One of the things to watch for if Vice President Biden wins the election is whether his administration is going to base its economic policies on something called the Modern Monetary Theory. This is the idea — articulated most clearly by economist Stephanie Kelton — that our government doesn’t have to balance its budget like a household because, unlike a household, it can use a computer to create money to lend to itself.

We first encountered Ms. Kelton in a note from the editor of the Interest Rate Observer, James Grant. He has been one of those who doubts the logic of fiat money. He sent us a link with which to tune into Grant’s latest conference, where Professor Kelton would be speaking on “MMT and Its Consequences, Including Unintended Ones.” He called her the “doyenne of Modern Monetary Theory,” adding “could be interesting.”

Ms. Kelton’s talk certainly was that, particularly to the degree that it could be a harbinger of policies to come. It sent us to Mr. Grant’s own dispatch on Keltonism, which appears in the latest number of the Interest Rate Observer under the headline “Modern monetary mischief.” It caused us to purchase Ms. Kelton’s book, “The Deficit Myth: Modern Monetary Theory and the Birth of the People’s Economy.”

It leads us to think of Ms. Kelton as a kind of anti-Judy Shelton. By which we mean the opposite of President Trump’s nominee to the board of the Federal Reserve. Ms. Shelton wouldn’t be against a people’s economy, as we understand her; she likes to say, and told the Senate, that she believes in money that works for everyone. She just doesn’t want to stick the people with money that isn’t sound.

Ms. Kelton holds out Modern Monetary Theory as providing a different way of looking at the same economic facts. Here’s how she puts it in her book: “In one sense, MMT is a nonpartisan lens that describes how our monetary system actually works. Its explanatory power doesn’t depend on ideology or political party.” MMT, she reckons, shifts the terrain of policy debates that get “hamstrung over questions of financial feasibility.”

The word “gold,” according to Kindle, appears 49 times in Ms. Kelton’s book. Her treatise, though, reckons that it’s important that countries’ “don’t promise to convert their currency into something they could run out of.” Parenthetically she lists “gold or some other country’s currency.” Modern Monetary Theory “takes as its starting point,” she writes, “a simple and incontrovertible fact.”

The fact, Ms. Kelton writes, is that “our national currency, the US dollar, comes from the US government, and it can’t come from anywhere else — at least not legally.” Skeptics of this view would point out that the dollar existed before the creation of America. It was known at the time as the Spanish milled dollar and consisted of silver. It became the national unit of account, at least legally, only in 1792.

That’s when Congress, using a power granted to it in the Constitution, passed the Coinage Act. That law adopted as America’s unit of account dollars “each to be of the value of a Spanish milled dollar” and “to contain” 416 grains of standard silver. It also measured a dollar in the equivalent value of gold. Alexander Hamilton wrote the law. Congress passed it. President Washington signed it.

In Modern Monetary Theory, Ms. Kelton avers, both the Treasury and “its fiscal agent, the Federal Reserve,” have the authority to issue dollars. “This might involve minting the coins in your pocket, printing up the bills in your wallet, or creating digital dollars known as reserves that exist only as electronic entries on bank balance sheets. The Treasury manufactures the coins, and the Federal Reserve creates the rest.”

“Once you appreciate the significance of this reality,” Ms. Kelton explains, “you will be able to unravel many of the deficit myths on your own.” She marks no limit to how much money the Federal Reserve can create, just that we’ll know that the jig is up with the appearance of inflation. The trick is that in Modern Monetary Theory, inflation is not defined as the value of the dollar collapsing to less than an 1,800th of an ounce of gold.

The implications of all this are huge as America scrambles to the polls to choose between pro-growth policies of President Trump and the socialization on offer from Vice President Biden. Mr. Grant ends his piece by noting Americans are no longer prohibited from owning gold and have access to myriad other forms of money and hedges and are — at least for the moment — free to act. “Let’s count,” he advises, “our blessings.”

______

Drawing by Elliott Banfield, courtesy of the artist.