When Money Fails

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 eat 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.


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. Thus, the old money failed. What had been money the previous year ceased to function as money.

When such events as these take place, unprecedented social change is close at hand. When the value of money fails, the previous social consensus has also failed. The value of money is based on consensus. The public normally predicts the future as follows: “Tomorrow will be pretty much what today is.” Most of the time, such a prediction is correct. But when it isn’t, the members of the society find that their dreams and schemes have turned to dust. They seek someone to blame. It they blame themselves, they are ripe for repentance. If they blame their leaders, society is ripe for a revolution.

Consider the 1920’s. The “roaring twenties” roared with self-confidence in the victorious Allied nations. People turned to third-hand interpretations of Freud to justify their sexual infidelity. They dreamed of wealth for all as the stock market went ever higher after 1921. A few people watched with fascination as Germany and Austria destroyed their currencies in a wave of inflation, 1920-23. But then it was back to normal in both nations, and loans went from the booming Allied economies to the defeated ones.

In the United States, Darwin reigned triumphant after the humiliation of fundamentalism at the 1925 Scopes’ trial and the death, five days later, of William Jennings Bryan. There seemed to be a new era at hand, an era of secular enlightenment, miraculous technology, and economic growth. Freed from the “old superstition,” men ate, drank, and made merry. “Come ye, say they, l will fetch wine, and we will fill ourselves with strong drink; and tomorrow shall be as this day, and much more abundant” (Isa. 56:12).

The dream ended miserably: the Great Depression, the rise of Hitler, the rise of the welfare state, and World War II. A new god was proclaimed: the god of central planning. This god had been worshiped by a handful of disciples from the 1880’s, but now it was placed on the throne, all over the world. Men proclaimed the wisdom of the scientific elite, who would use force to redistribute the world’s wealth. There would be wealth for all.

In 1929, everyone could not get out of the stock market all at once. A lot of them tried in October. The market had been booming since the end of the recession in 1921 . By 1929, men had forgotten that there are business cycles in life. In 1931, Viking published a little anthology of the optimistic forecasts regarding the economy and the market. The book had a typical American title, Oh, Yeah? In 1931 , the worst was yet to come.

In 1929, it was the top of the market: for stocks and for the older American tradition of rugged individualism. Of course, that tradition had been under assault ever since the Civil War (1861-65). In Great Britain, it had been under assault since at least the mid-1870’s. In Germany, rugged individualism had no tradition. The welfare state in 1929 was about to become the new ideology. The state would soon use coercion on an unprecedented scale in order to “save capitalism from itself,” as the slogan went.

When men of acknowledged intelligence universally proclaim that autonomous man’s latest way of salvation is permanently enthroned, start looking for a convenient exit. You are close to the top of another market.

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