The Byzantine Empire had a gold standard for a 1,000 years and they did very well and didn’t fight wars. We are only 235 years old and we’ve already destroyed our currency and our economy. Why? Because our Government and The Fed, Obama, Bernanke and Geithner are all following the same economic theories of those like Diocles that led to the fall of the Roman Empire.
Diocles also ran large deficits, fixed prices, created a welfare state, encouraged big government spending, spent money on infrastructure like bridges and roads just like Obama wants to do (click here), created government jobs, subsidized grain for the poor just like our modern welfare programs…and to pay for all of that Diocles needed to destroy the currency by “printing” the money he needed. He did this first by removing the silver and copper from Roman coins (we did the same in 1964 when we removed all the silver from our coins and it now costs us 2.4 cents to produce 1 cent because copper is inflating) and then he “printed” loads of these worthless coins to create the money the Empire needed to pay these Big Government bills. This led to rampant inflation, destroyed the middle class of Rome and led to the collapse of the Empire.
We are doing the exact…same…thing.
Diocles was a Roman Emperor from 284 to 305 and was largely responsible for their severe inflation which assisted in the collapse of the Roman Empire. The detail available in Wikipedia is extremely detailed but I found a brief and digestible synopsis on the San Jose University Economics Department website. The brief is as follows (italicized and bold underline comments are mine to draw parallels to what we are experiencing today):
Inflation in the Roman Empire
The episodes of extreme inflation took a standard form. First the government started building up the army (the U.S. has increased defense spending by 70% between 2001 and 2010 and is 20% of the Federal Budget, and growing) and undertaking public works projects (just like Obama wants to do by building bridges and roads and other public works projects). These projects increased expenditures drastically and the government raised tax rates. But the higher tax rates encouraged tax evasion and discouraged economic activity. The tax base diminished and soon the tax needs exceeded the tax capacity of the government (we have spent more than we make as a nation for more than 50 years, with the deficit this year to be $1.3T on top of our current $15.7T in debt). The government then resorted to debasing the coins of the realm (First we removed silver from our coins in 1964 and now Bernanke and The Fed are printing billions of worthless dollars for bailouts and to pay our debts to China). This took the form of replacing the gold and silver in coins with copper and other cheaper metals.
Over the period 218 to 268 A.D. the silver content of Roman coins dropped to one five thousandth of its original level. Sometimes the size and weight of coins were reduced (we have done the same, removed all of the actual silver content from our coins). It also meant vastly increasing the amount of coins in circulation (as Bernanke and The Fed are doing right now). There was a corresponding increase in prices. The emperors usually blamed the price increases on the greed of merchants (sound familiar? Blaming inflation and price increases on greedy capitalists? This is an old story, so old it was used in the year 300….over 1,700 years ago. It has been used by every tyrannical take-over of an economy since man could talk).
One famous episode occurred during the reign of the Emperor Diocletian in last part of the third century AD. Diocletian’s predecessors had been issuing tin-plated copper coins for what had once been a silver coin. Diocletian tried to bring back some honesty to the coinage by issuing copper coins that were not purporting to be something they were not.
Diocletian ordered a vast increase in the armed forces to guard against further attacks by the barbarians. Taxes were increased to pay for defenses but much of the funds raised went to pay for public monuments as well as rebuilding his new capital of Nicomedia in western Anatolia. When he ran out of funds Diocletian resorted to the use of forced labor for his projects. But Diocletian had issued vast amounts of copper coins. This led to price increases. When prices rose Diocletian attributed the inflation to the greed of merchants. In 301 AD Diocletian issued an edict declaring fixed prices; i.e., price controls (the last time we did this was the hyperinflation of the 70’s when President Carter issued price controls on gasoline due to inflation pushing up gas prices, which created shortages and a black market for gas. This problem was only fixed by raising interest rates and removing the price fixes…i.e. allowing the FREE MARKET to work…something Obama, Bernanke and our Government do not want to do even though we are suffering from the same inflation). His edict provided for the death penalty for anyone selling above the control prices. There was also penalties (less severe) for anyone paying more than the control price. Irate consumers sometimes destroyed the businesses of those who sold higher than the control prices.
In the short-run these draconian measures may have curbed inflation but in the long-run the results were disaster. Merchants stopped selling goods but this led to penalties against hoarding. People went out of business but Diocletian countered with laws saying that every man had to pursue the occupation of their father. The penalty for not doing so was death. This was justified on the basis that leaving the occupation of ones father was like a soldier deserting in time of war. The effect of this was to turn free men into serfs.
So what is next? Clearly what Obama, Bernanke and The Fed are doing, has been done before…many, many times…and the result is always the same. Collapse. Failure. Suffering. Diocles used forced labor, ordering people to assume the job of their father or death. Obama would have to do something similar or something else just as Draconian. The current economic principle has been tried and failed, tried and failed, tried and failed…but our God King Obama and his noble Royal Court of Bernanke and Krugman and Geithner think they can try it and succeed.
I don’t believe they think that at all. I believe they know exactly what they are doing, and this is simply a coordinated destruction of capitalism and the Constitution in order to shift massive volumes of wealth from the working class to the wealthy and powerful political and corporate elite and convert free American citizens into drone workers who are heavily regulated, micro-managed and without Constitutional freedoms and protections.
We are slowly being transformed by both sides of the aisle from free men and women working together in a free market economic system into chipped teeth on a rusty gear in a ponderous machine that churns out wealth for the new incoming Aristocracy.
Additional points and parallelisms on Diocletian Economics which Obama and Bernanke have embraced (italics are mine):
“Diocletian’s mass minting of coins of low metallic value continued to increase inflation, and the maximum prices in the Edict were apparently too low.
Merchants either stopped producing goods, sold their goods illegally, or used barter. The Edict tended to disrupt trade and commerce, especially among merchants. It is safe to assume that a gray market economy evolved out of the edict at least between merchants.
Sometimes entire towns could no longer afford to produce trade goods. Because the Edict also set limits on wages, those who had fixed salaries (especially soldiers) found that their money was increasingly worthless as the artificial prices did not reflect actual costs (who is on a fixed wage in the U.S.? The elderly receiving Social Security. Like the Soldiers of Rome, they suffer the most from this. We are also suffering from “fixed wages” because companies are not giving raises, or not giving them at the true rate of inflation of 6%).”
Wikipedia went on to say the following:
“In the early Empire (30 BC- AD 235) the Roman government paid for what it needed in gold and silver. The coinage was stable.
During the third century crisis (235–285), the government resorted to requisition rather than payment in debased coinage, since it could never be sure of the value of money. Requisition was nothing more or less than seizure (The Romans had started destroying their currency, just like we are, and since nobody believed or knew what the “value” of their money was at any given time because it was falling so rapidly, the government had to take what it needed instead of buying it because nobody could agree on what the money they were using to buy something was really worth, as opposed to gold and silver which is reliable and stable.)
Since the nominal values of these new issues were lower than their intrinsic worth as metals, the state was minting these coins at a loss. (The Roman Empire was trying to reintroduce copper into their coins at an attempt to stabilize their currency, but it was too late, inflation was so rampant that the price of copper was higher than what the coin was worth. We have the same problem. It cost 1.2 cents to produce one cent in 2006, and it’s been rising every year so as of 2012 it now costs 2.4 cents to produce one cent. Eventually, the Government will simply remove copper from the penny or remove the penny altogether. Inflation is rampant.)“
We are doomed to repeat mistakes of the past. We learned nothing.