You have really added dimensions to my thinking. Thank you very much.
One thing that continues to puzzle me is how empire’s die and inflation/deflation.
I get the part about the deflationary aspects of killing the economy via regulation and taxation. It is right in front of us every day. I get the part about that will not allow hyperinflation ala Germany and Zimbabwe.
What I do not get is how you can debase the currency such as you show in various Roman currency charts and not have significant levels of inflation [to me that is 10%+ per year]. If you debase the currency does not the person using that currency suffer a wealth reduction in their capital and therefore require more of the same currency to buy the same amount of goods [inflation?]? Seems like ‘stagflation’ at best.
Thanks for your continued help.
ANSWER: We are all victims of how we were taught to think in a linear fashion. It is a difficult thing to let go of this archaic thinking process and many people simply cannot make that step forward to see the dynamic world that exists around them. They will forever remain captive of their linear world trapped in a paradox they cannot escape. Those linear people tend to be people who gravitate toward government. If you grasp what I am talking about no doubt you are nearly there or you would not read this blog since it is not for the fainthearted nor the linear thinker.
What was written about Winston Churchill in the Last Lion is on point. Winston Churchill’s teacher, Davidson, had conceded that Winston was quite remarkable and intelligent. His grasp of history was outstanding. However, Winston was still considered to be a hopeless pupil. “It occurred to no one that the fault might lie, not in the boy, but in the school. Samuel Butler defined genius as “a supreme capacity for getting its possessors into trouble of all kinds,” and it is ironic that geniuses are likeliest to be misunderstood in classrooms. Studies at the University of Chicago and the University of Minnesota have found that teachers smile on children with high IQs and frown upon those with creative minds. Intelligent but uncreative students accept conformity, never rebel, and complete their assignments with dispatch and to perfection. The creative child, on the other hand, is manipulative, imaginative, and intuitive. He is likely to harass the teacher. He is regarded as wild, naughty, silly, undependable, lacking in seriousness or even promise. His behavior is distracting; he doesn’t seem to be trying; he gives unique answers to banal questions, touching off laughter among the other children. E. Paul Torrance of Minnesota found that 70 percent of pupils rated high in creativity were rejected by teachers picking a special class for the intellectually gifted. The Goertzels concluded that a Stanford study of genius, under which teachers selected bright children, would have excluded Churchill, Edison, Picasso, and Mark Twain.” (id/pg 158-159)
This is why our thinking process is so archaic. Schools want order – not to be challenged. They are the teachers, not the students. The best and the brightest typically leave school or graduate to have the piece of paper and pursue a field in which they never studied. Schools want linear thinking – not dynamic. This is our greatest curse for to advance, you have to think out of the box. They ridiculed Einstein. They accepted his ideas only when forced to do so.
In economics, we are plagued by one-dimensional theories that lead nowhere and are constantly proven to be wrong. Inflation is not a single one-dimensional field. It is driven by various causes. The central key component is DEMAND for here we have a rather binary stimulant that produces important different effects.
If the economy is in a boom and people are BULLISH, then you will also find economic growth and the typical inflation that people expect – rising prices that are really driven by DEMAND. However, you can also have a decline in economic growth with rising prices that ends up being DEFLATIONARY for it depends upon what you are measuring. Such trends produce the rise in the cost of government (inflation) mixed with the decline in disposable income (deflation) as government expands and consumes an ever increasing proportion of society’s total productive capacity.
Such confusion admixture trends of inflation/deflation emerge with rising prices because of the rise in taxation and regulation increase the cost of doing business. This is by no means set in motion by rising DEMAND. The total volume of business declines asDEMAND collapses with the velocity of money. The first trend of inflation with rising prices coincides with a BULL MARKET and the second form of rising prices unfolds with aBEAR MARKET driven by rising taxes and regulation – not an increased in DEMAND. This is part of the eternal battle between Public and Private sectors.
The hyperinflationists are linear-thinkers. They build everything upon the idea that an increase in money supply MUST result in rising prices and thus inflation. They assume a one-dimensional fixed relationship and cannot see the binary aspects of DEMAND that produce the bull and bear market trends. To them, they are locked into this primitive archaic thinking process that there must be a single relationship that is constant. They cannot grasp for an instant the dynamics of the real world.
