On today’s show we’re taking a short trip through the history books to see what history might teach us about today.
The year was 27 BC and Augustus was the emperor of Rome. Their money was the roman denarius, made of 98% pure silver. The pure coinage remained until 64AD when there was the Great Fire of Rome which destroyed close to 60,000 buildings, almost 90% of the dwellings in the city. Nero was the emperor at the time and it took a lot of money to rebuild the city. In order to afford the rebuilding, Nero made monetary reforms which reduced the silver content in the coins to 93%.
Emperor Vespasian reduced the silver content to 89%, Marcus Aurelius reduced the silver to 75% and Septimius Severus reduced the silver content to 50%.
By the time Gallienus was Emperor from 260AD to 268AD, the denarius had a meager 2.5% silver content. These coins were made of bronze and had a thin coating of silver which tended to wear away very quickly. It was during the time of Gallienus, despite a number of military victories, that important provinces started to splinter away from the Roman Empire. From 249AD to 262AD, the Plague of Cyprian which lasted 13 years caused widespread shortages across the empire and was one of the major contributing factors to the eventual demise of the Roman Empire. Rome was the epicenter of trade in Europe. As the coins had less and less silver, soldiers in the empire demanded higher pay. Prices for commodities increase. Eventually runaway took hold. By 265AD, there was less than 0.5% silver left in the coins and prices increased 1000%. Only mercenary solders were paid in gold.
The trifecta of rising administrative costs which caused soaring taxes, runaway inflation and worthless money caused much of Rome’s trade to collapse.
I totally understand why governments all over the world are printing money in response to the pandemic. In some ways, I think they have little choice.
Many think that we’re not in an inflationary period. That prices are not rising out of control. So the printing of money is appropriate. Remember, inflation is an average. We have seen prices for oil drop in the short term as the level of economic activity fell during March and April. What will happen when there are shortages of food? What will happen when there are shortages of building materials like steel or ceramic tiles? Will those prices go up? In places they already have gone up in price.
You see, if printing money were the path to prosperity, the Zimbabwe and Venezuela would be the richest nations on earth and they’re not.
So here we are in the year 2020 AD. We have global trade splintering into local trade. We have plagues. We have printing of money.
Every time this has been tried in human history, the path to prosperity has been interrupted by economic collapse. We’ve seen this movie before. We know the ending. The actors are different in this remake of the movie. But the plot is basically the same. I’m calling this movie “The return of Caesar’s coin stamping machine, part 29.”
When newly printed money is dropped from the sky, it’s not falling uniformly, or even fairly on the population. It’s going to some people first, and then to others not at all. When the unfairness of this wealth transfer has become visible in the past, the result has almost always brought armed conflict.
The headlines this morning tell the story of economic recovery that is now underway. The economy is the result of output of its people, not the printing of money.
When people are sitting at home, collecting a check from the government, they’re not producing. That check breeds dependence. It stifles creativity. I know that I would not be thinking hard about business strategy if I was getting paid to sit home and watch movies.
In truth, I don’t think I would want that check.