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The Quantitative Easing (and Fall) of the

A monetary policy theory of the fall of

Money, in a word, is the most universal incitement; the most powerful instrument, of human industry; and it is very difficult to conceive by what means a people neither actuated by the one nor seconded by the other could emerge from the grossest barbarism. EDWARD GIBBON1

Joseph Malchow P. Thiel Sovereignty, Technology, and Global Change Winter 2011 4/11/11

1 I. The Inflation Suicide

In A.D. 33, Rome, whose still winsome bellicosity gave her trammel over the accumulated metals of most of the known world, suffered an economic recession. M.

Cocceius Nerva, a keen but unambitious lawyer, was in that year in the capital city, the seat of his friend the emperor . The two enjoyed the society of one another, as it tended to produce counsel on the affairs of state which was unmolested by either jealousy or ambition. Now Nerva had chosen to starve himself to death; there was no one to witness but the emperor. During the slow suicide, Tiberius let soften the veil of the purple, confessing to Nerva that although as a general matter he did not care who died and who lived, his conscience would be gravely disturbed if Nerva pressed through his campaign all the way to death. Tiberious demanded a reason; he received none; there was none that would satisfy. It was in fact “a close acquaintance with the ills of the state” that had fixed

Nerva to take his own life “while his honor was still uncompromised and his welfare still unthreatened from without.”2 It was economic ills which motivated the suicide.

Nerva was early; it was four hundred years before the Visigoths penetrated the pocked walls and actuated with force the fall of the Roman Empire; yet the awful seed of fragility had been glimpsed by Nerva, and his mental bravery was unequal to his sense of personal legacy. “Nerva could no longer bear to associate with Tiberius, chiefly because [Tiberius] had revived the laws on -contracts which had enacted, [and] this was bound to damage and be very upsetting [for the inability of many respected citizens to comply with a sudden request for repayment of what they had borrowed would be exposed.] So he starved himself to death.”3

2 What precisely had Tiberius done, and why should Nerva have destroyed himself over it? Faced with a credit bubble in the Roman

Empire and in its —the great silvern which with the rise of the empire came to hundreds of lesser Fig. 1 Rome A.D. 305, with mints demarcated economies, and all of global trade—Tiberious consummated a regime of intensely inflationary policy, deploying a collection of monetary and fiscal sleights in an effort to rescue Rome from recession. What Tiberious and his successors did—although they knew neither the science nor indeed the name of economics—tightly resembles what is currently in fashion among politicians of the great liberal western powers, with little to suggest of the policies that either their form or their final, desperate coda will differ appreciably from what

Nerva foresaw.

Two histories, then, run in a grim parallel; one is complete, ours is in train; and they suggest, when set side by side, that the tempestuous cycle of boom and bust is, so long as men are organized into governments, potentially inevitable. By comparing known data about the Roman currency, we can reconstruct the wild inflation experienced by the Empire (Fig.

3). By observing the rising salaries of the imperial soldiers, we can confirm it (Fig. 4). And by taking anecdotal evidence from the histories coupled with empirical evidence of shipping activity, we can observe the decline of commerce numerically (Fig. 5). To understand why all of this occurred, we piece together a monetary .

3 This essay will use what data are available—principally numismatic evidence and the limited economic data contained in the contemporaneous histories—to show that Rome progressed from a free and prosperous economy into one whose military fragility, the immediate cause of its fall, was authored by deliberate policy decisions. These policy decisions resemble a number of modern economic policies now in ascendance. From this cross-centurial observation, the essay concludes that of the possible scenarios for the ending of the boom and bust cycles of great sprawling economies, the most likely is catastrophic failure. The essay finally draws out two distinctions in circumstance between the United

States and the Roman Empire; the one, the amity of its neighbors, is dismissed as insignificant; the other, the deep and intergenerational investment in the nation made possible by robust and accessible equity and markets, is a potential life-saving difference between the United States and its forerunner in antiquity.

II. Rome Under Octavian: Free to Choose, Free to Invest

When Gibbon talks of iron and money, and of the as needing to have been “actuated by the one” and “seconded by the other,” it is striking that he isn’t clear which is which. Was the evolution of the actuated by money and backed up by iron and coke? Or was the development of Rome actuated by industry itself and only stabilized by a money system? Gibbon is ultimately convincing that the Romans, who

“comprehended the fairest part of the earth, and the most civilized portion of mankind,” lived fundamentally in a money society. That the gears of Roman industry turned overwhelmingly toward war is a bellicosity that resulted only from a failure to grow through organic means, and a politics that made it easy for the elect to coopt industry to their own ends.

4 It was not always thus. Rome grew from republic to empire in large part by preying upon other nations in the Hellenistic world and across the arc of the Mediterranean. Egypt is the most common example—its Cleopatras and Ptlomies, the two lines of pharaohs who ruled before Rome conquered Egypt, built governments that shuttled people into “vast collectives” where they were treated as cogs; taxes became oppressive; and personal profit was skimmed into government coffers until the great goal of a life became nothing more than survival.4 From citizenries thus dispirited an expansionary Rome won easy victories.

Under Octavian, the Roman Empire was a place of wide economic freedom. Indeed

Octavian himself, who ascended to the throne in B.C. 27 and remained until A.D. 14, was seen to represent a Roman ideal of personal freedom which was elsewhere falling out of fashion in the rest of the world. When Octavian’s fleet destroyed that of Mark Antony on the Ionian Sea, it was more than a military victory. Antony was vying for control of Rome, yet he had gone outside the borders of the Roman Republic to marry Cleopatra VII, the final pharaoh of ancient Egypt. A constrained and quite foreign statism was therefore represented in the person of Mark Antony; he stood in counterpoise to Octavian, who embodied Rome’s traditional values. In this sense, Octavian’s ascension over Antony was a victory for a liberalized economy and a rejection of the popular statism then seducing much of the

Hellinistic world.