In the case of Germany, it was a communist revolution where many wanted to join Russia and outlaw all private wealth. Money fled the banks and was hoarded or left town out of fear they might succeed. Capital moves ALWAYS in anticipation. This resulted trend of a flight of capital resulted in the collapse of the German monetary system as was the precise case in Russia for the very same reasons. When the government steered away from communism, there was no gold or silver left in the banks so the replacement currency was backed by real estate – not precious metals. This reflected TRUE wealth – the productive capacity of the people.
Japan had a different sort of collapse. Each emperor issued new coinage and devalued the previous coinage in circulation. He decreed that his coinage was now worth 10 times that of previous issues. Eventually, the Japanese people did not trust money issued by their own emperor and resorted to bags of rice and they used Chinese coins just as many nations use dollars today – the EMPIRE syndrome. Hence, Japan lost the ability to issue coinage for 600 years. Zimbabwe followed this path were people adopted currencies of other nations. This is why the Japanese emperor lost power and became stooges of of generals – shoguns. Japanese society fragmented until the Meiji Era – restoration of a strong emperor.
This is the real strength behind the dollar – the currency of the dominant EMPIRE. It is the lack of ability and confidence in the currencies of other nations such as Russia, China, and even developing now in the Euro. The net result has nothing to do with money supply compared with CONFIDENCE in the government. Germany makes this fatal mistake of imposing austerity upon the rest of Europe assuming it is only money supply. This theory is destroying Europe tearing it apart at the seams. Unfortunately, there are now far too many people living off the taxes in Brussels in charge and they will not go quietly into the light. They will rage against the fading of the light. The Euro is collapsing for fear it will not survive and no degree of monetization will reverse the economic implosion. We are in the collapsing stages as was Rome. This is a CONFIDENCE factor those in charge are refusing to see.
Why did the Roman monetary system collapse in 8.6 years where the coinage of Gallienus goes from silver to bronze? His father, Valerian I, was the first Roman Emperor to ever be captured. He was kept alive by the Persian king, used as a footstool as depicted on this relief in Iran. When Valerian I died, he was stuffed and put on display as a trophy. Rome could do nothing. The CONFIDENCE in the empire collapsed. Everyone was suddenly afraid of invasion.
The Roman people began to hoard money and expected the worst to unfold. This created DEFLATION as the money supply shrank due to hoarding and the velocity of money imploded. Gallienus was forced to debase to pay troops for as the economy imploded, tax revenues collapsed. On the one hand you expect INFLATION under the one-dimensional relationship thinking. When you realize that if the VELOCITY of money collapses (AS WE ARE WITNESSING TODAY) you cannot create more money fast enough to offset the collapse. This is WHY QE1-3 and the QE of the ECB will fail. This is by no means a flat one-dimensional model. EVERYTHING must be considered.
The collapse of the Roman Monetary System was under no condition simply because Gallienus decided to debase the currency. This is the classic Paradox – what comes first – the chicken or the egg? The debasement was not the CAUSE of the collapse of Rome, it was the reaction to the collapse in CONFIDENCE that resulted in hoarding for a rainy day and people stopped consuming luxuries. The economy fell to necessities and those prices did rise.
This is when Rome split into three empires. In Europe, you have Postumus (259-268AD) who breaks away from Rome forming the Gallic Empire – France, Britain, and Spain. He issued mostly visible silver coinage depicting him as the restorer of Gall. The fact he even could issue silver coinage when Rome could not shows that there was CONFIDENCE in his new administration.
In the East, Zenobia carved out her empire. But here coinage remained as that of Rome – bronze silver plated. This illustrates that she did not have the same level of CONFIDENCE as did Postumus for she could not issue silver coins when the people would have hoarded them.
There were 16 emperors in the Roman division between 268AD and 284AD. This is the rarest of all Roman coins probably worth more than $5 million today. This is a historically important coin for it is of Saturninus (280AD). There was a book entitled Historia Augusta. Academics originally called it a fake because it listed emperors nobody heard about. When two gold coins were discovered in Egypt of Saturninus who was named in this disputed list, it proved the book was genuine. (one coin is in our collection and the other is in the Louvre). The discovery of this coin demonstrated that indeed this list of 16 emperor in 16 years reflected the total chaos of the period and the collapse in CONFIDENCE.
This is WHY even Christianity rose NOT because people saw the light or crosses in the sky as Constantine pretended when he faced a Christian army. Romans prayed to the various gods and nothing happened. They turned to Christianity out of desperation – not conversion. Constantine used this religious turn for two material gains. First he declared there was ONE GOD and thus as in haven it should be on earth –ONE EMPEROR. He issued coins showing himself with the sun god Sol who was seen as the supreme gold who was invincible - Sol Invictus (“Unconquered Sun”).
