New Economic Perspectives — A Memo From MMT’s Legal Department

Orthodox economists are often inclined to think of law as an external force that ‘intervenes’ to regulate otherwise naturally occurring economic phenomena. In contrast, Modern Monetary Theory and its antecedent intellectual traditions have long recognized that law in fact constitutes and shapes modern economies and the monetary regimes that underpin them.

This is key to the difference between 1) the neoclassical approach to economics based on an assumed similarity with physics in discovering laws of nature operating in their respective disciplines and 2) the institutionalist approach that views economics and finance as institutionally based, chiefly in law that is determined politically. Is economics is a natural science as neoclassical economists assume or rather a series of historical phenomena dependent on institutional change over time as institutionalists assert.

Here is an apt quote from Karl Marx's The Poverty of Philosophy:

Economists have a singular method of procedure. There are only two kinds of institutions for them, artificial and natural. The institutions of feudalism are artificial institutions, those of the bourgeoisie are natural institutions. In this, they resemble the theologians, who likewise establish two kinds of religion. Every religion which is not theirs is an invention of men, while their own is an emanation from God. When the economists say that present-day relations — the relations of bourgeois production — are natural, they imply that these are the relations in which wealth is created and productive forces developed in conformity with the laws of nature. These relations therefore are themselves natural laws independent of the influence of time. They are eternal laws which must always govern society. Thus, there has been history, but there is no longer any. There has been history, since there were the institutions of feudalism, and in these institutions of feudalism we find quite different relations of production from those of bourgeois society, which the economists try to pass off as natural and as such, eternal.

Marx held that once institutional arrangements are established historically to define an economic system, that become the infrastructure that determines the superstructure on which a society is built and operates. First there was custom and subsequently law. 

Being institutionally based, this infrastructure is a historical phenomenon rather than a natural one. Therefore, it can be changed by changing the institutional arrangements. 

Institutional arrangement can be modified without replacing the current system. Or, institutional arrangements can also be changed so that a new system is put in place with only remnants of the previous system owing to path dependence. 

According to Marx, this occurs in accordance with the principles of historical dialectical logic based on technology, available resources and labor power, which he called "the material forces of production" (Produktivkräft)

Owing to development over time, historical conditions change. This results in emergence of conflict between the old wave (historical moment) that is cresting (becoming obsolescent) and the new wave that is rising to replace it in the "onward march of progress," progress being was a key 19th century concept.

(I have broken up the paragraphing for reading online.)

The general conclusion at which I arrived and which, once reached, became the guiding principle of my studies can be summarised as follows. 

In the social production of their existence, men inevitably enter into definite relations, which are independent of their will, namely relations of production appropriate to a given stage in the development of their material forces of production. The totality of these relations of production constitutes the economic structure of society, the real foundation, on which arises a legal and political superstructure and to which correspond definite forms of social consciousness.

The mode of production of material life conditions the general process of social, political and intellectual life. It is not the consciousness of men that determines their existence, but their social existence that determines their consciousness.

 At a certain stage of development, the material productive forces of society come into conflict with the existing relations of production or – this merely expresses the same thing in legal terms – with the property relations within the framework of which they have operated hitherto. From forms of development of the productive forces these relations turn into their fetters. Then begins an era of social revolution. The changes in the economic foundation lead sooner or later to the transformation of the whole immense superstructure. 

In studying such transformations it is always necessary to distinguish between the material transformation of the economic conditions of production, which can be determined with the precision of natural science, and the legal, political, religious, artistic or philosophic – in short, ideological forms in which men become conscious of this conflict and fight it out. 

Just as one does not judge an individual by what he thinks about himself, so one cannot judge such a period of transformation by its consciousness, but, on the contrary, this consciousness must be explained from the contradictions of material life, from the conflict existing between the social forces of production and the relations of production. 

No social order is ever destroyed before all the productive forces for which it is sufficient have been developed, and new superior relations of production never replace older ones before the material conditions for their existence have matured within the framework of the old society.
Mankind thus inevitably sets itself only such tasks as it is able to solve, since closer examination will always show that the problem itself arises only when the material conditions for its solution are already present or at least in the course of formation. In broad outline, the Asiatic, ancient,[A] feudal and modern bourgeois modes of production may be designated as epochs marking progress in the economic development of society.

The bourgeois mode of production [19th century economic liberalism] is the last antagonistic form of the social process of production – antagonistic not in the sense of individual antagonism but of an antagonism that emanates from the individuals' social conditions of existence – but the productive forces developing within bourgeois society create also the material conditions for a solution of this antagonism. The prehistory of human society accordingly closes with this social formation.

Preface to A Contribution to the Critique of Political Economyhttps://www.marxists.org/archive/marx/works/1859/critique-pol-economy/preface.htm

The question now is whether the "relations of production appropriate to a given stage in the development of their material forces of production" are ready for change based on the development of the material forces of production.

Communalism (tribalism) was predominant in the hunter-gather stage of pre-history. With the advent of the agricultural age, feudalism became dominant. With the rise of the industrial age, capitalism replaced feudalism.

The question is whether the information age will result in another major transition socially, politically and economically and if so, what it might look like.

New Economic Perspectives

A Memo From MMT’s Legal Department