Beside the principle of laissez faire there was the belief in the old doctrine of private enterprise. The victory of [Octavian, after his accession called] and of the West meant, then, a repulse of the tendencies towards State capitalism and State socialism which might have come to fruition earlier, had Antony and Cleopatra been victorious, then was thus the case. Apart from…the special circumstances prevailing in the…food- supply, the principle of private enterprise remained supreme.5

It was not merely that Octavian preferred capitalist principles in the abstract; he lived by them. “[H]e himself in the course of the Civil Wars had accumulated, by more or less honest means, an immense private fortune.”6

5 The rule of Octavian and his immediate successors “was a time of almost complete freedom for trade and of splendid opportunities for private initiative.”7 Through this, “the life of the community as a whole blossomed into a greater activity. There was a constant passing to and fro of merchandise and travellers. Throughout the world there was an interpenetration, and a smoothing-out of differences, to an extent undreamed of before.”8

Although Rome was dedicated to growth by plunder, it nevertheless traded honestly with nations it did not seek to conquer. The government used its bullion to purchase textiles in great bulk from India, for example. The first fifty years after the unification under Octavian represents one of the great free trade periods in the history of man.

And the private sector successes within the Empire came from all walks of Roman life:

“some of them were of senatorial rank, some of equestrian, but a large number were former slaves, freedmen.”9 (It was, one historian notes, “to the Emperor’s advantage to encourage this preoccupation with professional and business matters, since it induced political apathy.”10) Passport regulations were slackened as were import restrictions. And “[a] man of sufficient initiative living in a large town might find even the position of miller and baker, tanner or brick-maker a useful start towards the building-up of an intensive wholesale business.”11

Undergirding the stable and productive early years of the Empire was a sound money system. One of the curiosities of the literature of the ancient world is its thoroughgoing silence on economics. The style and characteristics of the money system did not seem to have been a hotly debated subject—or a subject at all. A fractional reserve banking system with a reserve-backed state-minted currency seems, by all accounts, to have been the presumption from the very start.

6 II. The Denarius

The denarius was just such a currency. With it, it “was possible for a bourgeoisie to come into being whose chief interests were economic, which maintained a form of economy resting on the old city culture and characterized by individualism and private enterprise, and which reaped all the benefits inherent in such a system.”12 The denarius was a coin minted first in Rome and ultimately, by the time of , who reigned from A.D. 284 to 305, in twenty other mints from London to Hermopolis (near what is today Luxor,

Egypt).13 During the early empire, the supply of denarii increased roughly in line with the expansion in trade, keeping inflation (which was never directly tracked) low. As trade increased, the royal seat in Rome implemented only nominal taxations—each province paid a 1 percent wealth tax and a flat tax on each adult within its confines. As the state plied these minimal demands upon citizens’ cash accounts, the transfers increased the in a non-inflationary fashion.14

The Roman Empire had unwittingly created a large free trade zone, and was enjoying its abundant fruits. As the private sector sought advances in agriculture and machining, massive capital investment was embarked upon by the government. All of the roads within the bounds of were repaired, new temples went up, and the famed aqueducts and baths were constructed.

One story is instructive: Trimalchio was a freedman escaped out of servitude in the heady early days of the reign of Octavian. Trimalchio moved to one of the South Italian cities with a bounty of money from his former master. He invested the money in wholesale wine makers. By the time he died—a historian called sketched these details of his life—he live in a large Campanian house on interest spun off from his investments and from other private which he placed himself.15 Trimalchio is typical of the sort of Roman

7 who prospered before government policy worked to destroy the engines of wealth: he began in industry (indeed, in technology) and later used his stored capital to invest in swaths of land, real estate, and in private loanmaking. The first investment, though, was in manufacture. Writing in 1956, the economist and historian M. Rostovtzeff notes that he

“feel[s] confident that the pulse of economic life beat very briskly in the Augustan [Octavian] age both in Italy and in the provinces. The bourgeoisie of this period were not idle, and the ideal of a rentier-life was no more widespread among its members than it is among men of the same class in our own days.”

There is “no evidence from the Republic or early Empire indicating explicitly the purposes for which were struck or the ways in which, once struck, they were put into circulation.”16 Yet demand for the denarius, premised politically upon the stock of silver beneath the stone piles of the emperor, soared. There are three reasons: first, the sheer area and people under Roman rule expanded along with the empire, and so needed the supply of denarii to expand. Second, Romans both in Rome and in the farthest areas of the empire shifted toward town-based civilizations where more liquidity and a faster pace of trade was required. (One exception to this development was the vast domain of Egypt which, once conquered by Rome, was unnaturally prevented by Octavian and all his successors from joining in the free market of the Romans; instead, Rome kept Egypt for the singular molesting purpose of extracting as much grain from it as possible, which was given for free to Romans within Italy.)

Finally, the Roman government itself had a greater need for money. Octavian had won

Rome in a civil war fought against Marc Antony; the emperor’s warriors, the authors of his reign, were now compensated far more richly than they were before the civil war. The government also embarked upon more public works and paid more and larger donatives to

8 its citizens. This brand of welfare was hardly known before Octavian, and it might have caused the society no harm if the donative had not been harnessed desperately, many years later, as an economic stimulus in the face of recession.

DONATIVES DISBURSED TO PLEBS

500,000 400,000 300,000 200,000 100,000 - 14 37 54 68 79 96 117 138 161 180 192 211 217 222 235 A.D. Fig. 2 SOURCE: Dincan-Jones 1994 at 79

Yet even with expanded government spending, history records no conscious monetary policy at this point. The money supply grew in tight correlation with the expansion in economic activity, which existed largely in the channels of private commerce. Octavian understood that governments could not afford to run surpluses. What Rome gained in plunder it needed to disgorge into the economy.17

By bringing royal treasures to Rome in his…triumph [Octavian] made ready money so abundant, that the rate of interest fell, and the value of real estate rose greatly; and after that…he loaned it without interest for fixed period to any who could give security for double the amount….He often gave largess to the people, but usually of different sums: now four hundred, now three hundred…and he did not even exclude young boys.18

What is known is that consumer , at least, were not yet rising, and all was hale. But

“[t]he city of Rome,” in the particular, “produced very little, materially speaking, in return for what it consumed.”19 Administrative classes cannot persist forever, and they did not. “The

9 vast sums which came into the hands of senators and …were partly spent on luxury goods and slaves, and as these were mostly imported from abroad, much of the money returned to the provinces and other foreign countries.”20 There was in Rome no attempt to measure—let alone to correct—trade imbalances; and indeed there may not have been need of such an effort. The trade imbalance here noted is really a second order effect of the growth in the size of government.