Secondly, Constantine confiscated all the wealth in the pagan temples to fund building Constantinople. He then issued special reduced coinage to celebrate the founding of the NEW CAPITOL of the Roman Empire. He was thereby restoring CONFIDENCE that this would be a new beginning – IT WORKED. This is why we too must crash and burn.CONFIDENCE will only be restored with a new reformed government. The question become – what will that look like?
Constantine threw special coinage to the crowds in parades to demonstrate Rome was renewed. This became a tradition as depicted by his son engaging in the same practice on his coinage. So the whole shift to Christianity was the direct result of Valerian being captured that shook the very foundation of Rome itself. Romans were then praying for security that did not come so they change gods.
This is why I named the business cycle model the Economic Confidence Model. The cornerstone is what the public believes. Lowering interest rates to NEGATIVE will not cause people to borrow and invest rekindling the economy while you simultaneously hunt down loose change raising every tax possible and piling on more regulations. This line of linear thinking that lowering interest rates will manipulate society is BRAIN-DEAD. It has NEVER worked a single solitary time in history and there is ZERO evidence anyone can point to without ignoring everything else.
Sorry. Theory is nothing. It requires OPEN minds and just follow the capital flow without predetermined conceptions. Let the economy and history teach you – not prejudiced academics who support dead theories. Milton Friedman was a rare exception for he thought out of the box and never remained fixed always open to explore. There is no one-dimension in which we should confine ourselves. That is stupid and archaic thinking.
The stock market has NEVER peaked twice in history with the same level of interest rates because there cannot be a one-dimensional relationship to anything. Interest rates will impact the stock market ONLY when they exceed expectations of profits in a DEMAND led boom. Stocks are NEVER suppressed when capital is fleeing government because it fears that government may not survive in its present form. Just as interest rate go negative in a crisis to park money, stocks will rise when bonds collapse likewise to park money when it is government you fear.
Likewise, there is lot more to inflation and deflation. Government and all the academic theories ignore the battle between Public and Private. If you increase the money supply by $1000 and increase taxes by $2000, it is really being BRAIN-DEAD to look only at the quantity of money increase and ignore everything else. This is what the hyperinflationists have been doing. This is why they are wrong and why they have cost so many people so much money. Many still call for the stock market to fall to 10 cents on the dollar without a single thought beyond the linear world in which they exist.
So don’t worry – be happy. The press will never cite this article because it drives a spike into traditional archaic linear-thinking. This is a realization that will come only with the crash and burn mixed with a lot of pain.
Banking has existed for a long time. The idea of debt dates back to the ancient world, as evidenced for example by ancient Mesopotamian clay tablets recording interest-bearing loans. Far too many people attribute our financial doom to fractional banking etc. They are actually taking the side of the bankers who want money to retain its purchasing power or rise rather than devalue with economic expansion. Indeed, they are in truth arguing for austerity that is tearing Europe apart at the seams. They honestly do not comprehend what they are supporting. They want money to retain its value, yet they expect profits from investment, trading, and their home to rise in value with wages.You cannot have your cake and eat it simultaneously. What these theories tout is the stuff that Euroland was supposed to create and it is now sending the entire global economy into a major economic decline not seen since the 1930s along with the US law FATCA hunting down Americans globally lie dogs.
Here is a picture I took in the Roman Forum. This was the ancient Wall Street of its day known as the Via Sacra (Sacred Road). Cicero (106-43BC) wrote that anytime there was news of a disaster in Asia Minor (modern Turkey), a financial panic would be unleashed in the Roman Forum on this very street. The Via Sacra was the main street of ancient Rome, leading from the top of the Capitoline Hill, through some of the most important religious sites of the Forum (where it is the widest street), to the Colosseum.
Asia Minor was the “emerging market” into which the Romans invested and lent money no different from today. Cicero tells us that the infamous traitor Brutus (85-42BC) who had lent money to the King of Cappadocia (Turkey) and to the city of Salamis at a 48% rate of interest. Brutus was not defending the people and the Republic when he killed Caesar, but his own greedy power. Brutus’ coinage depicts his own image declaring he killed Caesar proudly for the people on the 15th of March (Ides of March – EID MAR). This is why history repeats because human nature and ideas are always the same.
