King Midas and the True Nature of Money

I am going to tell you a famous story from Greek mythology that helps illuminate the truth of money.

King Midas one day saved the son of Dionysus, one of the major gods[1]. In order to show his thanks to the King, Dionysus offered to grant Midas a single wish. Midas, being covetous by nature, paused little before deciding that what he wanted to wish for was a golden touch. He asked the god to have everything he touches turn to gold. Dionysus warned the King to think twice before making the wish, but Midas was certain.  After a deep sigh Dionysus laid the boon upon the King and then departed. Overjoyed, Midas touched a flower in his vast garden and marveled as it became solid gold. He went around his mansion touching all that he could think of, transmuting all within his touch instantly from their plain materials into lustrous shimmering gold.

He called a great feast in order to celebrate his new found power. Before him on the table there laid the finest wines, meats, fruits, and assorted specialties from all around the kingdom. He touched his wine goblet which became golden, and with a beaming smile he made a toast to the immense fortune both he and his kingdom had to look forward to. Placing the goblet to his lips, however, revealed a horrible surprise: the second the wine touched his lips, it too, became transmuted into gold. Gold would not slake his thirst. He quickly grabbed for food, but anything that he laid his hands on became solid gold. Desperately he had a servant try to feed him directly, though to no avail—the second any substance touched his mouth, whether it be the sweetest grapes or the juiciest meat, it instantly became cold, tasteless gold. Gold would not satisfy his hunger.

He ran out into his garden to his favorite bench and sat down amongst the lifeless golden flowers, cursing his fate, thinking again and again of Dionysus’ warning. His daughter came to comfort her father, laying her hand on his shoulder in order to give him solace. In that moment she was transformed from a lovely sweet girl into an unspeaking, unfeeling golden statue.

At this, Midas broke down, and in between his sobs he implored Dionysus to come again and take away his golden burden. As the god had initially wished to bestow a blessing on King Midas, not a curse, he came to the King and told him to wash his hands in a nearby river to take away his power. Midas, following Dionysus’s instructions, immediately set off, and after finding the river, washed his hands. Gold came shimmering from his skin as he made contact with the flowing water, and once it had stopped, he ran back to his palace as fast as his legs would carry him. Much to his relief, his daughter was there to greet him when he returned, with the flowers of his garden once again swaying in the breeze.

There are many lessons that can be taken from this story. When I first learned it as a child, the morals of the story that were emphasized were about being careful what you wish for as well as the hazards of greed. These are good lessons to be sure, however, unfortunately, they are not very pertinent to this chapter. I did promise to relate the story to the true nature of money after all, didn’t I?

Let’s relate this story to the 5th point of thinking like an economist: “People Don’t Care about Money”. What is the use of the gold to Midas? Nothing. If you can only have money and nothing else, you will have a very poor life indeed. It is instead the things that money can buy, like the wine and the food that are of value. Having money without goods is like having the poker chips from a bankrupt casino.

But what if Midas had been a little wiser in his wish? For the below story, let us assume that like modern currency, gold is only used as money to avoid unnecessary complications.

Dionysus offers him a wish of his choice. Midas quickly says: “I want everything I touch to turn to gold!” Dionysus gives the king a skeptical look and replies: “everything?”
Midas, instantly realizing his mistake, he says: “oh no, that would be horrible, I couldn’t eat or drink! I might even accidently turn my lovely daughter into gold! How terrible that would have been! Instead, how about you grant me the ability to turn anything I desire into gold?”.
The god says: “sure, glad you caught that error!” Under his breath he mumbles: “though you still might consider taking an economics class.” “What was that last part?” The king asked, to which the God replied: “nothing, never mind, poof it is done.” Midas turned many things into gold and enjoyed a fine banquet of only the best food and wine with the company of his daughter that day.

This version of the story might at first look like a happy ending, but let us analyze it further. Question: how does the gold speed the craftsman’s work? The farmers’ growing of food? It is true that more gold will allow Midas to purchase more things, but where do those more things come from? Since the gold does not actually make it so that more can be produced, it must mean that, instead of changing how much is produced, it is changing who gets what is produced. In this case, Midas is getting more, which means less for people who are not Midas. Money is a claim to goods and services, an increase in the claims without a corresponding increase in goods and services means each of the claims are worth less. So in this instance, the new flood of gold will make it so that a given amount of gold will be able to exchange for less real products than from before. He is taking the real value he receives from the gold holders in his kingdom, and could have achieved the same result by taxing them without using magic wishes.

Midas is actually acting precisely in the same way as someone who counterfeits money. One might imagine as a result, silver might become a more valuable metal. Perhaps then he might think that he should have asked for the silver touch instead. Hopefully you understand why this would also be folly.

Imagine we go far back in time to when humans first started farming and we dropped several tons of gold onto the early farming villages. What would it have allowed them to do? Now imagine instead that we instead gave them the wheel thousands of years before its invention. Money may be what makes an individual rich, but real things are what make a society rich. Money is just a claim to some of societies real goods.

[1] Specifically the god of wine, revelry, and … well many other things.