What is valid about Modern Monetary Theory isn’t modern, and what is different about it is, and has always been, whack.
Modern Monetary Theory is a heterodox theory arguing that the deficit is a shibboleth. With fiat money, there should be no fear of deficit spending. If the economy is underperforming, just have the government spend more. Following the Financial Crisis of 2008, Paul Krugman bemoaned that the world wasn’t being invaded by space aliens because such a threat would induce massive, huge, ginormous spending, and that spending would solve all our economic problems.
Last year, with the deficits associated with the Pandemic and the government-ordered shut-down, the Amazing Joe Biden said, “There’s nobody suggesting there’s unchecked inflation on the way, no serious economist.” This year, inflation is surging.
Modern Monetary Theory supposes that money has no intrinsic value, but is essentially an unbacked or fiat currency. Accordingly, government spending isn’t constrained by tax revenue or even by the ability of the government to borrow. The government has only to print up whatever amount of money is needed for spending. Those who insist on balancing the budget are obsessing over something that is no longer relevant. They aren’t “modern.” Or, as Amazing Joe put it, they aren’t “serious.”
If deficits don’t matter, what then is the purpose of taxes?
Aside from redistributing wealth, MMTers say the purpose of taxes is to control inflation. If inflation were to break out – definitely not because the government is deficit spending and printing new money! – then the government can tidy up that little problem by removing some of the money sluicing around in the economy by raising taxes.
Wait, you may be saying, doesn’t this use of taxation to fight inflation effectively bring us back to mainstream economics?
No, you’re missing the point, MMTers say. Modern Monetary Theory is a different approach. Instead of restraining spending because of concerns about the deficit and inflation, Modern Monetary Theory says spend freely. If inflation results, just raise taxes.
What is valid about the connection of fiat money and taxation was discussed by Adam Smith and incorporated by the British Parliament into the Currency Acts of 1751 and 1764.
The Currency Act of 1751 pertained to the New England colonies (only). It normally limited the issue of (non-interest bearing) “bills of credit” (i.e., fiat currency) to the “current service” of government. While having no intrinsic value, these bills circulated as money (even though not enjoying legal tender status) because they could be used to discharge taxes coming due in the near term. The Currency Act of 1764 essentially extended the same terms to the other colonies of British North America.
Adam Smith, in The Wealth of Nations examined the experience of tax-backed fiat currency in British North America, and said that if the quantity of paper money was kept below the amount payable in taxes, and if it were otherwise convenient as a medium of exchange, that paper money would circulate at its face value. However, he said the quantity of paper money “was in all the colonies very much above what could be employed in this manner.” The latter statement was something of an overgeneralization. The colonies abused the power to issue paper money to various extents. Not all of them “very much” abused this power.
Two additional episodes involving tax-backed fiat currency come from Texas during the mid-19th Century. When Texas gained its independence from Mexico in 1836, it had no significant tax. The first President of the Republic of Texas, Sam Houston, estimated the demand for a national medium of exchange to be $800,000, and thought that this demand could be partially satisfied with a limited issue of tax-backed currency, in conjunction with enacting a tariff and restraining spending so as to quickly bring the budget into balance.
His successor, Mirabeau Lamar, was something of an MMTer before there was such a thing. Lamar had great ambitions for Texas, along with the requisite spending plans. And, where was the money to come from? Through the issue of millions of dollars of Texas Treasury notes characterized as “Red Backs.” Needless to say (to mainstream economists), the Red Backs fell to pennies of a U.S. Dollar per Texas Dollar.
During the Civil War, Texas, now as one of the Confederate States, issued Treasury warrants that circuited as money. After the collapse of the Confederate Dollar, Texas raised taxes and instituted other measures to support its warrants. The warrants then rose in value until continuing issues and the advance of the Yankees did in the Texas warrants, as these things had already done in the Confederate Dollar.
Later in the 19th Century, there was yet another test of the tax-backing of money. This test involved silver money, either in the form of coins or in the form of (paper) silver certificates. As the value of silver fell relative to gold during the late 19th Century, the United States found itself in a quandary. Either continue to issue silver currency and be forced off gold and onto a devalued silver standard, or limit the issue of silver currency.
This matter came to a head in 1893, when President Grover Cleveland, the last of the hard money Democrats, called an extraordinary session of Congress to repeal the law mandating the issue of a certain amount of silver currency and, thus, commit the U.S. foursquare to gold.
Time and time again in the history of this country, the ability of taxes to support an unbacked or insufficiently-backed currency has been tested. Every time the answer has been clear: The acceptability of a currency for the payment of taxes can support the value of such a currency; but, this ability is limited. If the issue of an unbacked or insufficiently-backed currency exceeds the amount needed to pay the tax, and even exceeds the amount in demand as a medium of exchange, the value of that currency will fall (or, there will be inflation).
You might think that somebody as old as Amazing Joe would know this history. Yet, if this history wasn’t written down by a student sitting next to him during a test, it’s not clear he would ever have learned it.
Article cross-posted from AIER.
Two Storms, One Harvest
Every food crisis in living memory has been a one-shock event. The 2008 price spike was a commodity bubble. The 2020 shortages were a logistics failure. The 2022 grain scare was a war on one exporter’s ports. Each time, the system bent, adjusted, and recovered, and each time the experts assured us afterward that global markets are simply too big and too diversified to fail.