The Roman bankers would line theVia Sacra in the more modern days of ancient Rome. Previously, the temple on the Capitoline Hill served both as the bank and the official mint where coins were produced. This was part of a tradition where people were trying to buy redemption with donations to temples. Since the various gods never spent the MONEY, it became a hoard of cash that served as “capitalization” for early forms of bankers where priests who would lend out the MONEY from the Capitoline Hill (capital) for a profit. This profit became known as interest that was literally acquiring an “interest” in the venture for which MONEY was borrowed. Such interest would be in things as planting next season’s crops or a voyage for trade. The second reason religion became involved in some cultures as the producer of MONEY was because supposedly the priests were trustworthy – no doubt like our politicians claim to be honorable today.
In the case of Rome, the actual mint was on the Capitoline Hill at the head of the Roman Forum located in the most venerable temple of ancient Rome. Situated on the Capitoline hill this temple was dedicated to Jupiter Optimus Maximus who was the Roman king of the gods also known as Jove and his two companion deities: Juno and Minerva. Juno is the Roman goddess of love and marriage and is the equivalent of the Greek goddess Hera. This was a holy trinity or triad so to speak between the three of them – Jupiter, Junoand Minerva. Juno was the Queen of the Gods. Minerva (Etruscan: Menrva) was the Roman goddess of wisdom and sponsor of arts, trade, and strategy. She was born with weapons from the head of Jupiter.
A sacred flock of geese were kept there at the Temple on the Capitoline and in 387BC, there was a marauding Gallic tribe that swept down from the Po River valley and sacked Rome extracting a heavy ransom in gold. Rome is said to have been founded in 753BC when their last Tarquin King was overthrown creating the Roman Republic in 509BC. This was followed by its first Etruscan war fought against the Fidenae (437-426BC). Consequently, the Gallic Invasion was a serious blow and no doubt would provide for good reason to conquer Gaul 300 years later by Julius Caesar.
As the legend goes, the Gauls attempted to invade the city quietly, but had frightened the sacred flock of geese that made a lot of noise. This alerted the Romans to the surprise attack giving us the word “monere“ meaning in Latin to warn. The Temple of Juno then became popularly known as the Temple of Juno Moneta. Since this is where the coins were minted, we now arrive at the word “MONEY” that springs from the origin of this legend and place that was an ancient mint. Our terms such as capital flow now arrives from the Latin word “currere“ meaning “to run” or “to flow” and this is where the MONEY flowed from giving us the word “CURRENCY” meaning the flow of MONEY. This is why Juno Moneta is pictured on Roman coins as holding the balance scales in one hand and a cornucopia in the other symbolizing endless bounty or wealth. This is the birth of the terms MONEY and CURRENCY.
During the Roman Republic (509-27BC), there were societates publicanorum, which were organizations of contractors or leaseholders who performed various services for the government – privatization. Participants in such organizations had partes or shares in the venture. This is the origin of corporate shares. This form of financial instrument was mentioned various times by Cicero. In one speech, Cicero mentions “shares that had a very high price at the time.” These shares rose and fell as they do today for the driving force was human emotion. These instruments were tradable, with fluctuating values based on an organization’s success. The societas going work for the government declined during Imperial Rome as most of their services were taken over by direct agents of the state – bureaucracy. Corporate shares thus became private ventures. These shares traded in the temple.
The word “corporation” derives from corpus, the Latin word for body, or a “body of people.” By the time of Justinian (reigned 527–565AD), Roman Law recognized a full range of private corporate entities under the names universitas, corpus or collegium. Even government itself organized itself as corporations (the populus Romanus) such as cities and municipalities. There were private associations as sponsors of a religious cult, burial clubs, political groups, and guilds of craftsmen or traders. Such entities commonly had the right to own property and make contracts, to receive gifts and legacies, to sue and be sued, and, in general, to perform legal acts through their representatives. Private associations were granted designated privileges and liberties by the emperor. These corporations carried on business and were the subjects of legal rights enabling a business to survive the death of its founder. This was a invention of ancient Rome. We also find their existence in the Maurya Empire located in ancient India.
Therefore, we have banks and corporations with contracts, interest, and share trading on ancient exchanges. Large sums of money changed hands in Roman times. People purchased real estate, financed trade, and invested in the provinces occupied by the Roman legions. Cicero writes, in Epistulae ad Familiares 5.6 and Epistulae ad Atticum 13.31, respectively: “I have bought that very house for 3.5 million sesterces” and“Gaius Albanius is the nearest neighbor: he bought 1,000 iugera [625 acres] of M. Pilius, as far as I can remember, for 11.5 million sesterces.” One sesterius was about 30 grams at that time – lot of weight. Four sesterii equaled one silver denarius about 3.8 grams the size of a dime equal to 875,000 denarii. At the time of Augustus (27BC-14AD) asoldier earned about 230 denarii a year. Cicero’s house was a very lot of money or 3804 years of work for a soldier.
