How Inflation Precipitates Societal Collapse

“…if inflation is not eliminated very soon, all  our technological and scientific improvements will not prevent us from a tremendous  financial catastrophe that will destroy practically all that civilization has created  in the last several hundred years. ” Ludwig von Mises, Ludwig von  Mises on Money and Inflation The philosopher George Santayana stated  that “Those who cannot remember the past are condemned to repeat it”, and in the  modern day we are committing a massive economic blunder which has brought  ruin to countless past societies. Central banks are inflating our money supplies  at rates that could bring about the collapse of our economy and pull-down civilization with it. 

And in this video, using the example of Rome, we will explore the destructive  effects of a policy of inflation. “No matter how modest or benign it may seem at  first, an inflationary policy is…always [fatal] in the long run. It has been tried many times  and has always failed.

It does not solve the problems of the society; it aggravates them and  leads inexorably on toward self-destruction. ” William Ophuls, Immoderate  Greatness: Why Civilizations Fail Inflation is defined in several ways. Some use it  to refer to a rise in the general level of prices, or what can be called price inflation, others  use it to refer to an increase in the supply of money issued by a government or a central  bank, which is called monetary inflation.

For the purpose of this video, we are going to  concentrate on the latter phenomenon as monetary inflation leads to price inflation  and so can be considered the more primary phenomenon. Or as the 20th century  economist Ludwig von Mises explains: “Prices are going up because there  is an additional quantity of money, asking, searching for a not-increased quantity of  commodities. And the newspapers or the theorists call the higher prices, “inflation.

” But the  inflation is not the higher prices; the inflation is the new money pumped into the market. It is  this new money that then inflates the prices. ” Ludwig von Mises, Ludwig von  Mises on Money and Inflation In the early Republic of Rome, the Roman State  engaged in a policy of territorial expansion and with each conquest of a neighboring region the  State plundered the defeated empire’s treasury and increased its own hoard.

However, after suffering  defeat against the Germans in 9 A. D. , Emperor Augustus terminated the policy of expansion and  the flow of wealth from foreign lands ceased.

Augustus, and the emperors who followed, thus  faced insufficient revenue. Taxes could only be raised so much without whipping up the sands of  revolt, and so, as Joseph Tainter explains: “When extraordinary expenses arose the supply  of coinage was frequently insufficient. To counter this problem, Nero began  in 64 A.

D. a policy that subsequent emperors found increasingly irresistible. ” Joseph Tainter, The Collapse of Complex Societies This policy involved debasing the value of  the standard Roman silver coin, the denarius, by infusing it with cheap metals such as copper,  and “clipping” both gold and silver coins, or in other words, reducing the size of them.

The  excess precious metal obtained from clipping and debasing coins was then used to create more coins,  and with these newly minted coins the Roman State covered its debts and expenses and fattened the  pockets of statesmen and political insiders. The modern equivalent of this policy is the  expansion of the supply of paper, or digital, money. However, whether one debases and  clips coins in order to create more coins, prints more paper money, or adds digits  to an account held with a central bank, the result is the same – monetary inflation. 

The quantity of money is increased, and all other things equal, this leads to price  inflation and a rise in the cost of living. During a monetary inflation the newly created  money does not enter the economy in a uniform manner. It tends to first enter the economy  through the hands of the politically connected.

As these people and institutions are able to  spend the newly created money before the monetary inflation drives up prices, they benefit from the  inflation. Or as Jesus Huerta de Soto writes: “The process [of monetary inflation] gives  rise to a redistribution of income in favor of those who first received the new  injections or doses of monetary units, to the detriment of the rest of society, who find  that with the same monetary income, the prices of goods and services begin to go up. ” Jesus Huerta de Soto, Money, Bank Credit, and Economic Cycles In ancient Rome the State took advantage of the delay between the debasement of the denarius and  the market’s realization of its diminished value.

It paid its debts and expenses with newly minted  and debased coins, at prices that did not reflect the increase in the supply of money. In this  way the political elite of Rome discovered a means to increase their spending, whenever  they wanted, without raising taxes. And so, following the example set by Nero, whenever an  emperor faced a shortage of funds, sought to expand the military, institute a new project or  program, or merely enlarge the State’s treasury, he would debase and clip coins and increase  the supply of money.

And as Mises writes: “If you want to study [inflation] today, go to  a museum where they have coins minted in the past and see what happened to the silver  coins of the ancient Roman Empire…And there you will see what governments did in order  to profit by falsifying the system of money, by increasing illegally and against the wishes  of the people, the quantity of money. ” Ludwig von Mises, Ludwig von  Mises on Money and Inflation By the year 200 A. D.

, the denarius was debased  to 50% of its original silver content, and the rising prices that followed became impossible  to ignore. At this time the Roman State was, in the words of Harold Mattingly, “moving steadily  in the direction of bankruptcy”. And so, despite the rising prices, the State decided to try to  maintain the illusion of prosperity by continuing with its policy of inflation.

