Sunday, March 7, 2021

The Problem of the Shipwrecked Sailor: When Money Becomes Useless


The Covid crisis highlighted an already existing problem: that money is useless if you can't buy anything useful with it. It is the problem of the shipwrecked sailor on a deserted island. (image from Wikimedia): money won't help him survive. So, lockdowns and restrictions gave us a taste of a future where money may be worth nothing simply because there is nothing you can buy with it. It is a problem ultimately connected with the unavoidable depletion of the fossil fuels that form the basis of our economy: with less energy, we cannot keep making the stuff that makes it possible to indulge in conspicuous consumption. So, after the Covid, society will never be the same. Taking into account that history never repeats itself, but it does rhyme, here I examine the situation starting with a parallel with the history of the Roman Empire.

The Roman Crisis: When Money Couldn't buy Anything

Imagine living in Rome at some moment during the 1st century AD (the time of Lucius Annaeus Seneca). At that time, Rome, with perhaps one million inhabitants, was the largest city in the world and probably the largest emporium ever seen in history. Through the Silk Road that went from one side of Eurasia to the other, one caravan after the other was bringing to Rome all sorts of goods: pepper, cardamom, cloves, cinnamon, sandalwood, pearls, rubies, diamonds, and emeralds. And then ivory, silk, glassware, perfumes, jewels, unguents, and much more: exotic birds, special food, slaves to be used as workers and as sex objects. And there was the entertainment: in Rome, you had theaters, chariot races, gladiator games, fights among exotic animals, and all sorts of performers with their magic tricks, their songs, and their spectacles. 

You could enjoy all that if you had money. And the Romans had money: they minted it. They had control over the richest precious metal mines of the ancient world, in the northern region of Hispania. There, tens of thousands of slaves, perhaps hundreds of thousands, were engaged in a work that Pliny the Elder described as "the ruin of the mountains" (ruina montium), the process of crushing rock into sand to extract the tiny specks of gold and silver it contained. 

With the gold and the silver they mined, the Romans paid their legions. Then, the legions would invade regions outside the Empire and capture slaves that would mine more gold to pay more legions. And, as long as the mines were producing, the Romans had gold aplenty, even though a lot of it was sent to China and to other regions of Asia to pay for the luxury goods they imported and that kept the economic machine of the empire working. For an empire to exist, money is everything.

Of course, then as now, not everyone had the same amount of money. In Rome, the rich took most of it, but some money trickled down to the artisans, the performers, the employees; everyone from cooks to prostitutes would get a share, maybe a small one, but still something. Even the slaves, destitute by definition, could own a little money. It is possible that, occasionally, their masters would give them a few coppers to buy a cup of Falerno wine or admission to the chariot races.

But the rich Romans were truly rich. And their lifestyle was all based on showing off their wealth. Read this excerpt from Cassius Dio about a wealthy Roman patrician, Vedius Pollio.

. . . he kept in reservoirs huge lampreys that had been trained to eat men, and he was accustomed to throw to them such of his slaves as he desired to put to death. Once, when he was entertaining Augustus, his cup-bearer broke a crystal goblet, and without regard for his guest, Pollio ordered the fellow to be thrown to the lampreys. Hereupon the slave fell on his knees before Augustus and supplicated him, and Augustus at first tried to persuade Pollio not to commit so monstrous a deed. Then, when Pollio paid no heed to him, the emperor said, 'Bring all the rest of the drinking vessels which are of like sort or any others of value that you possess, in order that I may use them,' and when they were brought, he ordered them to be broken. (Roman History (LIV.23))

This story must have been well known since is reported also by Seneca, Plinius, and Tertullianus. That makes me suspect that it was false, or at least exaggerated. Apart from the "lampreys" that were probably "morays," it may well have been a fabrication by Octavianus, aka Augustus, who was truly an expert in self-promotion. But it doesn't matter whether the story is true or not. The ancient Romans found it believable, so it gives us a hint of their way of thinking. 

Probably, the Romans didn't see the moral of the story in the same way we see it nowadays. For them, it was perfectly normal that slaves could be put to death by their owners at any moment, for any reason. What they saw in the story was, rather, someone who had overstepped the limits of his status. Pollio had tried to impress the emperor first with his wealth, his precious glassware, and then with his power, ordering the death of a slave for a trifle. Then, he was justly humbled by Emperor Augustus who restored the correct hierarchical order. 

The point of this story is that it shows that the Romans were practicing what we call today "conspicuous consumption." Pollio was filthy rich, and he loved to show off his wealth. Surely, he was not the only one: there are other examples of rich Romans displaying their wealth with sumptuous villas, lavish entertainment, fashionable clothes, jewels, and entourages of slaves and hangers-on. Then, the Emperor was the richest person in Rome. It was traditional that he would show his wealth and power by distributing food for the poor, and entertaining citizens with extravagant games and spectacles. 

