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Inflation and the Fall of Rome

May 17, 2011

I read a great speech given by Prof Joseph Peden about the end of the Roman Empire. It was given in 1984. The parallels are rather stunning, as I have listed below.

-Peden noted that “Monetary, fiscal, military, political, and economic issues are all very much intertwined. And they are all so intertwined because and state normally seeks to monopolize the supply of money within its own territory. Monetary policy therefore always serves, even if it serves badly, the perceived needs of the rulers of the state. If it also happens to enhance the prosperity and progress of the masses of the people, that is a secondary benefirst aim is serve the needs of the rulers, not the ruled”

-Roman Emperor Caracalla around 2nd century AD “raised the pay of the soldiers byt 50%, and to achieve this he doubled the inheritance taxes paid by Roman citizens. When this was not sufficient to meet his needs, he admitted almost every inhabitant of the empire to Roman citizenship [sound familiar Mexico?]. What had formerly been a privilege now became simply a means of expanding the tax base”

– “prices paid in this period [~260AD] rose in most parts of the empire by nearly 1000%. The only pepole who were getting paid in gold were the barbarian troops hired by the emperors. The barbarians were SO barbarous that they would only accept gold in payment for their services”

– When silver coinage failed at the federal level, cities began to mint their own coinage to pay debts. Something to keep in mind.

– Governments felt the need to protect civil servants and soldiers from the effects of inflation began to demand payment of taxes in kind or in services rather than in coin. They would not accept their own currency for tax collection. This meant that people that made shoes would have to make some for the government. Farmers paid in food. Shippers included government goods on their vessels.

– Government started to demand gold bullion in payment for taxes. This meant that people had to buy gold from people who had it just to pay for their taxes. IF you couldnt afford the gold to pay your property tax, many just abandoned their land. So you had a situation where local governments couldnt afford to pay people so they would just mint some type of coin to pay their employees. Federal government demanded that they get their taxes paid in gold. So people had to try to exchange their increasingly worthless coins for gold to pay the feds. I am curious how our American future looks with massive state and local debts, coupled with an increasingly worthless dollar. If you juxtapose this will “the Amero” or a North American currency (which some think will be gold backed) then you can see how we fit into the Roman scenario.

– The army just grew massively to protect the elite and their interests. The cost of this, not just of the expansion of personnel, but in terms of inflation was huge. The tax on the people to maintain and grow the army was staggering. Its so much like the scenario the US has now with its massive, incredibly expensive military. At a certain point the military caught on that the currency they were being paid with was worthless and started to demand gold and or goods as payment. The politicians gladly arranged proper payment as they knew that they had to have the military backing them up.

– the size of the civil service increased along with the army….”all these events strained the fiscal resources of the state beyond its ability to sustain itself; and the ship of state was kepy going, frequently by debasing, then by taxing, and then often simply by accusing people of treason and confiscating their estates” remember the liberty dollar guy that was just found guilty of treason and $7mm worth of bullion confiscated?

-“War is the mother of taxes. And its also, of course, the mother of inflation”

-:”The Roman state was not destroyed by inflation – what was destroyed by inflation was the freedom of the Roman people. Particularly, the first victim was their economic freedom” “…Now under the pressure of this need to pay the troops and under the pressure of inflation, the liberty of the people began to be seriously eroded — and very rapidly.”…what we have here is a kind of nationalization of private enterprises, and this nationalization means that the people who use their money and their talent are now compelled to serve the state whether they like it or not.” Occupations were made hereditary meaning that if you died as a shoemaker your son had to take your spot. Anyone who had a lease on a particular piece of land could NOT give it up. They had to stay and work it and were taxed on it as well. Sounds a lot like the impending renters tax. This is called serfdom.

– The result of these taxes and policies meant that many people just fled. As a result long term mortgages disappeared, as well as long term loans of any kind. Payment also had to be made in gold or silver bullion.

-In fact the coinage became so adulterated (it was made originally out of gold and silver but then mixed with other metals, as well as painted, etc) that the government itself insisted on payment in gold bullion. They of course offered a terrible exchange rate so a massive black market formed for people to exchange at a reasonable rate.

-“increasingly a two tiered monetary system emerged in which the government, the soldiers, and the bureaucrats enjoyed the benefits of a gold standard while the nongovernmental portion of the economy continued to struggle with a rapidly inflation fiat currency” In other words the rich people paid the poor in crappy coins (Like USD) and demanded taxes or payment in gold.

In summary – a huge military taxed the people to death. When the taxes wouldnt cover the spending the government diluted the crap our of currency but kept gold or commodities for themselves, thereby insulating themselves from inflation while crushing the peasants. If this doesnt sound like whats going on right now in the US and Europe then I am crazy.

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