

      …And if that’s not convincing, remember that according to its own audit, the Fed pushed $16 – $29 trillion out the door in 2007-8. Where was the inflation then?

      …So the concern about inflation remains hypothetical. The author is correct in saying the Plutocrats, not the money, are the problem.

      1. 1. Complementing Dr. Kelton’s remarks, Eric Tymoigne describes how MMTers tend to view inflation fairly clearly in this post:


        2. In general, I think it’s worth recognizing that price levels ultimately depend on how businesses actually administer prices, and how consumer, workers, and investors respond.

        (FWIW, the concept of administered pricing first achieved prominence due to collaboration between legal and economic thinkers. https://en.wikipedia.org/wiki/The_Modern_Corporation_and_Private_Property)

        3. Even The Wall Street Journal now questions the Quantity Theory of Money.


        4. Banks generate far more purchasing power than “the government.” They’re only truly constrained by capital requirements and profitability, but few inflation hawks are interested in this. When they focus on limiting federal spending, rather than curbing bank credit, breaking up financial conglomerates, or taxing rents and speculation, they reveal their ideology. I certainly agree with thesis that plutocrats cry inflation to protect the perceived indispensability of private capital, not the public good.

  3. This article never gets into the actual mechanism of credit creation. Credit is injected into the economy by the Fed lowering short term interest rates. The Federal Reserve system is a private banking cartel so no elected official in the US government can veto its decisions. Government bonds are not money, they must have a buyer to be issued. The 1918 Amendment to the 1913 Federal Reserve Act that allowed the Federal Reserve to buy US government securities through its “Open Market Operations” and thereby control short term interest rates was when the US government lost its “sovereignty” if you want to call it that.

    1. MMTers do not think the Fed lowering rates necessarily leads to credit creation. It’s important to note that:

      1. You can add or shuffle reserve deposits all you want, but they don’t leave the interbank system.


      2. No matter what the Fed does with rates, banks still create credit based on the profitability of creating credit (in the context of regulatory requirements). They are franchises of the central bank but they are not beholden to lend more due to monetary policy.


      As to the point about sovereignty:

      3. When the Fed conducts OMO it is quite literally acting as fiscal agent of the U.S. government. It has been delegated sufficient authority by Congress, which Congress can choose to revoke or adjust at any time.

      Delegation does not mean there is an absence of sovereignty.

      This resource provides some insight into the respective agencies of the Fed & the Treasury:


  4. Though the monetary sovereign can spend as much as it wants, self-imposed rules prevent that spending from increasing the money supply. That right has been ceded to private banks and the Fed. From the bankers’ point of view this is essential. Why would anyone “rent” debt/money from banks if the government’s spending provided the same money debt free ? So, for every dollar it spends, the government has agreed to remove a dollar from private bank accounts through taxes and borrowing. So, not only does the current orthodoxy prevent government from spending as much as society needs, its deal with private banks forces us all into more and more debt. Then when the pyramid collapses, the government takes more money out of private accounts to shore up the institutions whose greed and stupidity caused the collapse in the first place.

    1. The US is not monetarily sovereign, because its money supply is created exclusively by private banks as debt.

    2. Thanks for the comment, Paul Pryde, although I’m not quite sure I understand your argument.

      “…self-imposed rules prevent that spending from increasing the money supply. That right has been ceded to private banks and the Fed.”

      Putting aside the question of whether we agree that it’s helpful to think in terms of aggregate ‘money supply’, I’m not sure why you’d suggest the U.S. government can’t create purchasing power (if that’s indeed what you’re suggesting). It does this all the time. The Fed accommodates the Treasury’s spending, by law. I’d be happy to engage if you could elaborate a bit more.

      “Why would anyone “rent” debt/money from banks if the government’s spending provided the same money debt free ?”

      I think you answered your own question here. The U.S. government does create money, just not enough of it, precisely because political forces constrain government spending to the benefit of private or quasi-public creditors.

      “So, for every dollar it spends, the government has agreed to remove a dollar from private bank accounts through taxes and borrowing.”

      How so? The government routinely ‘injects’ net financial assets into the non-government sector.

      “…not only does the current orthodoxy prevent government from spending as much as society needs, its deal with private banks forces us all into more and more debt. Then when the pyramid collapses, the government takes more money out of private accounts to shore up the institutions whose greed and stupidity caused the collapse in the first place.”

      I’d agree that the government doesn’t spend enough as much as society needs, but I don’t think this has to be the case under current systems design.

      I absolutely agree that lack of sufficient government spending leads to private debt collapse, and subsequent re-shoring, as detailed by Minsky.

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