10

I mean it is time to finally get tough on China. Right now, China’s products come here and our jobs go there. We play by the rules, they manipulate their currency. We get tainted fish, -laced toys, contaminated pet food and polluted pharmaceuticals. I think that's a raw deal—and the United States government should say no more, no how, we're going to have new rules, they're going to play by the same rules and we're going to stand up for our consumers and our workers. HILLARY CLINTON, A.D. 200821

What am I to tackle first, if I set about imposing restrictions and cutting things back to old-fashioned standards? The boundless sprawl of our country houses? Our swarming tribes of servants? The masses of silver and on our tables? Our marvelous displays of sculpture and paintings? The garments [on] men…and the jewelry of our womenfolk, for which we make over our money to peoples outside our domains, or even to our enemies—to pay for stones? TIBERIUS, A.D. 2222

11 III. The Recession of A.D. 33 and the Advent of Monetary Policy

Octavian died, and was deified. His adoptive son Tiberius in A.D. 14 succeeded him in the royal purple. The year of A.D. 33 saw a recession in the young Roman Empire. Tiberius appears to have been the first emperor to engage a conscious monetary policy of taking money out of circulation and securing it in the coffers of government. This deflationary policy and other policies motivated the gears of the government along a path that would lead ultimately to a worthless denarius, macerated legions, and barbarian invasion.

“We are fortunate,” write Thornton and Thornton of the recession, “to have so well documented a crisis.” Perhaps the reason lies in the fact that the recession of A.D. 33 was not one of speculation, like the Dutch tulip mania of the 1630s, but instead of conspicuous policy decisions which bore upon individual homes and businesses. Indeed Thornton and

Thornton write that the recession under Tiberius was “possibly a Keynesian” recession.23

Unlike the South Sea bubble, there was no “undertaking of great advantage, but nobody to know what it is.” Everyone knew what it was.

Tiberius’s disposition was toward frugality. He suspended much of Octavian’s public works projects and ensured that the money thus removed from the economy would not circulate.24 Additionally, a stream of long-expired usury laws were rediscovered by the government and applied against citizen lenders. Finally, the money shortage was accompanied by a credit contraction that threatened to bankrupt some of Rome’s most respected houses. Liquidity dried up. The government decided artificially to reduce interest rates.25 It then put into effect a policy requiring that all existing notes be renegotiated down to the new legal maximum rate. To prevent a massive diminution in cash flow, creditors moved their money elsewhere.26

12 It turned out that Tiberius was hoarding new government receipts. He assumed the emperorship in A.D. 14 with 25 million denarii in the imperial coffers. In A.D. 37 he left to

Caligula at least 675 million denarii.27 (Caligula built two aqueducts immediately upon gaining power.) Tiberius also promulgated a policy that set a low ceiling on interest rates across the empire, and directed that all existing mortgages be refinanced. records:

Hence followed a scarcity of money, a great shock being given to all credit, the current coin too, in consequence of the conviction of so many persons and the sale of their property, being locked up in the imperial treasury or the public exchequer. To meet this, the Senate had directed that every creditor should have two-thirds his capital secured on estates in Italy. Creditors however were suing for payment in full, and it was not respectable for persons when sued to break faith. So, at first, there were clamorous meetings and importunate entreaties; then noisy applications to the 's court. And the very device intended as a remedy, the sale and purchase of estates, proved the contrary, as the usurers had hoarded up all their money for buying land. The facilities for selling were followed by a fall of prices, and the deeper a man was in debt, the more reluctantly did he part with his property, and many were utterly ruined.28

The sudden requirements of additional cash collateral to secure all extant mortgages depleted ready money. The natural reaction was to inject cash into the economy. Tiberius then flipped, personally disgorging some of his fortune, on the order of 25 million, and chartering all senators to make interest-free loans to all comers. Tiberius might have lowered the tax burden on the citizenry, but taxes were already extremely low—most receipts from taxation came from special sumptuary tariffs. The injection of cash appears by the record to have set

Rome briefly on the mend.

But the recession that began in A.D. 33 and lasted through Tiberius’s assassination in

37 reveals deep rifts within the Roman political class which, when exercised over the subsequent two hundred years, led to the fall of Rome. Thornton and Thornton limn the essential controversy in 33 as being between “reactionaries who favored strict state fiscal restraint” and a nouveau riche “who had made their money during the [Octavian] building boom.” The A.D. 33 recession “destroyed the conservatives’ position,” they write.29 But a

13 redefinition might be in order. To be sure, capturing foreign treasure in government accounts and then altering laws in ways that would put a heavy and quite sudden burden on the money supply is not a kind economic policy. But to describe it as reactionary or conservative is perhaps to miss the point. It was neither the withdrawal of Keynesian stimulus as we think of it today that caused the recession, nor the reapplication of it under

Caligula that reignited the economy.30

The Roman Empire was geared not for maximal production, but for cash (and ) distributions from plunder. Because the government’s money came essentially from without, and the tax burden within was nill, it does not surprise that Tiberius’s policies fomented a recession—yet it ought not to be viewed as “conservative” in the modern sense of the word. By the time he was assassinated, Tiberius’s loose money policy along with his anti-creditor policies and mandatory refinancing regulations resemble more trimly the modern liberal slate of policies; and, as we will observe, the intense inflationary effect of the foregoing might ultimately prove Tiberius’s early conservative policies to have been, though ham-handed, right.

