Corruption of the currency and decivilization: Lessons from the Fall of the Roman Empire
The rise and fall of the Roman Empire is arguably one the most studied, written about and theorized over subjects in academia, with fiery debates raging for hundreds of years among historians, sociologists and political scientists. The explanations that have been put forward to identify the causes and the circumstances that led the end of this era of human history mostly tend to focus on geopolitical factors, on social shifts within the Empire and on consequential political changes that altered the very nature of its governing system. While all those developments were certainly important and contributed to the decline of Rome, there was another momentous shift that arguably triggered, facilitated and encouraged them all, one that often goes under-discussed and its influence is widely underestimated by modern academics.
If one really looks at the bigger picture and studies the history of the Empire objectively, it becomes clear that the first domino to fall was money itself. The manipulation and debasement of the currency was the root of all evil, of the fiscal suicide it enabled, the economic devastation expedited and the sociopolitical oppression it cleared the way for. And when we look at the sequence of events from this perspective, the fall of the Roman Empire has a lot more lessons and dire warnings to offer us today that many might have thought.
Unsound money and unsound society
The origins of this historic shift can be traced back to the end of the 2nd century AD and well into the 3rd century AD, a period referred to by Roman historians as the “Crisis of the 3rd Century.” During that time, social and political upheaval shook the Empire to its core, resulting in the need for higher military and public spending, that changed its fundamental structures, values and institutions forever.
As Professor Joseph Peden highlighted in his lecture “Inflation and the Fall of the Roman Empire”: “The basic coinage of the Roman Empire to this time — we’re speaking now about 211 AD — was the silver denarius introduced by Augustus at about 95 percent silver at the end of the 1st century BC. The denarius continued for the better part of two centuries as the basic medium of exchange in the empire.By the time of Trajan in 117 AD, the denarius was only about 85 percent silver, down from Augustus’s 95 percent. By the age of Marcus Aurelius, in 180, it was down to about 75 percent silver. In Septimius’s time it had dropped to 60 percent, and Caracalla evened it off at 50/50….Caracalla had also debased the gold coinage. Under Augustus this circulated at 45 coins to a pound of gold. Caracalla made it 50 to a pound of gold. Within 20 years after him it was circulating at 72 to a pound of gold, reduced to 60 at the end of the century by Diocletian, only to be raised again to 72 by Constantine. So even the gold coinage was in fact inflated — debased. But the real crisis came after Caracalla, between 258 and 275, in a period of intense civil war and foreign invasions. The emperors simply abandoned, for all practical purposes, a silver coinage. By 268, there was only 0.5 percent silver in the denarius.”
It doesn’t take an economist to predict what happened next: An inflationary wave took over the empire’s economy, with prices surging nearly 1000%. Commerce and agricultural production were heavily hit by the run away prices and this crisis soon translated into a real threat of widespread public tensions. The central planners of that time, much like their peers today, believed they could control and twist basic economic laws by edict and brute force. They introduced price controls, which, also quite predictably, only resulted in a vast black market or, even worse, in drastic and disastrous ripple effects in fundamental market dynamics. Just like we see today, instead of rescuing the sectors they already ravaged through their policies, the central planners further exacerbated the crisis though “more of the same”.
Price fixing led to perverse incentives and practices like hoarding and stock piling, and the longer the State insisted on using coercion and force to “tame” natural market dynamics, the larger the gap became between supply and demand, resulting in more shortages, even higher prices and eventually an even sharper threat of social unrest. The desperation of the State also manifested in tax hikes, which eventually became so onerous that they amounted to expropriation. Property owners were effectively forced off their land, and the management of their estates was handed over to political cronies. Reckless spending, especially on the military, and even more aggressive market interventions were quick to follow, a sharp historical turn in an empire that was until then relatively laissez-faire when it came to voluntary transactions.
The nature of the State soon began to resemble more and more our modern political institutions, as power and direct control over the citizen’s life became ever more concentrated at the top of the pyramid and as the number of taxpayer-funded jobs started to skyrocket. Bureaucracy, waste, corruption, all emerged as the new normal we still recognize today at the core of Western politics. And yet, it is safe to assume that most citizens at the time, much like today, failed to identify the link between all that ailed their society and their economy and the corruption of their currency. Just like most of us in any advanced economy today, they focused on the wrong thing: On political enemies, foreign and domestic, real or imagined, and on short-term policy shifts or myopic disagreements, instead of trying to identify the real cause-and-effect relationship that lay at the heart of their socioeconomic decline.