Obviously, Cicero did not pay three and half million sesterces physically. That would have meant packing and carrying some three and half tons of coins through the streets of Rome. When C. Albanius bought an estate from C. Pilius for eleven and half million sesterces, there is no way such transactions took place in tangible coin. Unquestionably, such transactions were paid by documentary transfers authenticated typically with a signature ring. The commonest procedure for large property purchases in this period was the one casually alluded to by Cicero [De Officiis 3.59] “nomina facit, negotium conficit’ . . . provides the credit [or ‘bonds’–nomina], completes the purchase.”
These nomina are actually the term “nominal”. The Romans kept account books known as nomen. OriginallyWith time, by the end of the Republic this terms simply meant “debt,” referring to the entries in the creditor’s and the debtor’s account books. Finance fueled the Roman economy at every level. Debt became a standard part of the economy just as consumer credit dominates the modern economy.Pliny the Younger (61 – c. 113AD )writes, for example, (in Epistulae 3.19): “Perhaps you will ask whether I can raise these three millions without difficulty. Well, nearly all my capital is invested in land, but I have some money out at interest and I can borrow without any trouble.”
There were even credit agencies. As long as a party was a worthy creditor (a bonum nomen) Cicero explained that you could transfer the nomina, of one person selling ot to another. For example, Cicero writes to his financial advisor Atticus (Ad Atticum 12.31): “If I were to sell my claim on Faberius, I don’t doubt my being able to settle for the grounds of Silius even by a ready money payment.” Debt was tradable! Debt became money as it serves today. Essentially, there was an active bond market with credit ratings. A payer transferred a nomen that was owed to him to the seller, which was known as a“delegatio.”
The Roman economy was a market economy with a fully developed financial marketplace where nomina were traded – nominal bonds. The Romans therefore created a bond market. The concept of negotiable notes appears to be well understood and was codified within Roman law (The Digest of Justinian XXX.I.44): “A party who bequeaths a note bequeaths the claim and not merely the material on which the writing appears. This is proved by a sale, for when a note is sold, the debt by which it is evidenced is also considered to be sold.”Justinian I (527-565AD) was the famous emperor whose legal code has survived – the law giver.
What about international ancient equivalent of wire transfers? Roman finance actually faced this logistical problem of moving money throughout the Empire.This was known as“permutatio”, which was the transfer of funds from place to place through paper transactions. This is what made Rome’s greatest contribution to the economy and spread economic stability throughout the empire. This was ancient banking that enabled the Roman Empire to expand and everyone wanted to be part of the system.
The publicani were private companies in charge of tax collection in the provinces (as well as many other tasks, They had a branch in Rome and one in the provinces. They could deposit silver in Rome (or transfer them some nomina) and the tax revenue collected in that province could be free for payment there and the tax revenue magically appeared in Rome without transportation. This is also how the Roman Republic would finance its public spending overseas. Since taxes were collected throughout the provinces, by trading claims on taxes Romans could transfer funds across their empire. this was the very same system that the Knights Templar reestablished.
The degree of sophistication of Roman financial system was the secret to its rise. The Knights Templar fueled the rise from the ashes of the Dark Age as they too facilitated the movement of money throughout Europe handling the donations to the Catholic Church. Money could not move because of security. People would routinely be robbed – hence the term highway robbery.
The US Congress in enacting FATCA is causing the total destruction of the world economy. This is reversing the free flow of capital for investment that creates economic expansion and provided the stability of the Roman Empire. Once Philip IV of France seized the Italian bankers, then the Vatican moving it to France, and then used a Frenchman he made Pope to decree the Knights Templar to be devil worshipers, he seized all the money and destroyed the European economy sending it back into a major economic depression.
The seizure of the Knights Templar wiped out the ability of European capital to move. Philip IV was after every coin he could find without any concept of the destruction he has wrought. This is what the US Congress has done with FATCA. Global investment is drying up so fast and liquidity remains at 50% of 2007 levels, when we turn down, this will be the worst decline imaginable. Indeed, the greed for taxation is suffocating the world economy and no degree of increasing the money supply will reverse the implosion.