14

So we are at a time where people can really take advantage of this. And what we want to do is to send a message that if you are having problems with your mortgage, and even if you're not and you just want to save some money, you can go to MakingHomeAffordable.gov – and the way the web site is designed, you can plug in your information and immediately find out whether or not you are potentially eligible for one of these – one of these mortgage refinancings.” BARACK OBAMA, A.D. 200931

[C]reditors were demanding repayment in full, and it would have been humiliating for those to whom the demands were addressed to diminish their credit by failing to make full payment. So at first people dashed about, begging for assistance…The glut of property on offer caused a collapse in prices; the more heavily people were in debt, the more difficulty they found in selling…Financial ruin brought with it an abrupt decline in status and reputation, until [Tiberius] Caesar came to the rescue: a hundred million sesterces were made available through banks, and loans were offered for three years free of interest. TACITUS, A.D. 3332

15 IV. Empire Interrupted

The was yoked inexorably to continuing conquests on the outer borders of her thrall. In this lay the imperative that government money be distributed to the citizenry; the productive requirements in the private precincts of Italy, where the Empire’s most voracious consumers and important supporters lived, were artificially low. As the empire came to abut the outer limits of the territory it could conquer and then manage, inflows of cash began to be outweighed by expenditures, and even the Romans in Italy came to feel pressure to support the state with more than nominal industry and bacchanalians.

Not long ago a certain man who had been appointed a collector of taxes in our country, when some of those who appeared to owe such tribute fled out of poverty, from a fear of intolerable punishment if they remained without paying, carried off their wives, and their children, and their parents, and their whole families by force, beating and insulting them, and heaping every kind of contumely and ill treatment upon them, to make them either give information as to where the fugitives had concealed themselves, or pay the money instead of them, though they could not do either the one thing or the other; in the first place, because they did not know where they were, and secondly, because they were in still greater poverty than the men who had fled. But this tax- collector did not let them go till he had tortured their bodies with racks and wheels, so as to kill them with newly invented kinds of death…33

Claudius was the next major emperor, and in 43 A.D. Rome added its last significant territory with the capture of Britain. That country provided Rome with significant material wealth in the form of established mines and slaves.

Nero ruled from 54 to 68 A.D., and in his reign the countdown to destruction began.

As Bernardi writes, contrasting the fall of Rome with every other massive state failure in history, “[t]he great drama of the fall of the Roman Empire…lies in the fact, and in the fact alone, that it disintegrated not because of other organized rival powers…but by an internal process….It was like an organism whose strength suddenly failed.”34 What failed was the money economy.

16 Because the notion of individually administered income taxes was unknown to Rome,

Nero located a more insidious and widespread form of tax. Observing the strength and ubiquity of the denarius, Nero used it to the government’s advantage; he began gradually reducing the amount of actual silver in the denarius; new denari, put into circulation from the mints, which with this loose money policy began to proliferate across the geographic reach of the empire, would contain less precious metal. Yet the government would claim that it was worth the same, pay its bills in new denarii, hoard metal, and mint many an old denarius into a new one. Nero was effectively levying a considerable tax on all cash balance accounts across the empire. By slowly edging the silver out of new denarii, the government was able to take advantage of the delay between the delustring of the coin and the market’s realization of its diminished value. The government, which operates the mints, could pay current accounts in diminished denarii, which was accepted for a brief time as equivalent in value to the denarii minted before them. In this way, the central government raised current revenues at the expense of the savings of thousands of families and businesses.

%Ag IN THE ROMAN DENARIUS

100

80

60

40

20

0 0 A.D. 68 117 180 211 250 268 Fig. 3 SOURCE: Bartlett 1994 at 5; Michell 1947 at 2

17 LEGIONAIRE ANNUAL SALARY (DENARII)

2000

1500

1000

500

0 46 B.C. 96 A.D. 211 217 238 Fig. 4 SOURCE: Williams at 54

For the following two hundred years, the emperor gradually and uninterruptedly debased the currency, such that by the time of (270 – 275), the denarius contained 0.02% silver.

For a while the government made money from the corruption of the currency. But ultimately these “continual did not improve the Empire’s fiscal position;” instead, people hoarded old denarii and rendered to the government their newest, flimsiest denarii.35 Eventually consumer prices began to rise. Although history preserves extremely few records of salaries or prices, it may be worth observing that the decline in the silver content of the denarius tracks in an inverse correlation with the salaries paid to the Roman legionaires, the common “middle class” type of solider. Because the support of the army was a necessary expedient to any successful reign, maintaining their standard of living was paramount, and we might consequently infer that the real purchasing power of the denarius declined, as shown, geometrically with its .

To pay the soldiers, “Caracalla [198 – 217] needed enormous sums. The stock of money accumulated by [his father with whom he was briefly co-emperor] Septimus [193 – 211] was soon depleted. To fill his treasury, he was therefore obliged to resort to extraordinary measures….It was mostly derived from a systematic draining of the wealth of the propertied classes. The land-tax and the poll-tax—the chief taxes paid by the working classes—were not increased, but the crown-tax, an extraordinary

18 supplementary income-tax, which mainly affected the richer classes, was repeatedly demanded. The contributions in kind were a heavy burden. Though everybody had to make such contributions, which were used for the maintenance of the soldiers, the chief payers were the large landowners who always had great quantities of foodstuffs in store, while the peasants had practically no surplus….Finally, an abundant source of income was the compulsory gifts extorted both from rich individuals and from the cities, a heavy and arbitrary capital levy very like pure robbery. The only regular taxes which were increased (by being doubled) were the tax on inheritances and the tax on manumissions, which were always closely connected.36

