Midas, Gold and Asses Ears

Monday, 11 May 2015
"Then the god, happy at his foster-father’s return, gave Midas control over the choice of a gift, which was pleasing, but futile, since he was doomed to make poor use of his reward. ‘Make it so that whatever I touch with my body, turns to yellow gold.’ he said. Bacchus accepted his choice, and gave him the harmful gift, sad that he had not asked for anything better. The Berecyntian King (Midas) departed happily, rejoicing in his bane, and testing his faith in its powers by touching things, and scarcely believing it, when he broke off a green twig from the low foliage of the holm-oak: the twig was turned to gold. He picked up a stone from the ground: the stone also was pale gold. He touched a clod of earth, and by the power of touch, the clod became a nugget. He gathered the dry husks of corn: it was a golden harvest."

So Ovid narrated the story of King Midas.

Later this same King was called upon to attend a musical contest between the gods Apollo and Pan. The foolish king declared his preference for the music of the pipe and was inflicted with a pair of asses' ears by the angry lyre-god. Ashamed of this deformity, Midas hid the ears beneath the flaps of a Phrygian cap, the traditional head-gear of the local nobility.

How has the story of Midas translated into modern financial idiom? The Asses ears story has become dissociated from the Midas touch with gold. Modern focus is on the Midas touch.

At one level the Midas touch has translated into modern idiom as the ability to produce large profits with ease. Let me set out some examples. One investment manager introduces himself in the following words: "Today I am proudly introducing my new "Midas Touch Gold Model". The goal was to create a consistent method that avoids any emotional or personal input. I am very sure that it will put the odds of success in your favour over a series of trades and investments. I will continually test and improve the model."

An investment manager as part of his alluring pitch said: "The preferred mixed-data sampling (MIDAS) model reduces the mean-squared prediction error by as much as 16 percent compared with the no-change forecast and has statistically significant directional accuracy as high as 80 percent. This MIDAS forecast also is more accurate than a mixed-frequency real-time vector autoregressive forecast, but not systematically more accurate than the corresponding forecast based on monthly inventories. We conclude that typically not much is lost by ignoring high-frequency financial data in forecasting the monthly real price of oil."

Business week said "Today's market has convinced dozens of kids barely out of college that they've got the Midas touch."

In the modern world, anyone who does remarkably well, especially in a challenging field like investment is said to have a Midas touch. While a touch of envy is involved, the term is also used with a note of caution; when someone has this ability, people may wonder how they have achieved that ability and whether happiness has come with the wealth. Warren Buffet, the pre-eminent US Investor, has been described as the ultimate modern Midas. On deeper examination of the story of Midas, I wonder if he would like the comparison. He does try to exude happiness even in his advanced years.

One economist in philosophical mood reflected that "the power of money to impose 'an artificial monotony' upon the variety of life and nature is memorably symbolized by the legend of King Midas, who is granted the power to turn all he touches into gold."
He then proceeds to postulate that "Of course, Midas’ modern contemporary does not need to turn things literally into gold, for in his disenchanted eyes everything is already potentially gold."
Essentially, it has a money equivalent.

The power of money’s resides in its capacity to be exchanged with anything. Money provides a universal form of value—economic value. Everything has a price, making it exchangeable, in principle if not in fact, with everything else. Money is a sort of universal acid, reducing all other forms of value to its own.

Most people will readily ridicule others on how they flaunt their money and how they buy expensive things, but then frequently boast about their purchases. Modern day society tries to take the moral high ground on matters of financial reward. If people have earned their money, then they deserve to spend it any way they want to. If they just cashed in trust funds or investment are living off the interest or income.

Ancient Greek culture and modern day culture are similar. In both ways of life, people will do whatever they can to fulfill their dream of becoming rich. Only positive consequences are seen through the rose-colored glasses that everyone wears. Take off those trappings of wealth, look at the real world and one will wonder how their dream became their worst nightmare. King Midas learned the hardest way possible when his greed for gold covered his true treasure, the love of his daughter.

This article is part of Robert McDowall's series on Folklore & Finance.