In short, Imperial Rome was not unlike our age: the rich were enormously rich, but something of their wealth trickled down to the rest of the people. Surely, on all the steps of the social ladder, people played the consumption game in order to keep up with the Joneses. It was always the same story. Money is a tool for commerce, of course, but also a way to establish the social hierarchy. 

Then, things started going wrong, as they always do. For the Roman Empire, controlling a territory that stretched from Britannia to Cappadocia required an enormously expensive military apparatus and it was becoming more and more difficult to find enough money for the task. We have no records of the output of the precious metal mines in Roman times, but from the archeological data, it seems that depletion was already biting during the early centuries of the Empire. It is typical of mining: you don't run out of anything all of a sudden, but the cost of extraction keeps increasing.

Surely, enormous efforts were made to try to stave off the decline of the mines. But the Seneca Cliff is unavoidable when you deal with non-renewable resources. The cliff started approximately at the beginning of the 2nd century AD. One century later, the imperial mines had ceased producing anything. They would never recover.  (image from McDonnell et al.)

No gold, no empire. The mining collapse nearly brought the empire to its end during the 3rd century. It was a series of reciprocally reinforcing effects. The gold that was sent to China couldn't be replaced by mining. Then, less gold meant fewer troops, which meant fewer slaves, and that, in turn, meant even less gold. The result was a series of civil wars, foreign invasions, general turmoil, and overall economic decline.

The Roman Empire could have disappeared by the end of the 3rd century. In practice, it managed to survive for a couple of centuries more in a much poorer version. For one thing, the Romans couldn't afford anymore the luxuries that they once would pay with the gold they mined. As you would expect, the poor were the first to be hit, while the rich tended to maintain their extravagant lifestyle as long as they could. But the whole society was affected.

For the late Roman Empire, the problem was not just that the system had run out of gold. At some point, the Romans must have stopped, or at least greatly reduced, the flow of luxury goods from China. At that point, the rich Romans still had some gold. See this gold solidus coin minted at the time of emperor Constantine the Great, in mid 4th century AD.

But what could you buy with these beautiful coins? At that time, all the Western Roman Empire could produce were legions and tax collectors and, without imports from abroad, Rome had become a grim military outpost, not anymore the greatest emporium of the world. 

Those who still had gold found themselves in the position of a shipwrecked sailor on a deserted island. Coconuts aplenty, perhaps, but no way to play the game of conspicuous consumption. Already with Augustus, the first emperor, we see a legal trend that aimed at limiting the excesses of wealth that the Romans could display. It was a gradual process that was completed only with the diffusion of Christianity in Europe and Islam in North Africa and the Middle East. It was unavoidable, and it happened.

So, in these late Roman times, gold had lost much of its luster. Those who still had it started burying it underground, with the idea of keeping it for better times. Modern archaeologists are still finding gold buried at that time. That was the probable origins of our legends about dragons living in caves and sitting on hoards of gold. People knew that plenty of gold had been buried but, unfortunately for them, they lacked the metal detectors we have today! In any case, that was the end of the Roman Empire. As I said, no gold, no money, no empire. 

Creative money: the relics of Middle Ages

When the Roman Empire faded, it was replaced in Europe by the era we call the Middle Ages. Then, people found themselves with a big problem: how to keep society together without the precious metals needed to mint money? And, even worse, without much that money could be spent on? The Middle Ages were a period of fragmented petty kingdoms and scattered villages, but there still was a need for a commercial system that would move goods around. But how to create it without metal money?

Our Medieval ancestors creatively solved the problem with a completely new kind of money. It was based on relics. Yes, the bones of holy men, meticulously collected, authenticated, and issued by the authority of the time, the Christian Church. Not only relics were rare and sought after, but they could also provide a service that not even the Roman gold could provide when it was abundant: health in the form of divine interventions. (In the figure, 18th-century relics owned by the author. They look like coins, they feel like coins, they are shaped like coins -- they are coins!)

