The Decline and Fall of the Roman Denarius

Post from Dollarvigilante.com

The Dollar Vigilante

History repeats itself, so the scholars say.  But according to Mark Twain it just rhymes.  Literary quips and hair-splitting aside, I’ve found that one of the most valuable things anyone can do to advance their knowledge and understanding of the world is the study of history.  Now I’m not talking about the kind of history you get in grade school and university, where all you’re told to do is rote-memorization of people, dates and events.  To get any value whatsoever out of studying history, you have to be able to discern cause and effect.  What causes civilizations to grow to greatness, and what causes them to collapse?

There are few collapsed civilizations that have been studied in quite the depth as the Roman Empire.  Many theories have been offered, some with more merit than others.  Ludwig von Mises argued that Rome was eroded from within and that economics played a huge part in it.  This is too big of a story for me to cover in a single article, so I will focus on one of the most important aspects; the currency.

For hundreds of years, the Romans were on a bimetallic standard, not unlike the currency system of the early United States.  There was a gold coin, the aureus, which was popularized by Julius Caesar.  There was also a silver coin known as the denarius, which was what most Romans used in their day to day transactions.  It was on a solid gold and silver standard that Rome ascended to the height of its development and power.

One of the greatest enemies of mankind is hubris, and the Roman Empire was certainly not immune to this.  The phrase “bread and circuses” refers to the massive welfare spending that occurred in Rome during the height of its power.  With the treasury filled with gold, spendthrift politicians quickly used the money to buy influence, votes and curry favour with neighbouring states.

“The budget should be balanced, the treasury should be refilled, public debt should be reduced, and the assistance to foreign lands should be curtailed lest Rome become bankrupt.  People must again learn to work, instead of living on public assistance.” – Cicero, 55 BC

When Julius Caesar first began minting large quantities of the aureus it was 8 grams of pure gold.  By the second century it had declined to 6.5 grams and at the beginning of the fourth century it was replaced by the 4.5 gram solidus.  The purity of the coin itself was never debased, but the ever decreasing weight was a sure sign that government spending had been outpacing revenues for centuries.

All of this however, pales in comparison with the devaluation of the denarius.  The denarius was the backbone of the Roman economy.  Citizens earning their income in gold were a rarity given that a day’s wage for an average labourer at the time is estimated at a single denarius.  Thus it also became the target of severe abuse by the Roman authorities.

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The collapse of complex societies

The collapse of complex societies of the past can inform the present on the risks of collapse. Dr. Joseph Tainter, author of the book The Collapse of Complex societies, details the factors that led to the collapse of past civilizations including the Roman Empire.

From Wikipedia:

According to Tainter’s Collapse of Complex Societies, societies become more complex as they try to solve problems. Social complexity can be recognized by numerous differentiated and specialised social and economic roles and many mechanisms through which they are coordinated, and by reliance on symbolic and abstract communication, and the existence of a class of information producers and analysts who are not involved in primary resource production. Such complexity requires a substantial “energy” subsidy (meaning the consumption of resources, or other forms of wealth). When a society confronts a “problem,” such as a shortage of energy, or difficulty in gaining access to it, it tends to create new layers of bureaucracyinfrastructure, or social class to address the challenge. Tainter, who first (ch. 1) identifies seventeen examples of rapid collapse of societies, applies his model to three case studies: The Western Roman Empire, the Maya civilization, and the Chaco culture.

For example, as Roman agricultural output slowly declined and population increased, per-capita energy availability dropped. The Romans “solved” this problem by conquering their neighbours to appropriate their energy surpluses (in concrete forms, as metals, grain, slaves, etc.). However, as theEmpire grew, the cost of maintaining communications, garrisons, civil government, etc. grew with it. Eventually, this cost grew so great that any new challenges such as invasions and crop failures could not be solved by the acquisition of more territory. Intense, authoritarian efforts to maintain cohesion by Domitian and Constantine the Great only led to an ever greater strain on the population. The empire was split into two halves, of which the western soon fragmented into smaller units. The eastern half, being wealthier, was able to survive longer, and did not collapse but instead succumbed slowly and piecemeal, because unlike the western empire it had powerful neighbors able to take advantage of its weakness.

We often assume that the collapse of the western Roman Empire was a catastrophe for everyone involved. Tainter points out that it can be seen as a very rational preference of individuals at the time, many of whom were actually better off. Archeological evidence from human bones indicates that average nutrition actually improved after the collapse in many parts of the former Roman Empire. Average individuals may have benefited because they no longer had to invest in the burdensome complexity of empire. Tainter notes that in the west, local populations in many cases greeted the barbarians as liberators.

This is part 1 of 7 of a keynote talk delivered to the 2010 International Conference on Sustainability: Energy, Economy, and Environment organized by Local Future nonprofit and directed by Aaron Wissner.