Growth, naturally, withered on the vine. Because these heavy exactions bore principally upon the upper classes, whose enterprises gave livelihood to the lower. The burden, when the rich could no longer pay the state’s bills, fell to the ordinary man. Thus did all of Roman subjects come to suffer. By the third century, the money economy broke down. The army continued to receive payments, since by now it was understood by all that the emperor served at the pleasure of the . Instead of levying taxes, which could scant be paid, the government directly requisitioned food and eventually labor from citizens. The money economy foundered so badly that most workers became organs of government, and it became forbidden for a tiller to leave his home on other business, or for a soldier to leave camp, or for a municipal aristocrat to leave his town; a captain lost his ship as soon as he was too frail to sail it; all needed to be on-hand, in a state of frozen occupation. Rostovtzeff says,

There was nothing new in the system as such. But under the conditions of a permanent revolution it assumed unparalleled proportions and, being used not as a subsidiary, but as the main, resource of the government, it became a real plague which undermined and destroyed both the prosperity of the Empire and the spirit of its inhabitants.37

The debasement of the currency and the heavy tax burden led to increasing feudalization and a breakdown in the specialization of labor. A retreat to the countryside offered a more attractive, and less abusive, life of subsistence farming. The estates of the wealthy “operated as much as possible as closed systems.”38 Trade, naturally, ground to a halt. We can construct a snapshot of the robustness of the Roman economy by analyzing

19 shipwrecks in the Mediterranean Sea, which have been largely accounted for and atomically dated.

ROMAN SHIPS WRECKED IN MEDITERRANEAN

70 60 50 40 30 20 10 0 50 B.C. 0 50 A.D. 100 150 200 250 300 350 400 Fig. 5 SOURCE: Parker 1992

Because Rome neither captured nor preserved significant macro-level economic data, it is difficult to measure commerce as a broad concept. The imperial government was, at least in the early days of the empire, concerned only with balancing accounts, and in later years not even with that. There did not exist an appreciation that the general growth of the economy was supported from within by productivity gains, specialization, and technology.

Because of this, nothing like the modern GNP was captured. The shipwreck data, though, provide a rare glimpse at overall levels of trade. Trade tracks closely with the strength of the denarius, suggesting that commerce at large suffered along with the currency.

Shipwreck data represent the best proxy for overall commerce, since any potentially intervening variables run strongly against the existence of the correlation that is in fact seen.

Parker tracks, logs, and dates every shipwreck in the Mediterranean Sea along with the nationality of the ship. Charted here are all Roman ships wrecked on the Mediterranean and known to explorers (Fig. 5). “To be wrecked was a relatively common occurrence in antiquity, as is evidenced from the literary references to the fear of such a fate. The 1,200

20 sites collected in this Catalogue are…ony a sample of the many thousands of ships which must have put to sea in ancient times, but nonetheless it is a sample which…contains a good deal of information about ancient trade and technology.”39

From Octavian to A.D. 230, the ’s maritime operations ruled the seas.40

Between 230 and 280, a rash of pirate attacks occurred, although if these did have an impact on the data, it would simply be that they increased the number of shipwrecks dated from around this time, which, if this were the case, would bolster the correlation between the denarius and commerce. Because the frequency of pirate attacks only increased toward the end of the empire, more and more Roman ships might expect to have been wrecked.

Probably they were; and so the relatively small number of wrecks from this period reflects deep foundering in the overall shipping levels.

Finally, there is little evidence that maritime technology improved radically during the period in focus. If it had, the progressively lower number of shipwrecks would have an alternative explanation. But throughout the whole period, ships were of wood, with multiple tranches of rowers. And throughout the period, ramming was the preferred method of attack. Any technological differences between one fleet and another were in simple precision of manufacture, not in advanced materials, new locomotive methods, or finer seafaring designs.41

21

Mismanagement and greed became the operating standard while regulators were asleep at the switch. The primary regulator of Wall Street, the Securities and Exchange Commission kept in place trading rules that let speculators and hedge funds turn our markets into a casino. They allowed naked short selling…They eliminated last year the uptick rule that has protected investors for 70 years. Speculators pounded the shares of even good companies into the ground. JOHN MCCAIN, A.D. 200842

For who is so hard and so devoid of human feeling that he…has not perceived, that in the commerce carried on in the markets or involved in the daily life of cities immoderate prices are so widespread that the unbridled passion for gain is lessened neither by abundant supplies nor by fruitful years; so that without a doubt men who are busied in these affairs constantly plan to control the very winds and weather from the movements of the stars, and, evil that they are, they cannot endure the watering of the fertile fields by the rains from above which bring the hope of future harvests, since they reckon it their own loss if abundance comes through the moderation of the weather. DIOCLETIAN, A.D. 30143

22 V. The Fall

In these later years of the Empire, the debasement of the currency provoked rampant and painful inflation. One source calculates an inflation rate of 15,000% between A.D. 200 and 300.44 Diocletian, who ruled from 284 to 305, instituted a series of policies in an attempt to forestall disaster. Yet his ideas did not extend well past controls. As the above excerpts from his edict to Rome reveal, his basic understanding of rising prices was that speculation and hoarding was the cause, rather than a systematic growth in the size of government, confiscation of wealth, diminution of private industry, and debasement of the currency for the short-term salving of the ruinous effects of all of the foregoing. Not surprisingly, Diocletian’s price controls failed.

DIOCLETIAN STATUTORY PRICE MAXIMA, A.D. 301 1 army modius (about a bushel) of 100 denarii 1 Italian sextarius (one-half liter) of wine 8 denarii 1 Italian sextarius of Falernian wine 30 denarii 1 Italian pound (325g) of beef 8 denarii 1 Roman pound (325g) of gold 72,000 denarii 1 Roman pound of silver 6,000 denarii 1 day’s wages for a farm laborer 25 denarii 1 day’s wages for a baker 50 denarii SOURCE: Williams 1997 at 59 Fig. 6

As with most Roman laws, transgression of the price controls meant death; but most

Roman laws did not run so baldly against nature, and so solicitously invite violation. After the enactment of the price controls, records scarcity in “small and cheap items” over which mens’ heads were taken by government forces; but yet “the rise in price got much worse…[and] sheer necessity led to the repeal of the law.”45 With the growth engine retired, and enterprise impossible, Diocletian resolved upon a final comprehensive remedy.