These relics were a form of virtual money but, after all, all money is virtual. Even a gold coin promises something (wealth) that in itself cannot guarantee unless there is a market where you can spend it. And the fact that money can be spent depends on people believing it to be "real" money, mostly an act of faith. In the same way, a relic is a virtual object that has no value in itself. It promises something (health) that can be delivered if you believe in it. It was, again, an act of faith based on the belief that the little chunks of bone that the relics contained were actually coming from the body of a holy man of the past. 
The beauty of the relic-based monetary system was that relics were not "spent" in markets. You could own relics, but you could grant their health benefits to others and still keep the relics. In other words, you could spend your money (eat your cake) and still have it!. Relic-money was managed mainly by public institutions such as monasteries and churches. They owned the most prized relics and were the places where pilgrims flocked to be healed by the powerful holy aura that these relics emanated.
The commercial system of the Middle Ages evolved in large part around relics. Travel was encouraged in the form of pilgrimages to the holy sites, and that would create an exchange economy based on charity. Conspicuous consumption was simply not possible in the relatively poor economy of the Middle Ages. Consequently, the Christian philosophy de-emphasized consumption and condemned social inequality. The highest virtue for a Medieval person was to get rid of all their material possessions and live an austere life of privation. Of course, that was more theoretical than practical, but some people were putting this idea into practice: just think of St. Francis.
The system worked perfectly until new precious metal mines in Eastern Europe started operating in late Middle Ages and that brought back metal currency to Europe. A new period of expansion followed that eventually led to our times of renewed conspicuous consumption. And that's where we are.


The Romans and us: the same problems. 

We know that history never repeats itself, but it does rhyme. So, where do we stand now? The money that keeps the Global Empire together, today, is not based on precious metals and we don't risk collapse because our mines cease producing gold. Indeed, there is clear evidence that gold production and economic growth decoupled worldwide in the 1950s. So using gold as the basis for a monetary system went out of fashion in the 1970s. 

Our money is not linked to anything, nowadays. It is something that floats free in space, a ghost of what once were heavy gold coins. But we still have it and our rich men are so filthy rich to put to shame the Roman ones (even though our multi-billionaries don't have the right to throw their servants into the pool of the morays, not yet, at least). 

Apparently, we are more clever than the ancient. They didn't have paper, didn't have the printing press, they couldn't print paper money. And they couldn't even imagine what a cryptocurrency is. We can do much better than anything they could invent. So we will never face the same problems, right?

Not so simple. Yes, we do have paper money, cryptocurrencies, and the like. But don't think that the Romans didn't try to replace gold with something else. Even without paper, they could have used earthenware, papyrus, parchment, or whatever. But if they tried that, it didn't work. The problem is always that of the shipwrecked sailor. You may have money in one form or another, but if you can't buy anything with it, it is useless. Even if you have gold, there is not much you can buy in a collapsed economy. 

And there we stand: we are all shipwrecked sailors and that has been shown most clearly by the Covid pandemic. Think about that: you were locked at home, you couldn't go to a restaurant, take a trip, get a drink, go to the beach, go dancing, nothing like that. Not that commerce disappeared: we could still buy anything we wanted from Amazon and have it delivered home. But, as I already noted, money is not just a tool to buy things. It is a tool to establish the social hierarchy by means of the game of conspicuous consumption. That's a game you can't play alone, at home, in front of a mirror. No more than a shipwrecked sailor, alone on his island, can gain a higher social status by eating more coconuts.

In the end, the pandemic simply brought to light something that we should have known already: that we can't indulge in conspicuous consumption for much longer. Running out of gold is not a problem for us. The problem is that we are gradually running out of fossil fuels, and it was those fuels that allowed us to consume so much and waste so much. The pandemic has given us a taste of the things to come. Because it is so functional in pushing the economy in the direction where it must go in any case, it may never end.

So, can we think of a creative solution for the future that awaits our civilization as it runs out of the energy sources that power it? Maybe we can find inspiration from the Middle Ages. As I said, history never repeats itself, but we may be moving toward a historical phase that rhymes with the way the economy of the Middle Ages functioned. So, the Christian Church may be replaced by the entity we call "Science" (with a capital "S"), supposed to be able to dispense physical and spiritual health to its followers. And that may generate trade and movement of people and goods, as well as establishing a new hierarchical order.

We may have already seen hints of this evolution. First, the Covid has heavily damaged the universal health care system of the countries that had it. With the fear of being infected and with hospitals being converted to Covid care centers, now good health care is not for everyone: it is a new form of conspicuous consumption for those who can afford it. The ancient pilgrimages to holy sites could be replaced by trips to the best hospital and health care centers. 

Then, would there be an equivalent of holy relics in the future? So far, nothing like that has emerged, but we may see the coming vaccination certificates as "tokens of virtue" that separate the "haves" (those who are vaccinated) from the "have nots." (those who don't want, or who can't afford, to be vaccinated). But that's hardly a functional hierarchy creating system. Eventually it could be replaced by a "point system" not unlike the shèhuì xìnyòng tǐxì, the social credit system being developed in China. By all definitions, that's a kind of monetary system that establishes a hierarchical system not based on conspicuous consumption. That may well be the future.

And, as always, history keeps rhyming. 




