We can’t conceive of life without money, but what happens when it runs out? Has it ever happened? The truth is that the basis on which we build the economy may be more fragile than it seems. That is why today we are going to see what happens when money runs out, something that has happened on some occasions… And that gives us clues as to what would happen in a future collapse.
In Economics they teach you that money “does not exist”. Or rather, that it is a convention in which we all believe and whose value is based, more or less, on that shared belief.
We can’t conceive of life without money, but what happens when it runs out? Has it ever happened? The truth is that the basis on which we build the economy may be more fragile than it seems. That is why today we are going to see what happens when money runs out, something that has happened on some occasions… And that gives us clues as to what would happen in a future collapse.
In Economics they teach you that money “does not exist”. Or rather, that it is a convention in which we all believe and whose value is based, more or less, on that shared belief.
The day money ran out
The Western Roman Empire did not have its best moment from the second and third centuries onwards, where its gradual decline would make it finally fall under the pressure of barbarians, disasters and bad decisions.
And in that fall, its economy played a key role.
This fall was not sudden, but gradual over a long period of time. For a variety of reasons, from wars, to plagues, to even a brief climate change that resulted in horrible harvests, Rome experienced hyperinflation and a final collapse of the empire, which began to split.
Rome’s loss of power was felt throughout its territory, but the lack of organization usually hit those furthest away first.
That is what happened in England, for example, where something happened more quickly that also affected the rest of the empire. For various reasons, from not being able to mint more money to the hyperinflation mentioned above, money disappeared.
Especially, gold and silver coins, which were the most precious, disappeared.
These coins were backed by themselves and the value of the valuable material from which they were minted.
The rest? Well, if they were not made of precious metals, we can imagine what value a small piece of copper with the face of a guy who no longer had any value in hyperinflation had.
In fact, chests of gold coins are still being unearthed in England, which people stopped using, because gold is a safe haven in which to take refuge until everything passes.
What happens when the money runs out
Basically, disaster and that we travel back in time, returning to barter to adapt.
In fact, the independent kingdoms that later formed England, established an economy mainly based on that direct exchange of goods and services for quite some time.
The end of that economy with more barter than money would accelerate with the Viking invasions. These demanded tribute other than in the form of goats, encouraging coinage. The Vikings also motivated a certain better organization and union of the English kingdoms to cope.
To cope and for my nation to take all of England if it prevailed over the other kinglets, of course….
All that led again to what any human organization leads to when it becomes sufficiently complex: the appearance, again, of money as the basis of the economy, because otherwise there is no way to organize.
During a scenario in which money runs out, barter is usually not enough given a minimum complexity, so “pseudo-money” also appears.
To face the fall of the Empire, all its territories returned to barter and the appearance of vouchers, contracts and improvised instruments of payment and acquisition of debts.
However, whether this “pseudo-money” works or not depends on the coercive capacity to do something if someone does not accept it, or refuses to cash what has been signed.
The disappearance of money in modern societies
Some may think this is a long time ago. Today’s economy and, above all, the monetary system, do not function as they did in Julius Caesar’s time (although in reality they did in many more respects than many believe).
But to think that this is a thing of the past is a mistake and there are similar modern cases in which “money is running out”.
One example is the country that probably suffers the most from the so-called “Resource Curse”, Argentina. Their financial crises are habitual and wild or, as a friend from there says, the crisis is the only normality they have known, unfortunately.
This is the case of the famous Corralito of 2001. The restriction imposed on money, added again to hyperinflation contexts, made the former disappear de facto for many. We can hardly have a scarce amount in circulation and the one I have is worth less every second, getting dangerously close to zero.
What do you do?
Well, for a situation that sounds like the Roman Empire, you adopt the same solutions, hence the barter clubs spread throughout the country.
In fact, they didn’t go away and their popularity resurfaces when the crisis hits again.
Of course, the other option, for the wealthiest who might have treasures to bury as in England, is again the same as then: to shelter their wealth in unaffected hard securities.
In the Argentine case, in addition to gold and silver became a refuge again, so did currencies whose value is maintained despite your inflation, such as the dollar.
The disappearance of money and collapse scenarios
The disappearance of money, although not total, can occur de facto for many reasons. The short-medium term solutions, until someone regains control one way or another (and imposes a monetary system again with which to start the disaster cycle all over again), we see that they don’t change much.
So we had better have useful knowledge or wealth sheltered in something more solid than disappearing money.
I remember when Spain was going through the worst of the crisis that started in 2008 and there were rumors of leaving the Euro and returning to the peseta. I also remember that I had a dollar account that I did not want to close under any circumstances, even though it was impractical and full of commissions.
It would not have helped me, because, Spanish accounts in other currencies would also have been converted into pesetas along with the euro accounts, but well.
The point is that end-of-money scenarios are not so strange historically. I also remember my grandmother’s old attic, with a trunk lined inside with one peseta bills of the Republic that, from one day to the next, were worth nothing more than that.
Something similar happened in the Great Depression of the 1930s, or the Mozambique crisis in 2008, for example.
Collapses of those responsible for money, unable to cope with an extreme situation (as in Rome, Argentina or if the traumatic separation of Spain from the European monetary system had happened), or facing hyperinflation, can lead to the disappearance, literally or for practical purposes, of money.
And in that case, we had better know how to do something useful. Being an economist doesn’t count, except to be burned in the town square as responsible for everything.