23 The government would no longer tax its citizens in money, since Roman money was no longer taken seriously, but would instead simply issue a bill to each citizen for a bundle of goods and labors. Diocletian conducted a census to arrive at two numbers: the caput was the annual productive ability of a single man, his family, and his real estate. The annona was a unit of government requirement. One annona meant room, board, and salary for one soldier for one year.

This brutal, bare calculation was conducted during the latter years of Diocletian’s reign, and the government simply extracted enough to keep the military from starving. There existed no advantage to this scheme, which impliedly consigned all of Rome to a rentier existence, other than that it made misery regular and predictable, instead of merely frequent.

Finally, to ensure that he could collect, Diocletian’s government moved businesses into collegia and laborers into guilds; movement became impossible; invention discouraged.

Diocletian also implemented what appears to be direct Keynesian economic stimulus.

Lactantius records that “Diocletian had a limitless passion for building, which led to an equally limitless scouring of the provinces to raise workers, craftsmen, wagons, and whatever is necessary for building operations.”46 The Roman government was virtually indiscriminate as to what was built, so long as building persisted unabated. “Here be built basilicas, there a circus, a mint, an arms-factory, here he built a house for his wife, there one for his daughter.”47 And in an example of the purest of make-work policies, Diocletian would sometimes have freshly constructed buildings torn down, and built again.48 Three hundred years after Octavian fought collectivist Egypt for the reins of the Roman Empire, the

Empire herself established the most hidebound form of collectivism yet seen.

Ultimately, by the end of the reign of Diocletian, “[t]he number of recipients began to exceed the number of contributors by so much that, with farmers’ resources exhausted by

24 the enormous size of the requisitions, fields became deserted and cultivated land was turned into forest.” 49 “Many governors and even more officials were imposed on individual regions,…and to these were added numerous accountants, controllers, and ’ deputies.” The government’s new policy of exacting resources directly in lieu of continuing to prop up a failed currency required these bureaucrats. And “[t]he activities of all these people were very rarely civil.”50 Lactantius in his De Mortibus Persecutorum records how “they engaged only in repeated condemnations and confiscations, and in exacting endless resources.”51 The rapaciousness with which any remaining private wealth was treated was indeed horrifying:

[B]ut the outstanding feature of Diocletian’s behaviour here was that, whenever he saw a field rather better cultivated than most or a house rather more finely adorned, a false accusation and capital punishment were immediately at hand for use against the owner, as if he [Diocletian] could not seize other people’s property without shedding their blood.52

Notably, Rome’s taxation remained, as compared with modern rates, low throughout the life of the empire. In A.D. 444 Valentinian III increased the sales tax from one percent to 4.5 percent in a last-ditch effort to raise revenues for the government. But the low tax rates more reflect the imperial nature of Rome: since growth could be had at low cost, by conquering, the society was by design not self-sustaining. It created neither its own supply nor its own demand. Nor did the increase in tax rates play anywhere so near as significant a role in the fall as did the debasement of the currency, the installation of a massive bureaucracy, the co-optation of private enterprise, and the confiscation of natural resources.

As Rostovtzeff observes:

[C]ity-capitalism…gradually degenerated. The prevailing outlook of the municipal bourgeoisie was that of the rentier: the chief object of economic activity was to secure for the individual or for the family a placid and inactive life on a safe, if moderate, income. The creative forces which in the early Imperial period produced a rapid growth of industrial activity in every quarter of the Empire, and promoted a high standard of

25 technical improvement alike in commerce, in industry, and in agriculture, suffered a gradual atrophy, which resulted in an increasing stagnation of economic life.53

It does not surprise, then, that it was during this time that birth rates appear to have begun to decline. No direct data on birth rates or population survive, and probably never were taken. But the weight of the histories does reveal an increase in the quotient of farmland left bare during this time.54

VI. A Return to Thralldom

The historical record supports the proposition that, with economic weakness tightly circumscribing Rome and phalanxes of barbarous tribes poised without, warm centers of any meaningful wealth then retreated from society. The middle class began to sell itself into slavery, because its money was worthless and the monopsony enforced by the government meant that, when the government fell, the middle class would have no one to whom to sell its wares and its crops. The emperor Valens, in A.D. 368, went so far as to outlaw slavery— till then an unquestioned mode of employ in the Empire—because the slaves were now former middle class taxpayers making the optimal economic choice for their families.

Typical portraits of the diminution of the Roman army—which itself represented a large portion fo the middle class—fails to come to grips with the economic forces at play. A representative example is M. I. Finley, in “Manpower and the Fall of Rome”:

One reason for the astonishment [at the fall] was that Roman armies still fought well most of the time. In any straight fight they could, and they usually did, defeat superior numbers of Germans, because they were better trained, better equipped, better led. What they could not do was cope indefinitely with this kind of enemy….More men seemed the obvious answer—or a technological revolution, and that raises the critical point. It was in a sense misleading when I noted that we [in modern Britain] throw a far greater proportion of our manpower into battle in an emergency. When we do that, our whole civilian life is at once readjusted, not merely by austerity programmes and general belt-tightening, but also by increasing the per capita production of those (including women) who remain on the farms in the factories. And that no ancient people could do because they technology was too primitive, resting almost entirely on the muscles of

26 men and beasts; and because most of the population…had nothing to sacrifice to an austerity programme to begin with.55

But the barbarian forces from north of the empire also lacked technology. Indeed their weapons technology was inferior to that of the Roman. It is not enough to say that Romans, being poor, could not be tapped for contributions to the military. One must confess that it was not always thus—that private Romans once invented new weapons and became wealthy by doing it. “A capitalistic spirit of enterprise was not wanting….the rich Romans, whose wealth was derived from their landed property, from war-contracts and the profits of booty…wanted the merchandise which the world had to offer.”56 But there were no more rich Romans. In the halcyon days of the Empire, from Octavian to (161 –

169), the army consisted of 300,000.57 (Gibbon observed that Louis XIV, whose kingdom was the size of a single , had an army of equal size.) Rome at its height had something like 60 million people within it, so this represents a 0.5% defense ratio—and it was successful for a time.

