Money seldom fails, but occasionally, it does. It failed in Germany and Austria 1921-23. It failed in Hungary after World War II. It failed in Zimbabwe in 2008-9, when the rest of the world was in a recession.
Here is a famous case of the failure of money:
And there was no bread in all the land; for the famine was very sore, so that the land of Egypt and all the land of Canaan fainted by reason of the famine. And Joseph gathered up all the money that was found in the land of Egypt, and in the land of Canaan, for the com which they bought: and Joseph brought the money into Pharaoh’s house. And when money failed in the land of Egypt, and in the land of Canaan, all the Egyptians came unto Joseph, and said, Give us bread: for why should we die in thy presence? for the money faileth. And Joseph said, Give your cattle; and I will give you for your cattle, if money fail. And they brought their cattle unto Joseph: and Joseph gave them bread in exchange for horses, and for the flocks, and for the cattle of the herds, and for the asses: and he fed them with bread for all their cattle for that year. When that year was ended, they came unto him the second year, and said unto him, We will not hide it from my lord, how that our money is spent; my lord also hath our herds of cattle; there is not ought left in the sight of my lord, but our bodies, and our lands (Gen. 47:13-18).
The old money in Egypt had failed. There was now a new money: grain. It had the characteristic features of money. It was divisible, portable, easily recognized, and had high market value in relation to volume and weight. In normal times, grain lacks this fourth feature. But in a famine, it temporarily gains it. This is why, during famines, grain is money. This is why those who possess it wind up wealthy, assuming they are not killed.
“You can’t eat gold.” I used to hear that one from people who ridiculed the gold standard. But this is not a good argument against gold. It is an argument in favor of food. Not only can’t you eat gold, you can’t paper money and plastic credit cards, either. When food is short, money is no longer valuable in comparison to food. Money cannot sustain life. Food can. The forecasts of the Egyptians had been incorrect. They had kept their money rather than buying up food the previous season to store it. Joseph’s forecast had been correct. This put him in charge of Egypt’s future.
But what if the Egyptians had heard about Joseph’s dream and interpretation? What if all of them had believed the story? Their money would have failed the previous year. Had they all gone out to buy up the crop, they would have found that their competitive bids raised the price of grain. This price increase would not have been so radical as it was the following year, when there was a drastic reduction of the grain supply, but it would have been sufficient to turn grain into money.
TOP OF THE MARKET
This should warn us: not everyone can get out of a market at its top. The reason why it is at the top is because the amount offered for sale at yesterday’s price today exceeds the quantity demanded at yesterday’s price. If sellers want out, they must sell at less than yesterday’s price. If they all want out today and nobody wants to buy, the price falls to zero. The market ceases to exist.
Because we rarely see the future in the same way at the same time, markets do not fall to zero very often. But in the text, we have a case where large numbers of people did see the future in the same way at the same time. They all tried to get out of the old market – the market for money — at the same time.
(For the rest of my article, click the link.)