Nick Szabo, perhaps most widely known for inventing BitGold, a precursor to Bitcoin, wrote an essay in 2016 about commodities as a form of money. The essay, titled “Two Malthusian Scares”, is a detailed account of how certain commodities, particularly industrial commodities like oil and phosphate, have played the role of “partial money” at different points in history. This is usually driven by three factors, according to Szabo:
(1) The commodity(s) is seen as a hedge against increases in expected inflation in floating rate currencies, or greater uncertainties about same,
(2) The commodity(s) is seen as protection for governments against coercive economic sanctions by foreign governments, and
(3) for militarily strong countries, the commodity(s) is a form of wealth relatively immune from foreign attack in time of war.
The first Malthusian scare, which is Szabo’s way of describing a short-term commodity bubble, was the 1973 Arab oil embargo of Britain and the U.S., which led to a more than 6x increase in the price of oil through the remainder of that decade. The second Malthusian scare was the 2007 rate cuts by central banks, which instilled fear around inflation and kicked off a worldwide scavenger hunt for stores of value. Fossil fuels, precious metals, lumber, livestock, and various other commodities hit record highs in nominal prices that year.
One could argue that we’re seeing a third Malthusian scare sparked by Russia cutting off oil and gas supplies to Western Europe. It’s clear that Russia is leaning on its oil and gas reserves as both a hedge against the economic sanctions imposed on them and also as a form of wealth immune from foreign attack (interestingly enough, Russia has attacked the Zaporizhzhia Nuclear Power Plant in Ukraine, which is Europe’s largest nuclear plant; it goes to show that not all commodities are completely immune from foreign attack).
Though Russia’s current stranglehold on Western Europe has created a full-blown energy crisis, all Malthusian scares come to an end either because of technological developments that end the supply-squeeze of that commodity or because an alternative commodity replaces the incumbent one (either in use or as store of value). We are seeing both these factors play out in real time as the U.S. increases its liquified natural gas exports to Europe, Europe resorts to increasing its imports of other fossil fuels like coal, and nuclear power re-enters the conversation in countries like Germany as a reliable, clean energy source.