Diocletian, as part of his Keynesian economic plan, doubled the size of the army. It was this bolstered force that finally began to give under the weight of Huns and Goths. By now patriotism “may have been lukewarm at best: the ordinary man, regardless of class, felt no personal obligation to fight to defend it.”58 Finley, who writes in 1970, believes that, if the boundaries of statist Rome “had been at the ends of the earth…and if the court and the aristocracy had been content to keep its numbers and its level of consumption unchanged, then there was no obvious reason why the Roman Empire should not have gone on indefinitely.”59 Of course, soon after Finley writes the idea that an enforced “equilibrium” could sustain for a long time was put to rest with the implosion of Soviet Russia. But even

27 Finley admits that “[t]he parasitic classes…kept growing larger…[and] there came a time when [the military] could no longer respond.”60

It was this weakened Rome which was invaded by round after round of militaristic peoples versed in destruction—as Rome had been—yet with no virtuous philosophies, and nothing resembling an advanced economy, to justify their protuberant growth.

The Visigoths, led by their king Alaric, captured Rome in the summer of 410. St.

Jerome, a Catholic writer and apologist, was writing his preface to the Commentaries on Ezekiel in that year. To it he added: “…the brightest light of the whole world was extinguished, when the Roman Empire was deprived of its head and when, to speak more correctly, the whole world perished in one city.”61

VII. Analogies to the United States

There have been many spectacular inflations in the 1,600 years since the fall of Rome.

The United States has not seen such a drastically inflationary period, but it has undoubtedly been subject to the same policy temptations as the post-Octavian emperors, as the quotations from contemporary political leaders demonstrate.62 Yet whereas in Rome private investment inhered mostly in land purchases, the robust equity capital markets of the United

States may create strong systemic incentives that decrease the relative power of the state in such a way that it might be prevented from enacting the anti-growth policies of Nero,

Carcalla, Aurelius, Diocletian, and others.

The four likely end modes for boom and bust cycles might be described as 1) a neverending continuance; 2) forced redistribution of wealth through government policy or an edict that leaving the confines of the state is illegal; 3) global depression as in the 1930s, which could give rise to global political contagion such as imperial Communism; or 4) new

28 frontiers. The experience of imperial Rome suggests that numbers two and three are roughly the same outcome. In the one instance, there were the dark ages and in the other there was the age of Soviet Russia. Also suggested by the Roman story is the impossibility of the neverending continuance of booms and busts. During a bust, national weakness necessarily invites invasion, either physical or political. The great busts of the United States occurred before the nuclear age and before the internet age, so there is little reason to think it so isolated as to be able to suffer a long series of severe busts.

Most likely, if the story of Rome is an indication, is a deep-seated societal closure, wherein the government begins to enact confiscatory policy, prompting the productive classes to remove themselves from society at large, constructing small fiefdoms. It is not difficult to imagine that this is really a single cell of a never ending series of societal building and breaking-down, whereby these fiefdoms eventually re-coalesce back into organized polities, only to have the boom and bust happen all over again. The first 13 colonies of

America could be viewed as an example of this process.

One set of data suggest a different path for the United States. Although the tax burden in the United States is high and rising, and the amassment of capital becoming progressively more difficult, it is nevertheless the case that citizens continue to ally their own fortunes, whether large or small, more and more with those of private enterprise through the deep, liquid, and open equity and debt capital markets in the United States. In even the last decade,

Americans have voluntarily tied their personal and family security to the overall successes of private enterprise. The degree to which this aligns the incentives of voters with policies that encourage growth and stability is questionable, though—and likely a function more of the oratory of politicians, as seen throughout this essay, than of genuine inquiry, on the part of busy people, into the effects of their votes.

29 UNITED STATES MUTUAL FUND INVESTORS 1958 2009 Median age 55 50 Median household income $6,500 $80,000 Median household financial $15,700 $150,000 assets Median assets invested in $4,200 $80,000 mutual funds Share of household wealth 26.8% 53.3% invested in mutual funds Stated goal for investing Retirement 35% 76% Education 7% 6% SOURCE: Investment Company Institute 2010 Factbook Fig. 7

SHARE OF HOUSEHOLD FINANCIAL ASSETS HELD IN INVESTMENT COMPANIES

SOURCE: Investment Company Institute, Federal Reserve Fig. 8

VII. Summary

The Roman Empire, which “comprehended the fairest part of the earth and the most civilized portion of mankind,” (Fig. 7) fell proximately as a result of military impotence. The frontiers had been “guarded by ancient renown and disciplined valor.”63 But poverty and want broke the back of valor, and showed the fragility of renown. Poverty came essentially

30 from uncontrolled inflation in the money economy, which began initially as governmental greed and eventually spiraled out of control. Rigorous taxes were instituted, and failed; confiscation was the resort; and the retreat from society of the productive class was the final blow. Empirical evidence in the form of dated shipwrecks, numismatic evidence of the silver content of the denarius, and records of the salaries of soldiers support this monetary theory of the decline of Rome. Although one is tempted to presume a similar result for the United

States, it is worth considering how open markets could work in such a way that the disastrous policies enacted by the imperial purple could be made distasteful to politicians.

