It would serve one well to revisit history and look at the history of the Roman empire, as history does tend to repeat itself. The Romans had established property rights, protected trade routes; they had replaced barter with the use of currency, and had a sound monetary system complete with sophisticated banking services that are no different from the practices today. The Roman citizens enjoyed the use of bills of exchange, letters of credit, long term loans, and savings and checking accounts. Rome, at its height, had the reserve currency of the world, and enjoyed the status of being the world's clearinghouse, especially with the developing trade with Asia and Africa. The Roman government kept their hand on the pulse of the thriving money market and exerted control and influence by setting and regulating interest rates. The pulse of the Roman economy was being taken by all productive citizens, and international trade and free markets were developing rapidly. Cicero was even perceptive enough to note that, " The credit of the Roman money market is intimately bound up with the prosperity of Asia; a disaster cannot occur there without shaking our credit to its foundations " [quoted in F. Teggart: Rome and China, Univ. of Calif. Press, 2d ed., 1969]. Because of the sound property rights, rule of law, and the ever expanding economy, natural evolutionary forces took over and the survival of the fittest was the order of the day, as it should be. In areas like farming, larger farming operations began to replace smaller operations in large part due to the good business practices of the owners (plus slave labor), and the economy of scale. The merchant class prospered, satisfying the demands of the ever increasing empire and finding new products from all over the world. With the economy humming along, many rural people, some displaced, started a trend of moving to the cities, a trend which continues in many places to this day. This group of new immigrants created a permanent underclass, and necessitated the beginnings of welfare programs, higher taxes on the rich and businesses, and increased regulation. In order to keep the underclass in check, they needed more than the "Roman Circus" to keep order. The government went on a building binge of public work projects, building roads, bridges, aqueducts, and places like the Coliseum (sort of like a Roman version of the WPA). Although the initial outlay for those buildings, bridges, and schools was large, the government never realized that there would be an even greater cash outlay for maintaining those institutions, after all buildings and roads need maintenance, and schools need teachers. So, more public money was needed, in ever growing amounts, and this became an ever increasing spiral of higher taxation, debt, and monetary debasement, all of which ultimately led to the demise of the empire. Contributing to this demise was the expense of maintaining an army, various wars they were bogged down, combined with uncessful military campaigns. Although the Romans were able to hold things together remarkably well for a few hundred years after the peak, things started to unravel around 300 AD, and took another 100 years to really crumble.

The entire Roman Empire could be described as an economic stimulus package run amok. It conquered and grew with each conquest bringing in more booty of land, silver, gold and free labor (Slaves). And each conquest led to more conquests, and on and on ad infinitum . But the net effect of this plunder, for which no productive work was done, was only the need for more stimulus. It did not stimulate real prosperity, but instead undermined prosperity, much like the Spanish were to realize 1500 years later. First, slaves bought by rich farmers undermined the free labor market and ruined many small farmers who weren't able to compete. And then, imported wheat from the new provinces and conquered areas, caused the wheat market to collapse and affected the larger scale farmers.. Rome was by then dependent on foreign sources for its food, being a net importer for the first time by the first century AD.. In the first century AD, Roman conquests reached the tipping point of diminishing returns and the first physical effects of the downward spiral were felt. However, borders and trade routes still had to be protected, armies fed and clothed, the bureaucracy paid, pet projects built, the increasing graft of public officials, and the ever increasing demand by the public for bread and the circus. Therefore, the money had to come from somewhere, and that somewhere was out of the pockets of the productive, and also an increase of the money supply. Caesar Augustus tried to increase the money supply by having the slaves work around the clock in the silver mines to produce more silver. More silver was produced and much more coinage was seen on the street and in the vaults, but the net effect of this was inflation. Still, the leading economists and leaders of that era still were bent on fiddling with the economy and this led to Nero reducing the silver content of the coinage and a recall of money with higher silver content so it could be melted down and alloyed, causing more inflation and currency debasement. The Roman Treasury even tried a direct cash stimulus to the citizens, releasing over three million pieces of silver on to the street to kick start a depressed economy, but the result was inflation.

The Edict of Diocletian in 301AD was one of the bigger blunders in the Roman Empire. In order to control the spiraling inflation, in no small part caused by his tax and spend policies, Diocletian, along with his co-emperor and fellow autocrat, Maximian, issued an edict that mandated against selling at prices above a certain level, for an entire list of staple items, with the mandatory penalty of death for violation of the edict. The law of unintended consequences caused merchants to hold back product rather than sell at a loss, and another edict against hoarding was issued, again violations of this law carrying the death penalty. Facing many business failures and a major recession, Diocletian took the ultimate step. He arbitrarily issued another edict that made it punishable by death for one to go out of business (something that would have been the end result in Atlas Shrugged had the looters prevailed), and that each son had to work at his father's occupation. Although many university scholars like to present Diocletian as a reformer, visionary, vessel of change, and good leader who was able to hold everything together, he tripled the number of laws and regulations and greatly expanded government's rule over the daily lives of the population. Diocletian was a personally greedy petty despot, making Boss Tweed look like Mother Theresa, because he had absolute authority over an entire empire. His complex holdings necessitated the need for two finance ministers, one for the empire, and one to manage his personal portfolio. He went on a hiring binge of government workers, increasing the number of lifetime civil servants in Rome from 15,000 to 60,000, although that exact number is in dispute. Along with the lifetime civil servants was a corresponding increase in clerks, scribes, accountants, and especially tax collectors. He increased the bureaucracy by dividing up states, thereby duplicating local bureaucracies on a large scale. The early Christian activist and author Lactantius claimed that there were now more men in Rome using tax money than were paying it, a condition which is starting to reappear in today's increasingly socialistic societies. The whole scene during Diocletian was reminiscent of Terry Gillam's excellent movie, Brazil. Ultimately for reasons that are in dispute among scholars, Diocletian ended up abdicating shortly after his 20th year run in power.