 

According to Tainter (1990), too many scholars offer facile explanations of societal collapse by assuming one or more of the following three models in the face of collapse: (Wikipedia)

  1. The Dinosaur, a large-scale society in which resources are being depleted at an exponential rate and yet nothing is done to rectify the problem because the ruling elite are unwilling or unable to adapt to those resources’ reduced availability: In this type of society, rulers tend to oppose any solutions that diverge from their present course of action. They will favour intensification and commit an increasing number of resources to their present plans, projects, and social institutions.
  2. The Runaway Train, a society whose continuing function depends on constant growth (cf.Frederick Jackson Turner‘s Frontier Thesis): This type of society, based almost exclusively on acquisition (e.g., pillage or exploitation), cannot be sustained indefinitely. The Assyrian and MongolEmpires, for example, both fractured and collapsed when no new conquests were forthcoming.
    Tainter argues that capitalism can be seen as an example of the Runaway Train model in that generally accepted accounting practices require publicly traded companies, along with many privately held ones, to exhibit growth as measured at some fixed interval (often three months). Moreover, the ethos of consumerism on the demand side and the practice of planned obsolescence on the supply side encourage the purchase of an ever-increasing number of goods and services even when resource extraction and food production are unsustainable if continued at current levels.
  3. The House of Cards, a society that has grown to be so large and include so many complex social institutions that it is inherently unstable and prone to collapse. This type of society has been seen with particular frequency among Eastern bloc and other communist nations, in which all social organizations are arms of the government or ruling party, such that the government must either stifle association wholesale (encouraging dissent and subversion) or exercise less authority than it asserts (undermining its legitimacy in the public eye).
    By contrast, as Alexis de Tocqueville observed, when voluntary and private associations are allowed to flourish and gain legitimacy at an institutional level, they complement and often even supplant governmental functions: They provide a “safety valve” for dissent, assist with resource allocation, provide for a for social experimentation without the need for governmental coercion, and enable the public to maintain confidence in society as a whole even during periods of governmental weakness.

An example of Tainter’s Critique of Simplistic Models

Tainter argues that these models, though superficially useful, cannot severally or jointly account for all instances of societal collapse. Often they are seen as interconnected occurrences that reinforce each other. For example, the failure of Easter Island‘s leaders to remedy rapid ecological deterioration (“Dinosaur”) cannot be understood without reference to the other models above. The islanders, who erected large statues called moai as a form of religious reverence to their ancestors, used felled trees as rollers to transport them. Because the islanders firmly believed that their displays of reverence would lead to increased future prosperity, they had a deeply entrenched incentive to intensify moaiproduction (“Runaway Train”). Because Easter Island’s geographic isolation made its resources hard to replenish and made the balance of its overall ecosystem very delicate (“House of Cards”), deforestation led to soil erosion and insufficient resources to build boats for fishing or tools for hunting. Competition for dwindling resources resulted in warfare and many casualties (an additional “Runaway Train” iteration). Together these events led to the collapse of the civilization, but no single factor above provides an adequate account.

Mainstream interpretations of the history of Easter Island also include the slave raiders who abducted a large proportion of the population and epidemics that killed most of the survivors (see Easter Island History#Destruction of society and population.) Again, no single point explains the collapse; only a complex and integrated view can do so.

Tainter’s position is that social complexity is a recent and comparatively anomalous occurrence requiring constant support. He asserts that collapse is best understood by grasping four axioms. In his own words (p. 194):

  1. human societies are problem-solving organizations;
  2. sociopolitical systems require energy for their maintenance;
  3. increased complexity carries with it increased costs per capita; and
  4. investment in sociopolitical complexity as a problem-solving response reaches a point of declining marginal returns.

With these facts in mind, collapse can simply be understood as a loss of the energy needed to maintain social complexity. Collapse is thus the sudden loss of social complexity, stratification, internal and external communication and exchange, and productivity.

What Happens If GLD Doesn’t Have The Physical Gold To Back Its Investment Funds?

Final installment of Reggie Middleton’s interview with the CEO of GBI: Gold Bullion International, a Wall Street firm that facilitates trading in  physical gold for retail and institutional investors directly through their brokerage account. This segment covers, among other topics, what would happen if GLD doesn’t have the physical gold backing their funds.

Nanex: HFT is Insatiable – its Hidden Costs

Article by Nanex research:

We have spent the last 24 years working with real-time market data on a tick-by-tick basis. We monitor our commercial datafeed in real-time to stay on top of market changes or issues. This past year, we have spentconsiderable time and effort studying the relentless growth of equity quotes. Based on our findings, virtually all of the additional quotes contribute zero or negative economic value to stock pricing, because they are either way outside the market or end up expiring before any investor or trader could possibly act on them. Furthermore, we can’t find any self-limiting mechanism in place that will ever put a stop to this unnecessary and expensive growth of misinformation. The only thing that prevents a sudden explosion in quote traffic is the capacity limitation set by SIAC which runs the Consolidated Quote System(CQS) for the exchanges.

Read more on Nanex web site

The chart below shows 2 ms peak quote rates on 1 minute intervals, illustrating just how often capacity limits are hit.  Copyright: NANEX llc.

