Always found it funny that the term for pig in Chinese is Zhou
Which sounds a lot like the animal of a certain faith doesn’t eat.
It’s also interesting to speak to Chinese business men who speak highly of their culture, the longest in history, and how the country thinks in generations and yet…
The country’s Communist founding was in 1921 about 100 years ago and no Communist country has survived for a long time. So my respectful response is think about how to keep your government before talking about your Confucian theology.
The Chinese culture is so rich and interesting that I’ll never do it justice in just one missive but their ancient culture they are proud of and we should take note of it because they sometimes invent stuff we need, like gun powder and thinking ahead.
Like a granary system which I am sure most of you never knew about
But the Question Graham asks:
If the state should stockpile commodity surpluses, what principles should govern when and at what price to acquire them?
Not whether to stockpile. That’s the easy part. Everyone agrees that stockpiling matters when you’re staring at scarcity.
It’s always about the money and who is paying for the meal.
Because who is paying determines who benefits, who gets exploited, and whether the whole system eventually collapses under its own contradictions.
In ancient times there was the Chinese version and Zhou-ish version of Joseph
One worked through prophecy and centralized control. The other worked through counter-cyclical market management and systematic rules.
Both worked brilliantly.
Both eventually failed catastrophically.
And we’re running both experiments again right now
We just don’t call them by their real names.
Joseph’s Model: The Centralized Prophet
You know the story even if you’ve never opened a Bible.
Seven years of abundance. Seven years of famine. Joseph interprets Pharaoh’s dream, gets put in charge of Egypt’s grain reserves, stores during the plenty, and distributes during the scarcity.
Egypt survives. Joseph becomes the empire's second most powerful man. Neighboring nations come begging for grain.
Everyone celebrates the foresight and planning.
Here’s what people forget about the end of that story:
By the time the famine ended, Joseph had traded grain for all the money in Egypt, then for all the livestock, then for all the land, and finally for the people themselves.
The entire population became Pharaoh's servants in exchange for not starving.
The storage system that saved Egypt also enslaved it since Joseph and Pharoah had insider information. You know like Nancy Pelosi.
China’s Ever-Normal Granary: The Counter-Cyclical Anchor
The Chinese figured out a different approach around 54 BC during the Han Dynasty.
Instead of waiting for a prophet to predict famine, they built a systematic stabilization mechanism:
Buy grain when prices are low → Support farmers during gluts
Sell grain when prices are high → Protect consumers during scarcity
The goal wasn’t accumulation. It was stabilization.
The state acted as a shock absorber for natural commodity cycles. Farmers didn’t get destroyed by bumper crops. City dwellers didn’t starve during bad harvests. Prices stayed relatively stable.
The system worked for centuries. Dynasties rose and fell, but the granary system persisted because the mechanism was sound.
Those government guys in Ghana should consider this with Cocoa as they made a mess of farmer’s lives with price boom/bust.
Why Both Systems Eventually Collapsed
Joseph’s model concentrated too much power in too few hands. Every subsequent famine became an opportunity for whoever controlled the stockpiles to extract more wealth, more land, more control.
Eventually, the extraction exceeded the stability threshold.
China’s Ever-Normal Granary worked until emperors started overriding it.
During wars, they’d dump grain to fund armies.
During political crises, they’d manipulate prices to reward allies or punish enemies. During floods or droughts that struck the capital, they’d drain regional reserves to protect the center.
Each override made sense in isolation. Each had good reasons. Each was an emergency.
And each one taught the next generation of bureaucrats that the rules were really just suggestions.
By the time the Qing Dynasty collapsed, the granary system had been gutted by a thousand “temporary” exceptions.
Graham’s Uncomfortable Insight
Graham studied both models and concluded something that makes everyone uncomfortable:
The problem isn’t the system design. The problem is human discretion under weak constraints.
Joseph’s model gives unlimited discretion to prophets and technocrats.
China’s model works brilliantly until someone with sufficient authority decides the rules don’t apply right now.
Graham’s proposal in 1937—later refined in 1944—was to eliminate discretion entirely by anchoring currency itself to commodity stockpiles.
Not gold alone. In fact he doesn’t add it to his index.
A basket of storable commodities.
The state would acquire commodities not based on prophecy or even counter-cyclical price management, but based on maintaining the currency’s commodity backing.
Acquisition would happen through defined formulas, not discretionary decisions.
If someone wanted to manipulate the stockpile, they’d have to manipulate the currency itself
which would be immediately visible to everyone holding money.
The theory: Make the rules constitutional rather than administrative. Bake them into the monetary system. Remove the override button.
The practice: Never implemented. Too radical. Too constraining. Too uncomfortable for people who wanted the option to make exceptions.
What We’re Watching Right Now
We’re not just reading about Joseph and China’s granaries.
We’re running both experiments simultaneously.
The Joseph Model (2024 Edition):
The Strategic Petroleum Reserve is being tapped in 2022 to manage gasoline prices ahead of the midterm elections. Centralized decision. Political timing. No formula. Just discretion.