Modern academics tend to treat the fall of Rome as an inevitable consequence of a civilization run amok and discretely blame free market forces for the demise. They fail to recognise the impact that rules, regulations, debt, high taxes, and welfare had on the empire, and that the fall of Rome was more of an economic event than a geopolitical event. Had the rulers of Rome done a better job of management, not treated the treasury as their personal bank, and adopted a laissez faire free market approach to the economy, the world might be a totally different place. For one thing, that 900 year depression known as "The Dark Ages" might have been much shorter, or averted totally. The tentacles of the Roman Church might not have been able to reach in and siphon off tax free wealth, productivity, freedom, and ideas in that span of time. Perhaps the ideas of Adam Smith would have been adopted 800 years earlier for the betterment of society as a whole. While all of this is all speculation on my part, one can only imagine how the world would be if the producers and independent thinkers were always allowed to be free of the yoke of excessive government regulation.

Stefan Jovanovich says:

The Romans had specie and credit; they did not have currency in the sense of Demand Notes. It is an historicism to suggest that there was anything approaching a reserve currency for the world. Merchants did extend each other credit, but there was no central bank, only a Treasury; and there were no exchanges of sovereign currencies between, for example, the Parthians and the Romans. I would appreciate Jeff's providing citations for his assertion that contemporary classical scholars blame capitalism for the decline of the Roman Empire; the ones whom I admire the most - Peter Green , for example - see the matter as being a failure of Rome to accept enterprise as a substitute for war. In their view the "economy" of Rome was based on conquest, not trade; it followed the Napoleonic model. The legions were expected to be able to turn a profit from their wars; when they didn't, things became difficult. No one in the Roman world considered enterprise to be the appropriate occupation for a gentleman. "Trade" was looked down upon as something literally beneath contempt; it was the province of freed slaves, Gentiles and Jews, not "noble" (sic) Romans. Gibbon, who lived in a society that had similar snobberies, found it easy to blame the Christians for the fall of Rome because, in his day, the evangelical Protestants - the Quakers, for example - were a large part of the contemptible merchant class. He could hardly blame the Society of Friends for the fall of Rome, but he could blame their historical antecedents. It also helps to remember that Gibbon was writing for the applause of a public who saw the House of Hanover as a bulwark against the threats of Popish Spain and France and, closer to home, the Catholic parts of Scotland and Ireland.

Bruno Ombreux comments:

You wrote "For one thing, that 900 year depression known as "The Dark Ages" might have been much shorter". The so-called Dark Ages were not a 900 year depression.

Firstly, the Dark Ages never really existed. No one in that period described himself as living in the dark ages. The idea of a dark age is an artificial construct of later so-called historians that wanted to glorify their era at the expense of the previous one.

Secondly, over those 900 to 1000 years, a lot of things happened. This is not an homogenous period. There were phases of recession, but there were also phases of strong economic technological and cultural growth, notably the 12th and 13th centuries

Scott Brooks comments:

Isn't it fair to say that the 12th and 13th century's were really the dawn of the Enlightenment?

Can you really have the light without the dark? Didn't the "rate of progress" of the world slow during the Dark Ages? Couldn't we argue that there were extended periods of time in which man made little or no progress, and in some cases went backwards for extended periods of time?

When one looks at modern depressions, what are we really looking at? During the 1930's the world suffered immensely, but there were a lot of great fortunes made during the depression.

I'd bet that Peter Lynch of Magellan fame didn't see the 1970's as a bad time. He cut his teeth and made his fortune guiding Magellan during a time frame when the major indexes were in toilet.

Some would consider a forest fire an ecological depression. But a fire can actually strengthen the forest and clear the way for new growth……just like we saw in the 1950/60 time frame or the 1980/90 time frame.

One man's depression is another's opportunity. I guess it's all in how you choose to view it.

Stefan Jovanovich has a more nuanced view:

Jeff's overall point - that Rome and its Mediterranean civilization collapsed and that, with that collapse, came an extraordinary increase in human misery - is unassailable. The Dark Ages may no longer be the politically correct term, but it is still the appropriate one. In measures of public sanitation, life expectancy, and practical individual liberty (the freedom to travel without threat of robbery, the freedom to buy and sell without threat of extortion), it took European cities 1800 years to get back to the place where Rome, Athens, Antioch, and Alexandria were at the time of Augustus [reigned 27 BCE to 14 CE]. The loss of classical literature alone is incalculable.

Scott continues to have a much more optimistic view of modern history than I do. If you include the totalitarian oppressions in Japan, the USSR, German-speaking Europe, Marxist/Fascist Spain, Italy and the consequent devastation of Part II of The World War, the 1930s are a period that has no equal in human history in terms of awfulness. The idea that this was somehow a cleansing devastation that "strengthened the forest" is astounding.


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