Johnson: Lessons from the great egg crisis
During COVID, I wrote and published a book on that most dreary of all topics: economics. Followed by the equally surprising decision to give it away, or nearly so, because Amazon will not let me sell it for less than $2.99. So, here I am, promoting a book that I am trying to give away.
Which explains why my book PR agent recently asked: “Is there a local Aspen topic you could write about that has a tie-in to the book?” I responded: “Not really.”
That was so yesterday because it just so happens that I used an egg shortage as an example in my book. Just a coincidence?
“Egg shortage hits Aspen” on AspenTimes.com.
Let’s imagine a small and simple mountain economy where the only money is 1-ounce gold coins, and there are just 1,000 such gold coins in circulation. This would be the “money supply.”
In addition, the “aggregate supply” is a measure of the monetary value of all goods and services available for purchase within a given economy over a given period.
As established by the forces of supply and demand on the value of this money, one such gold coin initially stores enough wealth (its purchasing power) to buy a dozen eggs at the farmer’s market.
Now, consider the case where the chickens only lay half the normal number of eggs, resulting in a “supply shock” (a shortage of eggs).
If, within this short time frame, the demand for eggs remains high (Aspenites like omelets), it stands to reason that one gold coin will now buy just six eggs because the supply of eggs has been reduced by one half.
This implies that the price of eggs will have increased in price relative to everything else money can buy. Of course, this assumption of “constant demand” is unrealistic because when the price of any good increases, the demand for that good diminishes.
There are other choices for protein, after all.
Let’s compromise, and assume that one gold coin will now buy somewhere between six and 11 eggs; i.e., the price of the eggs increased by a little or a lot, but it did increase.
Now extrapolate to the case of many goods having their supply reduced in a relatively short time frame. It stands to reason that, just as with eggs, a single gold coin will buy less of the goods for which there is a shortage.
With fewer goods (and services) available for purchase, each gold coin has on average less purchasing power. While established money tends to be “sticky” (We all tend to believe that its purchasing power on Tuesday is the same as Monday), it will gradually change. The only question is why.
There are many reasons, one of them being:
“If the aggregate supply of goods and services decreases, and if all the other forces are strangely constant, then the value of the dollar will decrease; inflation happens. Meaning that it is probably not a coincidence that our high rate of inflation comes on the heels of a prolonged shortage of goods and labor.”
Eric Johnson, an Aspen resident, is the author of What the Hell is an Economy? (2022, published by Amazon Kindle). For more information, go to: http://www.WTHisAnEconomy.com.