Fig. 8 Rome near its height

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REFERENCES

1 Gibbon, The Decline and Fall of the Roman Empire, at 174. Strahan & Cadell: 1776. 2 Seager, Tiberius, at 197. Blackwell Publishing: 2005. 3 Rodewald, C., Money in the Age of Tiberius, at 2. Manchester University Press: 1976. 4 Bartlett, B., How Excessive Government Killed , at 1. In The Cato Journal, Vol. 14, Num. 2.: 1994. 5 Oertel, F., The Economic Unification of the Mediterranean Region: Industry, Trade, and Commerce, at 386. In The Cambridge Ancient History, Vol. X., Litt, Adcock, Charlesworth, eds. Cambridge at the University Press: 1934. 6 Id. at 387. 7 Rostovtzeff, M., The Social and of the Roman Empire, at 54. Oxford at the Clarendon Press: 1957. 8 Oertel 1934 at 424. 9 Id. 10 Id. at 388. 11 Id. at 391. 12 Id. at 232. 13 Williams, J., Money: A History, at 60. British Museum Press: 1997. 14 Bartlett 1994 at 4. 15 Rostovzteff 1957 at 57. 16 Rodewald 1976 at 22. 17 In this important respect the story of Rome departs from that the United States. Rome could raise capital by conquering other states and transporting their metallic wealth down rivers and across dessert to Italy. Rome did this, again and again. Because the Roman economy lacked the pure ingenuity of the American; and because efficiency gains were not as prized in a state where most men’s daily bread, at least, was guaranteed, what additional wealth the government acquired came not from taxation. Reinjection capital back into the economy was a “purer” stimulus than simply reducing the income tax burden in the United States. For purposes of comparison, it might be instructive to imagine that the portion of government revenues from foreign plunder be analogized simply to the additional incremental tax base in the United States, from its larger and more muscular industry. 18 Suetonis, Augustus, vol. I., Rolfe, J. C., trans., at 189. The Macmillan Co.: 1914. 19 Rodewald 1976 at 26. 20 Jones, A.H.M. Jones, Troisieme Conference Internationale d’Histoire Economique, 1969 at 88. 21 Clinton, H., remarks at the Montana Democratic Party Mansfield-Metcalf Dinner in Butte, April 5, 2008. Available at [http://www.presidency.ucsb.edu/ws/index.php?pid=77101#axzz1JBk3J5bK] 22 Rodewald 1976 at 29. 23 Thornton, M. K. and Thornton, R. L., “The Financial Crisis of A.D. 33: A Keynesian Depression?” In The Journal of Economic History, vol. 50, no. 3., at 656. Cambridge University Press: 1990. 24 This sometimes took macabre form. See Tacitus, Annals 6.19: “Sextus Marius, the richest man in , was next accused of incest with his daughter, and thrown headlong from the

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Tarpeian rock. To remove any doubt that the vastness of his wealth had proved the man's ruin, Tiberius kept his gold-mines for himself, though they were forfeited to the State.” 25 The Roman government was able to affect interest rates across the kingdom only by legislation. Naturally, legislation in an imperial dictatorship, where the senate was rapidly dwindling in influence and capital punishments were frequent and lacking entirely in spectacle, legislation proved more effective than it might in modern circumstances. There was no central bank in Rome, although the government reserved the right to make ad hoc loans to private parties at will. 26 Rome may have erred in its monetary policy, but from the core principle of free movement of capital it scarcely strayed; moving cash outside the borders of the empire was never banned entirely, right through the fall of the empire. 27 Thornton and Thornton 1990 at 658. 28 Tacitus Annals 6.17. [http://www.sacred-texts.com/cla/tac/a06010.htm] Accessed on 4/9/11. 29 Thornton and Thornton 1990 at 660. 30 This paper will proceed to analyze just how short-lived a reignition this was. 31 Obama, B., Remarks Following a Roundtable Discussion on the Home Mortgage Industry. Available at [http://www.gpoaccess.gov/presdocs/2009/DCPD-200900246.htm] 32 Rodewald 1976 at 3. 33 Philo, 342 (Trans. Yonge 1855). 34 Bernardi, A. (1970) “The Economic Problems of the Roman Empire at the Times of Its Decline,” at 17. In Cipolla, C. (ed.) The Economic Decline of Empires. 35 Thornton and Thornton 1990 at 7. 36 Rostovtzeff 1957 at 417. 37 Id. at 450. 38 Thornton and Thornton 1990 at 7. 39 Parker, A.J., Ancient Shipwrecks of the Mediterranean & the Roman Provinces, at 3. BAR International Series: 1992. 40 Lewis, A. R. and Runyan, T. European naval and maritime history, 300-1500, at 1. 1985. 41 Saddington, “The Evolution of the Roman Imperial Fleets” at 200. In “A Companion to the Roman Army,” Erdkamp, ed. 2011. 42 McCain, J., Remarks quoted in The Wall Street Journal. Available at [http://online.wsj.com/article/SB122178318884054675.html] 43 Jones, A. H. M., A History of Rome Through the Fifth Century, vol. 2, at 310. Harper & Row: 1970. 44 Rostovtzeff 1957 at 471. 45 De mortibus persecutorum / edited and translated by J.L. Creed., 1984 at 11. 46 Id. at 13. 47 Id. 48 Id. 49 Id. 50 Id. 51 Id. 52 Id. 53 Rostovtzeff 1957 at xi.

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54 Finley, M. I. (1970) “Manpower and the Fall of Rome.” In Cipolla, C. (ed.) The Economic Decline of Empires, 89. 55 Id. at 88. 56 Oertel 1934 at 382. 57 Finley at 86. 58 Id. at 87. 59 Id. at 89. 60 Id. 61 Mommsen, T., “St. Augustine and the Christian Idea of Progress: The Background of the City of God,” in Journal of the History of Ideas, at 346. 1951. 62 The Great Inflation of 1965 to 1984, “the climactic monetary event of the last part of the 20th century” according to Allan Meltzer, saw at its height an annualized inflation rate of 13.7%. Cf. Meltzer, A. H., Origins of the Great Inflation. [http://research.stlouisfed.org/publications/review/05/03/part2/Meltzer.pdf] 63 Gibbon 1776 at 30.

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