The Banks Are Running Out Of Cash
A truck backed up to the shop next to us. Two men in shorts got out and began to offload sheets of metal.
The restaurant we had planned on for lunch was closed. We moved on to another one… still open. Shops were being boarded up. The street was almost deserted.
Hurricane Matthew is moving in. That’s what everyone says.
The TV monitor over our table is locked onto the weather channel. Maps… eyewitness reports… meteorologists – all are on display… preparing for an onslaught, judging from the precautions being taken against it, that must rival the barbarians’ attack on Rome.
Men are locking up their wives and daughters. Lines are forming at gas stations… The convenience store down the road is being cleaned out.
Even the banks are running out of cash.
“There seems to be a run on cash,” said a clerk at our bank. “People preparing for the hurricane.”
The storm is still far from the sands of Delray Beach, but the town is building its ramparts, strengthening its defenses, and preparing its people for the crisis ahead.
“You may be forced to evacuate,” said the caretaker at our apartment complex. “We’re on the barrier island here. When the storm gets up, it will be too late, because they’ll close the bridges.”
We were tempted to stay to see what happens. Instead, we hit the road… driving back up to Maryland.
As we explained to the crowd in Portlaw, Ireland, at last week’s Grand Opening of our overseas headquarters, there are rarely any really new ideas… Good new ideas are even rarer. Good ideas about money – except for those we’ve come up with ourselves (okay… George Gilder had a good idea about it, too) almost never come along. Today, mostly to save ourselves time, we turn to Aristotle, as channeled by our friends at Classical Wisdom Weekly, for a look at what money is supposed to be. Classical Wisdom Weekly editor Van Bryan:
Ancient Greece was a time of firsts for the Western World.
First democratic government? Yep.
First masterpieces in literature? Check.
First academic university? Double check. Plato AND Aristotle founded schools in the classical age.
It’s unsurprising then that the ancient Greeks were also responsible for minting some of the first coins in the Western world.
Perhaps even more unsurprising is that this was almost immediately followed by the first embezzlement scandal and an ancient version of the military-industrial complex.
See… we really are influenced by the Greeks.
The ancient Greek drachma enjoyed popular usage starting in the Archaic Age of Greece (around 600 BC) right up until the Roman Empire. Ancient coins were originally minted from electrum, a naturally occurring alloy, but over time gold and silver became the preferred metals.
The rising economic influence of the Greeks during the 5th century meant that the ancient drachma was widely accepted across the known world. Ancient coins have been found in Egypt, Rome, and Syria. They even reached as far as the western dwelling Celts.
But all of this so far is just nickel and dime stuff. Practice your best chin stroking, now we get philosophical.
Aristotle, a man who is often regarded as one of the most prolific and influential philosophers of the Western world, had a few ideas on money.
Unlike his predecessor and teacher, Plato, Aristotle felt no need to justify the existence of money. Being the practical guy that he was, Aristotle considered the necessity of money to be self-evident.
“When the inhabitants of one country became more dependent on those of another, and they imported what they needed, and exported what they had too much of, money necessarily came into use.”
And not to mention, Aristotle says somewhat patronizingly…
“The various necessaries of life are not easily carried about”!
Importantly, Aristotle did not claim that money was wealth. Rather, money represented wealth.
“How can that be wealth of which a man may have a great abundance and yet perish with hunger, like Midas in the fable, whose insatiable prayer turned everything that was set before him into gold”?
Money, to Aristotle, represents olives in the orchard, vases from the potter, wine from the vineyard. Money wasn’t wealth, but it could measure wealth.
Fair enough, we’ve talked about what money is not. What, then, ismoney?
Well, Aristotle says that money should ideally be five things…
- Durable – it must survive the trials and tribulations of daily life, i.e, of being carried around in people’s pockets, purses, or even in the mouths of the newly deceased.
- Portable – a small item should be of a high value.
- Divisible – breaking a coin, either figuratively or literally, should not affect its relative value.
- Fungible – mutually exchangeable, i.e., it doesn’t matter which particular coin you have as long as you have one.
- Intrinsically valuable – the coin’s material should be a worthwhile commodity (mint coins from gold, not concrete).
Ignoring this fifth principle, history tells us, is what can be particularly disastrous.
The Crisis of the 3rd Century
At the outset of the Roman Empire, starting in 27 BC, the preferred Roman currency was the silver denarius. Rome’s first Emperor, Augustus, minted coins that were 95% silver.
Ah, but what good idea couldn’t be improved with a little monetary manipulation?
The coinage was debased over the centuries; so much so that by 268 AD, there was just under 0.5% silver in the denarius. When questioned about the devaluation of the currency, Emperor Caracalla (who ruled from 198 to 217 AD) held up his sword and declared…
“Not to worry. So long as we have these [gesturing to the sword], we shall not run short of money.”
How do you like that for a monetary policy?!
Even non-economists can probably guess what happened next. Hyperinflation ran rampant in the Empire. Prices during this period rose as much as 1000%. This is often referred to as “the crisis of the 3rd century.” Over the next fifty years, 26 different men would claim the seat of power, often through military force. As for Emperor Caracalla – in 217 AD, his own soldiers stabbed him to death when he stopped to take a leak.
History really is fascinating…
Perhaps the madness is best summed up by 18th-century historian Edward Gibbon, when he commented that the great wonder of the Roman Empire was not that it fell, but rather that it lasted as long as it did!
Over the centuries the great thinkers have been proven wrong (Aristotle contended that flies had four legs and that women had fewer teeth than men). So, at times, society was only able to progress once it had rejected Aristotle’s assertions. Do his ideas on sound money fall into this category of outdated philosophical fodder? Or are they the time-tested wisdom of the ages…?