Socialism, Roman Style

The role of money in Roman credit crises can be carefully examined. The recurrence of credit panics on the surface seems incongruent with the discipline of hard money developed in the Roman Republic.

But as a reserve, silver expanded geometrically, acting as a rudimentary version of today’s fiat backing, and its production was under complete government control in state-owned mines. Once the mines were depleted, emperors would resort to clipping and other forms of currency debasement.

Under pressure from the populist Assembly, the government repeatedly accommodated overextended debtors as a group, and windfalls of new money were introduced to the system when conquests were made, pulling a rabbit out of the hat often in times of extreme asset price deflation.

For the record, there are other popular notions that could be explored in each era, such as the depravity of the Empire, the extension of military power, and the role of religion. But the role inflating the currency reserve played in stimulating the offering and use of excessive credit to fund real estate investment cannot be understated.

When combined with government policies that repressed consumer price inflation and eventually led to an expanded welfare state, respect for private property would diminish and incentives for economic growth would completely disappear. Eventually serfdom and autarky would take its place.

The economic deterioration of the Roman Empire set in during the second century, well after its most prosperous time, which in fact arose out of the Republic that began to fade away starting with Julius Caesar’s consolidation of power.

The Founding Fathers of the United States were acutely aware of the fragility of political systems such as the early Roman Republic, and in fact the standard good education of their day was grounded upon the classics.

Washington was compared to Cincinnatus, the farmer of a few acres outside Rome who was chosen to lead his republic in battle, and likewise when offered kingship, refused it to return to his land.

Washington, along with Franklin, Jefferson, and others who convened the constitutional convention of 1787 knew full well that the Roman republic was short lived and replaced by an imperial state.

Democracy had rarely been tried nor had it achieved sustained success through history on a large geographic scale, and their vision was to maintain its advantages through creating tension between the executive and legislative branches, with impartial arbiters of constitutionality weighing in from time to time from the judiciary.

An important but now diluted concept they cherished was that of representative government, wherein each Congressman would be tied to a small number of citizens, thus avoiding the development of a powerful oligarchy beside the executive as was the case beneath the emperor in the middle years of Rome’s ascendency.

The judicial branch was seen by Madison to be the least likely to inveigh supreme power, despite the name of its highest court, for judges were expected to be readers of statutes and not writers of new legislation.

Little did they know that this characteristic, that is being impartial technicians who are best able to interpret the intentions of legislators, became the rationale for the unconstitutional delegation of power by Congress to politically unaccountable bureaucrats started under Woodrow Wilson’s leadership.

The story of why Rome disintegrated in its final 200 years attracts those who would draw analogies to the tenets of governmental systems they would favor in the current day.

Great questions are debated over decades and sometimes centuries. The chief debate of our era in the Western World is between socialists and capitalists.

One would think that with the unqualified collapse of the Soviet Union, the transformation of China into a quasi-capitalist state, and the pitiful condition of satellites such as North Korea and Cuba, there would be little intellectual justification for any system reliant upon centralized planning of resources or the redistribution of income.

Yet that is not the case, for there is a strong human instinct for tribal culture, wherein the group is revered over the individual.


Bill Baker,
for The Daily Reckoning

[Editor’s note: This passage is reprinted from William W. Baker’s book, Endless Money: The Moral Hazards of Socialism, with the permission of John Wiley & Sons, Inc (©2010). You can get your own copy here.]