Gold-backed civilization vs. the Welfare State
Many rational economists and students of history have written countless analyses on the gold standard and the terrible impact that its end has had on the world economy. However, as the Fall of Rome clearly demonstrates, the implications of the introduction of the fiat money system and of the limitless manipulation of the currency by the State reach much further. In fact, they can have civilization-ending effects. Or, as Ludwig von Mises put it in his magnum opus, “Human Action”: “The marvelous civilization of antiquity perished because it did not adjust its moral code and its legal system to the requirements of the market economy. A social order is doomed if the actions which its normal functioning requires are rejected by the standards of morality, are declared illegal by the laws of the country, and are prosecuted as criminal by the courts and the police. The Roman Empire crumbled to dust because it lacked the spirit of liberalism and free enterprise. The policy of intervention-ism and its political corollary, the Führer principle, decomposed the mighty empire as they will by necessity always disintegrate and destroy any social entity.”
It can all really be traced back to the practical advantages that the license to print money at will gives to any ruler. When one has the exclusive and unrestricted power to issue and control the currency, all the other powers follow. Then, as in now, this monopoly can be used, and more frequently abused, to expand and consolidate influence over other areas of the citizens’ lives, other than merely monetary affairs. Fiat money is easily weaponized to fund a crowd-pleasing, vote-grabbing and unrest-soothing Welfare State. Roman majoritarianism and interventionism systematically hindered voluntary exchanges, crippled the productive class, and led to a bloated bureaucracy and an empire of dependents. As ancient historian Lactantius described it, “The number of recipients began to exceed the number of contributors by so much that, with farmers’ resources exhausted by the enormous size of the requisitions, fields became deserted and cultivated land was turned into forest.”
Once this shift takes place, once the percentage of the population that is a “net-receiver” exceeds the “net-contributors”, it is very hard, if not impossible, to go back to a healthy society and a sustainable economic system. The collapse might take years or decades, but it is virtually inevitable, at least not without bloodshed and widespread violence. Efforts to rectify it, usually based on the same principles of interventionism and further centralization, not only fail to achieve their goal, but almost always accelerate the economic and social disintegration. The Roman Empire suffered this slow and painful decline, many parallels of which can be found today in Europe and the US.
Root causes and catalysts
While the “first domino to fall” was the currency, as we discussed earlier, there were certainly other important events and shocks that sped up the process and helped the Empire’s demise along. Barbarian attacks, internal political crises, all significantly contributed to and expedited the Fall of Rome. However, they didn’t actually cause it. Either opportunistically or coincidentally, they just came at a time where the empire was already weakened and extremely vulnerable, but the many preexisting wounds that had brought it to its knees were all self-inflicted.
For the modern citizen, this is arguably the most important lesson that the history of the Roman era has to offer: the ability to differentiate between the actual cause of a crisis and the various forces or events that happen to exacerbate it. This lesson is especially relevant today, in the aftermath of the covid crisis.
Since the start of the pandemic, every politician and institutional figure has pointed to the virus itself as the cause of the global economic destruction that we witnessed over the last year and a half and that is likely to persist for many more to come. They branded the novel coronavirus as “public enemy no.1” and they used the microbe as a scapegoat for everything, from shop closures and mass layoffs, to food shortages and skyrocketing inflation. And yet, the virus didn’t close the borders, it didn’t make productive work illegal for over a year and it didn’t impose restrictions that would decimate the production of basic materials and supplies that the world economy relies on. For all those short sighted and panic driven policies, we only have the political leadership and the central planners to thank.
Nevertheless, even if we were to accept that all the pandemic containment measures were absolutely necessary and that all the lockdowns and the shutdowns were the right decisions — a concession that is already absurdly generous — the global economic crisis that followed was still not their direct result. They might have catalysed it, but they didn’t create it. This crisis was in the works for over a decade, and it was always inevitable.
Much like in the case of Rome, the vulnerabilities that the pandemic “exploited” were all self-inflicted. In fact, the seeds for this crisis were planted during the “rescue” operations from the last one, in 2008. Unprecedented, irresponsible and (at the time) preposterous monetary experiments like QE and negative interest rates paved the way for an entirely unsustainable and fundamentally flawed economic and financial system. A decade later, it was already so obviously fragile and ripe for a cataclysmic collapse that any unexpected event could have triggered an avalanche. A few high-profile defaults or a regular political crisis could have been enough, let alone a global public health emergency. When a system is rotten from the inside, anything can serve as an excuse for its demise, and at that moment ours certainly was: Over-indebted governments relying on bought-out public support through subsidies and handouts, over-leveraged “zombie” companies staying alive thanks to cheap borrowing only and the majority of the population being left behind by runaway asset prices that benefited the ultra-rich and penalized everyone else.
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