The scramble to stockpile rare earth minerals and critical materials because someone finally noticed China controls 70-90% of processing. Reactive. Fear-based. Paying any price because we’re late.
The Ever-Normal Granary (2024 Edition):
China’s systematic stockpiling of copper, iron ore, soybeans, and energy from 2020 to 2023.
Counter-cyclical buying during the COVID price collapse.
Building reserves when it was cheap.
Now those reserves give them geopolitical leverage. Is that smart Ever-Normal Granary management or Joseph-style power accumulation?
Hard to tell from the outside.
And then there’s the new experiment:
Bitcoin strategic reserve proposals. Commodity-backed currency, except the commodity is mathematical scarcity instead of physical wheat.
Graham would recognize this as an attempt to create an anchor that literally can’t be manipulated
no central authority can print more Bitcoin any more than they can print more copper.
But he’d also ask: Who decides the acquisition price?
Who decides how much to stockpile? Who decides when to sell?
And we’re back to discretion.
But he may ask as many ask does BTC have a utility.
The Paradox Graham Never Solved
Here’s what makes his question so uncomfortable:
Systems that run on rules work beautifully until emergencies.
Emergencies are exactly when you need rules the most.
But in emergencies, humans are most likely to override the rules.
Joseph saved Egypt from famine. And enslaved it in the process.
China’s granary system stabilized prices for centuries.
Until emperors decided this particular crisis was different.
Graham proposed removing human discretion entirely. But someone still has to design the formula. Someone still has to decide which commodities. Someone still has to maintain the system.
You can’t eliminate human judgment completely.
You can only decide where to put it.
And whether you can live with the consequences when it’s inevitably abused.
The Surplus Production Problem Nobody Mentions
There’s another trap buried in Graham’s question:
What if the stockpiling policy itself creates the surplus?
If farmers know the state will buy excess grain at guaranteed prices, they overproduce. Why wouldn’t they?
Then the state has infinite storage obligations.
Then the stockpiles become so large that releasing them crashes prices and destroys the market.
Then you’re stuck: Keep buying forever, or dump everything and destroy the farmers you were trying to protect.
China’s granary system repeatedly fell into this trap.
So did U.S. agricultural subsidies in the 20th century.
So did the European Union’s butter mountains and wine lakes.
Stockpiling creates the problem it’s supposed to solve.
Unless you have perfect discipline about when to acquire and when to release.
Which brings us back to discretion.
Which brings us back to Graham’s uncomfortable question:
Can humans design a system that runs on rules instead of discretion—and then actually follow the rules when it’s politically inconvenient?
Why This Matters for Investors
You might be thinking: Interesting history lesson.
What does this have to do with my portfolio?
Everything.
Because every major economy is running some version of these experiments right now:
Strategic commodity reserves (Joseph model)
Counter-cyclical market interventions (Ever-Normal Granary model)
Attempts to create external anchors for currency (Graham’s dream)
And the outcomes will determine:
Whether commodities stay geopolitical weapons or return to being economic inputs
Whether currencies maintain purchasing power or drift into competitive debasement
Whether the next crisis gets managed through rules or through emergency discretion that becomes permanent
Graham wasn’t telling you to buy commodities or short currencies.
He was telling you to watch who has discretion and how they’re using it.
Because that’s where the surprises come from.
Not from the system failing. From humans overriding the system with good intentions and terrible incentives.
What I think we decided on and changing is allow a free market where everything is traded (not gambled) to ascertain real value
And Investors will buy the dip
And sell the rip
Keep stability but we don’t see it, do we?
Why?
The Questions Worth Arguing About
We’re discussing these in tomorrow’s book club chat. Join us if you want to argue with smart people who disagree with you:
1. If you were designing a strategic commodity reserve today, which model would you choose and why? Joseph (centralized, prophetic), Chinese (counter-cyclical, systematic), or Graham (monetary anchor)?
2. What’s the real motive behind current rare earth/critical mineral stockpiling? Fear, strategy, or something else?
3. Can you name a single modern institution that has successfully resisted political pressure to override its own rules during a crisis? (This is harder than it sounds.)
4. Graham wrote this in 1937-1944. China is stockpiling exactly the way he described in the 2020s. Coincidence or did they actually read him?
5. If commodities back currency (Graham’s proposal), who decides which commodities and in what ratio? And haven’t we just moved the discretion problem somewhere else?
Bring your best arguments.
The wrong answers are more interesting than the right ones anyway.Discussion Prompts for the Session:
If you were designing a strategic commodity reserve today, which model would you choose and why? Joseph (centralized, prophetic), Chinese (counter-cyclical, systematic), or Graham (monetary anchor)?
What’s the real motive behind current rare earth/critical mineral stockpiling? Fear, strategy, or something else?
Can you name a single modern institution that has successfully resisted political pressure to override its own rules during a crisis? (This is harder than it sounds.)
Graham wrote this between 1937 and 1944. China is stockpiling exactly the way he described in the 2020s. Coincidence or did they actually read him?
If commodities back currency (Graham’s proposal), who decides which commodities and in what ratio? And haven’t we just moved the discretion problem somewhere else?