Why the Gold Price is Manipulated – Chris Powell of GATA.org

The Nature of Inflation

Author .  Article from acting-man.com.
_____________________________________________
Official measures of ‘inflation’ or the ‘general price level’ are an attempt to measure the unmeasurable. Moreover, they are constructed in a manner that practically guarantees that what is reported has little resemblance with reality. The details include ‘hedonic indexing’, which is a highly arbitrary method of measuring quality improvements and for which no counterpart – a measure of declines in quality – exists, as well as ‘geometric weighting and substitution’, which assume that consumers will buy less of what has become more expensive and more of what has become cheaper. This fact is used to justify the underweighting of those items in the price index the prices of which have risen.

The reason for all these arithmetic acrobatics is that a price index that makes it appear as though final goods prices were rising only very slowly helps with holding down price-indexed entitlement spending and as a side effect makes monetary policy look a lot better than it actually is.

As we always point out, the fact that after decades of propaganda the meaning of the term ‘inflation’ has been successfully transferred from describing a cause to describing one of its many effects (all of which are negative as it were) is one of the shrewdest tricks the purveyors of the centrally planned fiat money system have pulled off. It is what allows central banks to masquerade as ‘inflation fighters’, while they are in truth the main source of inflation.

No matter what the CPI says however, the fact remains that the broad US true money supply TMS-2 has increased by nearly 60% in a mere four years (from $5.3 trillion in January 2008 to $8.42 trillion in January 2012). Since January of 2000, this measure of the money supply has grown by over 190%. If inflation could create prosperity, we’d surely have arrived in the Land of Cockaigne by now.

Let us briefly explain why it is that all the official ‘inflation measures’ are trying to measure what is inherently unmeasurable. In reality, there is no fixed yardstick or constant against which such a measurement could be taken. Even if the mathematical operations applied made logical sense (which they do not, as they purport to arrive at a sensible number by adding up the prices of  disparate goods – this is logical nonsense from the get-go) and even if the indexes were constructed in a manner that most people would regard as an honest attempt to measure economy-wide price changes, the attempt to create a sensible measurement would still be doomed to failure.

The fact of the matter is that there is a supply of and demand for money itself, which in conjunction with the supply of and the demand for goods is what creates prices. There is in short an interplay of four different forces, all of which are subject to constant change. Given this constant change, we lack an unchanging constant that would allow us to correctly ‘measure’ the effect inflation has on prices. The whole exercise is in other words smoke and mirrors. As Ludwig von Mises points out in ‘Human Action':

“In the field of praxeology and economics no sense can be given to the notion of measurement.In the hypothetical state of rigid conditions there are no changes to be measured. In the actual world of change there are no fixed points, dimensions, or relations which could serve as a standard. The monetary unit’s purchasing power never changes evenly with regard to all things vendible and purchasable.”

“The notions of stability and stabilization are empty if they do not refer to a state of rigidity and its preservation. However this state of rigidity cannot even be thought out consistently to its ultimate logical consequences; still less can it be realized. Where there is action, there is change. Action is a lever of change.

The pretentious solemnity which statisticians and statistical bureaus display in computing indexes of purchasing power and cost of living is out of place. These index numbers are at best rather crude and inaccurate illustrations of changes which have occurred. In periods of slow alterations in the relation between the supply of and the demand for money they do not convey any information at all. In periods of inflation and consequently of sharp price changes they provide a rough image of events which every individual experiences in his daily life.”

“A judicious housewife knows much more about price changes as far as they affect her own household than the statistical averages can tell. She has little use for computations disregarding changes both in quality and in the amount of goods which she is able or permitted to buy at the prices entering into the computation.

If she “measures” the changes for her personal appreciation by taking the prices of only two or three commodities as a yardstick, she is no less “scientific” and no more arbitrary than the sophisticated mathematicians in choosing their methods for the manipulation of the data of the market.”

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$15,OOO,OOO,OOO,OOO Fraud exposed in UK House of Lords

$15 TRILLION is equivalent to the the federal debt of the U.S. Treasury Department. Lord James of Blackheath has spoken in the House of Lords holding evidence of three transactions of 5 Trillion each and a transaction of 750,000 metric tonnes of gold and has called for an investigation.

I think there are three possible conclusions that may come from it. I think there may have been a massive piece of money laundering committed by a major government which ought to know better and that it has effectively undermined the integrity of the British bank the Royal Bank of Scotland, in doing so. The second alternative is that a major American department has an agency that has gone rogue on it because it has been wound up and has created a structure out of which they are seeking to get at least 50 billion Euros as a payoff. And the third possibility is that this is an extraordinarily elaborate fraud which has not been carried out but which has been prepared in order to provide a threat to one government or more if they don’t pay them off. So there are three possibilities and this all needs a very urgent review.

My Lords, it starts in April and May of 2009, with the alleged transfer to the United Kingdom, to HSBC of a sum of 5 trillion dollars and seven days later, in comes another 5 trillion dollars to HSBC, and then 3 weeks later another 5 trillion. 5 trillion in each case. Sorry. A total of 15 trillion dollars is alleged to have been passed into the hands of HSBC for onward transit to the Royal Bank of Scotland and we need to look at where this came from and what the history of this money is. And I have been trying to sort out the sequence by which this money has been created and from where it has come from for a long time.

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