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By Ronald-Peter Stoferle, Incrementum AG Liechtenstein

June 7 (King World News) - Rome, The United States & The Path To Destruction

History repeats

A look into history reveals a number of interesting analogies with regard to the status quo. No analysis of the monetary policy is complete without the analysis of the general state policies. Monetary, financial, military, and economic questions are closely interwoven. The monetary policy thus also serves the subjective requirements of the political elite....

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“Among the countless evils that bring about the demise of entire states, these four are probably the prior ones: internal discord, high mortality, infertility of the soil, and the deterioration of the money. The first three are so apparent that hardly anybody would contest them. The fourth evil, however, which stems from the money, is only noticed by a few, and only by those, who think deeply, for the states fall victim to demise not at the first attempt, but gradually, and almost invisibly.” -- Nikolaus Kopernikus

The perfidious goal of inflation was achieved in ancient times by reducing the content of precious metal or the weight of the coin. The weight of the “Aureus” fell from 10.5 grammes (about 20 B.C.) to 0.77 grammes (260 A.D.). The silver content of the denarius coin was gradually reduced as well in order to finance bread and circuses, the bloated bureaucracy, and the rising military expenses. In the 1st century B.C. the silver content was close to 95%, and by 286 A.D. the denarius only consisted of a mere 0.02% of silver.


Rome was thriving in times of low taxes. However, in the course of time the emperors started securing the good will of the people by extending gifts. Excessive administration, overregulation, and rising taxes were gradually undermining the public budget. Peak inflation was reached in the 3rd century, when Rome was turning more and more into a welfare state. When about one million people populated Rome, free wheat and later bread were given to 300,000 citizens. Emperor Augustus had stimulus packages passed, and thermal spas, streets, aqueducts, and temples were built.

Diocletian (284-305 A.D.) was particularly ingenious in putting inflation to his use. He stepped up the money supply by a massive degree, reduced the content of precious metal in the coins, and issued bronze and purer copper coins. Taxes were raised to finance the military. In 301 A.D. Diocletian passed his infamous Edict on Prices, fixing the prices of goods and services. Whoever violated said edict was sentenced to death. Of course Diocletian’s notion that the hoarding of goods and speculators were responsible for inflation turned out to be incorrect. The Draconian punishment had little success, because the root of inflation was not being dealt with. This resulted in the first documented case of hyperinflation. While a pound of gold was traded at 50,000 denarii in 301 A.D., the price had increased 50 years later to 2.12 billion dinarii, which represented an increase by the factor of 42,000. Within a century, inflation – as measured by the price of Egyptian wheat – increased to 15,000 percent. The example of the decline of the Roman Empire highlights impressively how swelling bureaucracy and the misallocation of resources can lead to inflation and in the long run even to collapse.

“The state of the monetary system of a people is a symptom of all its states.” -- Joseph Alois Schumpeter.

The analogies to the present are alarming. The imperial overexpansion and disproportionately excessive level of debt of the United States has caused the currency to deteriorate, much like in the Roman Empire. Nowadays too, the dependence on public transfers seems to be gradually on the rise; the following chart shows a perfect upward trend. It illustrates the share of public transfers in total disposable income. The share that the Americans are earning through gainful employment has been on a continuous decline, whereas dependence on government transfers has been constantly increasing.

Government transfers in terms of total income since 1929

The law of diminishing marginal return holds in general. If the expansion of the money supply created the public welfare, there would be no poverty or unemployment.

Societies react to crises by stepping up their complexity and thus try to solve their problems. Every investment drawing on resources -- usually energy or money -- achieves a lower rate of return than the investment before that. Therefore the additional (marginal) investment uses the resources without any adequate increase in value until the marginal return on capital of the social complexity turns negative. But given that society knows how to solve problems only by becoming more complex, it soon starts crumbling under its own weight.

According to Prof. John Casti a society loses its complexity very quickly once it collapses. He likens the demise of ancient Rome to the United States of tomorrow.

“A great empire, like a great cake, is most easily diminished at the edges." -- Benjamin Franklin

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