And as a result: “By the latter part of the third century the currency was so worthless that the State  resorted to forced labor… the State was so unable to rely on money to meet its needs that  it collected its taxes in the form of supplies directly usable by the military and other  branches of government, or in bullion to avoid having to accept its own worthless coins. ” Joseph Tainter, The Collapse of Complex Societies Referring to what happens to a society  when its system of money is progressively destroyed by inflation, the American  historian Otto Friedrich explained: “If all money becomes worthless,  then so does all government, and all society, and all standards. ” Otto Friedrich, Before the Deluge This breakdown in the social order was readily  apparent in Ancient Rome.

During the period between 235 and 284 A. D. , groups of military  deserters, whom the Roman State was unable to pay, roamed the countryside, pillaging small towns  and farms.

Barbarians sacked and burned towns, destroyed crops, stole cattle, and carried  Romans away into slavery. The average reign for an Emperor was a few months, many Roman emperors  were executed, and at one time 30 different men laid claim to the throne. Civil wars were common. 

The population declined. Lawlessness prevailed in what remained under Roman control. “From barbarism to civilization requires a century; from civilization to  barbarism needs but a day.

” Will Durant, The Reformation:  The Story of Civilization In the attempt to deal with rapidly rising prices,  in 301 A. D. the Emperor Diocletian made the mistake that so many politicians commit during  an inflationary period.

Refusing to acknowledge that rising prices were primarily driven by the  State’s policy of monetary inflation, he tried to solve the problem by implementing price controls  for goods such as wheat and other necessities. However, these price controls led to shortages,  the ruin of merchants and the decimation of trade between the various regions of Rome. “Sheer  necessity led to the repeal of the law.

”, explained Lactantius, an advisor to the Emperor  Constantine. At one point Diocletian considered restoring value to the coinage, but the State  lacked sufficient stores of silver and gold. Faced with massive expenditures and an ever-growing  debt, Diocletian, and the emperors who followed him, felt their hands to be tied and so  continued onward with a policy of inflation.

“Just as when you start to use certain drugs  you don’t know when to stop nor how to stop, it is the same with [inflation], the  governments don’t know when nor how to stop. ” Ludwig von Mises, Ludwig von  Mises on Money and Inflation Due to the State’s prolonged policy of  inflation, in the first half of the 4th century hyper-inflation kicked  in. Joseph Tainter writes: “In the second century a modius of  wheat (approximately nine liters), during normal times, had sold for 1/2 denarius…the same modius of wheat sold in 335 A.

D. for  over 6000 denarii, and in 338 for over 10,000. In 324 the gold solidus was worth 4250 denarii,  yet by 337 it was worth 250,000.

By 363 the value stood at 30,000,000 denarii to the solidus. ” Joseph Tainter, The Collapse of Complex Societies Whatever savings commoners held in denarii  were reduced to a value of practically nothing. Those who could not pay their taxes were  jailed, and so some families abandoned their homes and possessions or else  sold their children into slavery.

“In talking about inflation, we  should not forget that…there is the danger that depriving the masses of their  savings will make them desperate…” Ludwig von Mises, Ludwig von  Mises on Money and Inflation Farmers became dependent on their next harvest.  Whatever crops were brought in were immediately sold to cover the cost of taxes. If barbarians  raided, or if a drought or locusts destroyed their crops, they borrowed from neighbors,  starved, or were jailed by the State.

“Under conditions of famine it  was the farmers, amazingly enough, who were the first to suffer, often flocking  to cities that held stores of grain. ” Joseph Tainter, The Collapse of Complex Societies Due to increasing lawlessness, unrest and revolt, the political elite felt their power  slipping away and so they grew desperate. Despite widespread poverty and famine,  the State grew more authoritarian and continued to increase taxes and inflate the  currency.

However, by the 5th century, the peasantry was too decimated from prolonged State  predation, and so, as Joseph Tainter writes: “The advantage of empire declined so  precipitously that many peasants were apathetic about the dissolution of Roman rule,  while some actively joined the invaders…the Roman Empire lost both its legitimacy and  its survivability…The empire could no longer afford the problem of its own existence. ” Joseph Tainter, The Collapse of Complex Societies The story of Rome contains often neglected,  but important lessons. One of these lessons is that when a government, or banking  elite, claims the right to expand the supply of money without limits, it plays with  a fire that can quickly spiral out of control and end in economic ruin, revolution, or  even outright societal collapse.

The only way to protect against the dangers  of a policy of monetary inflation is for the control of money to be taken out of the  hands of governments and central banks. The interactions of people, voluntarily  exchanging on the market, must beget forms of money which are widely used, and which  cannot be manipulated by any man or institution. For as Mises wrote: “Through a long evolution, governments, or certain groups of governments, have promoted the  idea that money is not simply a market phenomenon, but that it is whatever the government calls  money.

But money is not what the government says… Money is the generally accepted and generally used  medium of exchange; it is not something created by the government; it is something created by the  people buying and selling on the market.