  1. Maybe fossil fuels more akin to Roman gold, as each requires energy to extract and refine, and each lubricates the economy, so to speak. Slaves provided the energy to extract gold, while fossil fuels provide most of the energy to extract themselves. Of course, gold can be exchanged infinitely, while FF can be burned only once.
    In any case, collectibles have taken off in price of late, and not just classic works of art. Have you seen the prices on baseball cards, comic books, and, now, NFTs? Mickey Mantle is the new St. Francis. It may well be fleeting, just as previous collectible booms were, but all that money in circulation has to go somewhere. Stocks, bonds, land, and RE have already inflated. And if these more established asset classes deflate (credit bust), we may see a brief period of Tulip mania in collectibles. Collector's cards are small, portable, easily recognizable, and still affordable to most people-- unlike RE and stocks. They are fragile, yes, but they can be sealed in hard cover containers more or less permanently. NFTs, OTOH, might be the ideal 'relic', since they truly are unique, and can be verified. Again, maybe not a long-lasting solution, and each has limitations, for example technological barriers of NFTs or the cultural barriers sports cards. Still, not hard to imagine them being exchanged for rent, food, or a service, at least for a time.
    Maybe, like most other historical processes, we in the industrial world have sped things up, and our civilization will rise and fall much more quickly than in the past. If so, a brief period of collectibles as currency would be no more surprising-- or ridiculous-- than using religious relics.


  2. There is one huge(!) difference between mentioned crude oil/paper money and gold: oil disappears when you burn it, paper money disappears when paying back credit (as it appears by credit creation) but gold: it goes from hand to hand, but never disappears. So: where has all the gold gone the Romans owned?

    1. Ah.... it is the crucial point of my post: most of the gold went to China, the rest was buried underground for the joy of dragons!

    2. Thanks for your answer, but this raises the next questions: How?
      Gold can come from A to B by:

      1. People who own it move from A to B
      2. People from B go to A and steal it
      3. People from A buy goods from B and pay by gold

      Any idea?


    3. China was paid in gold for the luxury items they produced. So, it is 3 with A the Romans and B the Chinese. China was too far away from Europe for the Romans to be able to send the legions there to recover the gold (except in the movie "Dragon Blade" -- not a bad movie, though)

  3. Excellent, Ugo!

    If I didn't already tell you you... I mention you and The Seneca Effect (here) in my latest video.

    I know you don't normally take time to watch videos, but I think you'll like this one. :-)

    "The Big Picture: Clarity, Compassion, and Love-in-Action":

    Love you, bro!

  4. Your article is fascinating! Lots to think about. Is an hierarchical system desirable? Maybe it is. Or maybe flattening some hierarchies might lead to less conspicuous consumption as the drive for status becomes less urgent. The first commentator brings up some great considerations as well.

  5. Very illuminating! My question is, are social hierarchies related to conspicuous consumption, and if so, could flattening those hierarchies create less urgency in many people who try to achieve status leading to more convivial activities than shopping?

    1. Who knows? We might return to worshiping holy bones!

  6. Ugo Bravo with a Capital B. Whatever firenze wine inspired you to become a top notch Monetary Historian I want some of it. Seriously it's one of the best pieces I have read in a long time-learned while reading it.
    I am twitting it to Paul Krugman, it's time he learns something other than what is superficially wrong with the World. It's time he glimpses about what reality is like before he too finds himself as Robinson Crusoe in a deserted island.
    We all should have heeded to the Club of Rome report and to the advice of EF Schumacher

    1. BTW, if you happen to be around here one of these days, we can try some good Chianti wine together! It may have very good effects on people's creativity!

  7. Then,most of the roman gold ended up in China?

    1. Mainly, but also in India and in other parts of Asia. Archeologists are still finding Roman coins scattered over the place.

    2. Actually, from your question, I understood that I had not been so clear on this point. I added a few lines to specify that, yes, most of the Roman gold ended up in China and all over Asia.

  8. Dear prof Bardi,
    Thanks for the perspective of the Robinson Crusoe island...
    I lived in the embers of CCCP in Moscow in the 1990's, when inflation killed all fixed incomes, like pensions and public employee salaries.
    Traffic Police set up roadblocks for additional income and occasionally siphoned gas out of the tanks of "disrespectful citizens".

    Right now I live in peaceful and rich North-West Europe, but I see the same thing lurking in the shadows. Warning bells are chiming every month, when ECB gives their press conference about the latest "stimulus" printing of money...
    I brace for impact.

    Thank you for yet another clarifying post.


  9. Shared this article with a few friends engaging in a certain areas of vanity: collecting watches. It may well explain why some watches (especially old military watches) got so incredibly expensive in the last few years - they're new relics.

    1. Interesting! You know, I collect watches, too! I am fond of mechanical watches of mid 20th century. And, yes, they are a form of money -- they can be awfully expensive.