Inflation has been with us a long time. If you know your history you’ll know that the devastating consequences are an old story, retold repeatedly. It is armies that allow rulers to rule and money provides the means to buy and maintain armies. If you have enough guns (or swords, spears, etc) to rule a society you have enough to take control of the money supply. After that, inflation follows like night after day. The Roman Empire offers a fine illustration.
During the years between the rule of Augustus and Diocletian, Rome’s troop numbers were in excess of doubling. They increased from 250,000 to 600,000. The extent such growth was inflation-funded is suggested by the fate of the denarius, the Roman currency, during this period. It suffered a debasement from the inflation of a long line of Roman rulers so extreme that upon Diocletian’s taking power the once silver coin was a mere copper plated token. It fell to a mere one five-thousandth of its original value by A.D. 268. The economic results saw Roman trade start deteriorating into barter and the middle class eroding.
Diocletian recognized the heavy toll of centuries of inflation through the abuse of the fiat currency. In an effort to build up the Empire’s coffers, he decreed payment of taxes be in goods. Furthermore, in an ill-conceived effort to address the effects rather than the cause of Rome’s chronic economic malaise, all manner of price, wage, production and anti-hoarding regulations were imposed.
The most dramatic of these regulations was his A.D. 301 Edict, which prescribed the death penalty for violators. Though much bloodshed resulted, the Roman economic implosion through inflation continued to run rampant. In that A.D. 301 Edict, Diocletian fixed the price of gold at 50,000 denarii per pound. By 337, the year of Constantine’s death, a pound of gold brought 20,000,000 denarii!
Over the subsequent century, the situation became so untenable that Romans abandoned the market entirely. Some fled. Others entered voluntary serfdom. Indeed, the feudal system, often depicted as a result of the fall of Rome, in reality, arose in the bosom of Rome, in response to a monetary economy crippled by a currency nearing worthlessness.
While it would be simplistic to attribute the fall of Rome to any one cause, it is too often misunderstood that for the majority of the Roman lower class – a category into which much of the middle class had fallen – the barbarians who sacked Rome were not conquers, but liberators. The destruction of the Empire’s economy played a major role in its political and military fall.
Those seeking insights for the contemporary world can find everything they need to know in this tale. A good generated out of the market for common benefit is corrupted by power and coercion . Coercive rulers (however serving of the people and the common good they claim themselves to be) transform the money from a market-valued currency into a coercively decreed value. This is what fiat means. The money is legally required to be treated as being worth something it simply is not. No less than in the story of the Emperor’s new clothes, the people are required to pretend the patently false is unquestionably true, while the rulers skim off the actual value to pay the armies which allow them to run the whole scam from the start.
Predictably, rising prices escalate. After all, to survive in their businesses, producers and merchants must adjust their ledgers to the reality of a devalued currency that they are legally coerced to treat as possessing a make-believe value.
If wage, price, quota, etc., regulations are coercively imposed in an effort to suppress these natural market adjustments, as happened with Rome, the very collapse of the official monetary economy can follow. Black markets spring up everywhere and those simply trying to improve the quality of life for themselves and their families, through voluntary exchange, are forced to abandon the monetary economy in a variety of different ways.
Back when our money was composed of coins, creating fiat currency was an elaborate and labor intensive exercise of re-minting coins of reduced precious metal composition. Today, when our money supply is whatever the central bank (the Federal Reserve in the U.S.) says that it is – simply adding zeros to a computer screen – inflation is so easy that massive abuse is virtually irresistible.
Remember, though, money is just a commodity, equally as subject to forces of supply-and-demand as anything else. When the supply increases the per-unit demand falls. The purchasing power of the existing currency units thus fall.
Effectively, even just sitting cozily in your wallet, your dollars shrink whenever the central bank inflates the money supply. As there are more of them in circulation, each one is worth less, and so merchants need more to pay their suppliers, who need more to pay their producers, who need more to pay their suppliers (including labor) and so on.
Rulers certainly are not prepared to admit their fault in this spiraling monetary catastrophe. Much easier and more convenient to blame rising prices on greedy bakers, bankers, merchants, businessmen, capitalists, corporations, Jews, or whoever is the scapegoat of choice at that time and place. All this merely obscures the fact that such businesses are merely trying to re-establish the market value of the debased money.
The more things change, the more they stay the same. The fiat currency-driven monetary systems of the United States and Europe look to be heading right down the Roman road to ruin. Have they learned nothing from history? It is a fair question, but probably the wrong one. It seems unlikely that the explanation lies in ignorance – more likely it lies in venality. The profits of inflation are too inviting to pass-up by the rulers. And, of course, they convince themselves it is for the common good. What human isn’t susceptible to such self-serving myth making?
Our human predisposition toward vanity and self-serving delusion hardly seems anywhere near extinction. One wonders if submission to being bossed around and impoverished by maniacal rulers might, though, some day.
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