What nobody in Washington seems eager to discuss is that 2026 is shaping up to be something the modern food system has never actually faced. Two independent shocks, one climatic and one geopolitical, are converging on the same harvest cycle at the same time. Not sequentially. Simultaneously.
Start with the weather. The Pacific Ocean is currently building toward what forecasters now openly call a record event. NOAA’s Climate Prediction Center puts the odds of at least a strong El Niño near 88 percent, with roughly two in three odds it reaches “very strong” status, the tier reserved for perhaps three or four events in the entire satellite era. Every major global model now projects a median peak in Super El Niño territory, and most of them project it exceeding the 2015-16 event, which until now held the modern record. Sea surface anomalies were already brushing the super threshold in mid-July, months before these events normally peak. The atmosphere has already shifted into El Niño mode, and the event is forecast to crest in late fall and early winter.
This is not about “climate change.” It’s about the standard cycles of weather, and the cycle we’re currently in is one that has likely devastated societies in the past. We’re better prepared as a society today, but not all Americans are equally prepared.
Serious households have started doing the quiet math on their own. Grocery bills tell part of the story, and the forecast maps tell the rest, which is why long-term food storage has moved from fringe hobby to mainstream line item in the family budget, with established suppliers like Heaven’s Harvest seeing demand from people who five years ago would have rolled their eyes at the idea. That instinct is not paranoia. It is pattern recognition, and the pattern is worth walking through carefully.
Editor’s Note: Heaven’s Harvest IS a sponsor, but the warnings of this article are real and would be written even if we didn’t have a survival food sponsor. With that said, those who take advantage of what they offer can use promo code “Patriot” for 15% off.
The Fertilizer Clock Is Already Running
While the Pacific warms, the second shock has been unfolding in the Strait of Hormuz. The conflict with Iran turned the world’s most important energy chokepoint into a contested waterway, and the consequences reach far beyond the gas pump. Roughly a third of global fertilizer trade moves through Hormuz, and the disruption sent urea prices up 86 percent year over year by March, with a 53 percent jump in a single month.
The World Bank projects energy prices rising about 24 percent in 2026 and fertilizer about 31 percent. By its own accounting, fertilizer prices ran 35 percent higher in the first five months of this year than the same period last year.
Here is the mechanism the nightly news will not explain. Fertilizer is not a grocery item. It is a time-delayed input. The nitrogen a farmer in Iowa or Punjab could not afford to apply this spring does not show up as a problem this spring. It shows up as a thinner harvest six to twelve months later.
The World Bank’s own food security brief concedes that the effects of reduced applications earlier this season “are likely to become visible only later in harvest outcomes.” Translate that from institutional language into plain English and it means this. The damage is already done, it is already in the ground, and we are simply waiting for it to arrive on the shelf.
Now check the calendar. Six to twelve months from the spring planting season lands us squarely in late 2026 and early 2027. Which is precisely when the strongest El Niño in the instrumental record is forecast to peak, bringing its signature droughts to Southeast Asia, Australia, southern Africa, northern Brazil, and South Asia, the very regions that grow the world’s rice, sugar, and oilseeds.
The World Bank warns openly that a strong El Niño “could disrupt multiple crop belts simultaneously” on top of the conflict-driven input costs. Their baseline projection assumes the Middle East disruptions ease by autumn. What in the last two years of Middle East history suggests that assumption is safe?
The System Has No Slack Left
The comfortable answer is that global markets always adjust. But adjustment requires slack, and the slack is gone. Global cereal production is expected to decline from last year’s records even before El Niño does its work. The UN World Food Programme, hardly a den of right-wing preppers, is calling this the most significant disruption to its supply chains since Covid and the invasion of Ukraine, and its supply chain director put the stakes bluntly.
Today’s supply chain challenges are tomorrow’s hunger crisis.
There is also a political dimension that markets cannot price. When food gets scarce, governments do not behave like economists. They behave like politicians. Export bans, hoarding mandates, and panic buying at the national level turned the modest rice shortfall of 2008 into a global crisis, and analysts are already warning that import-dependent nations are the first dominoes.
The 2015-16 Super El Niño, a far weaker event than what is now forecast, threw tens of millions into food stress across Africa and Asia. This one is projected to be stronger, and it arrives with fertilizer already rationed by price and shipping lanes already contested by missiles.
What Joseph Knew
Scripture does not treat preparation for lean years as faithlessness. It treats it as wisdom delivered in advance to those willing to act on it.
Behold, there come seven years of great plenty throughout all the land of Egypt: And there shall arise after them seven years of famine; and all the plenty shall be forgotten in the land of Egypt.
Joseph did not respond to that warning with a hashtag or a committee. He stored grain during the years of abundance, and when the famine came, Egypt stood while its neighbors begged. The lesson is not that famine is certain. It is that the time to prepare is precisely when preparation still looks optional.
Nobody who filled a pantry in a year of plenty has ever regretted it, and nobody standing in an empty aisle has ever been glad he waited for certainty.
None of this calls for panic, and panic is the enemy of sound judgment anyway. It calls for the same unglamorous prudence our grandparents considered ordinary. Keep some cash margin, know your local growers, and put real food in deep storage while it is cheap and available, because the entire arc of this story is that cheap and available is a closing window.
Families looking for a straightforward place to start can visit Heaven’s Harvest and use promo code Patriot for 15 percent off long-term storable food. The forecasts may yet soften, the strait may yet reopen, and we should pray they do. But hope is a fine thing to hold and a foolish thing to eat.
