Right now the world economy stands at an alarming precipice, but would it surprise you to learn that the events of today are nothing new? Give me the next few minutes and I’ll show you that there are cycles to history that can not only allow you to see the future, but to make preparations for the very predictable outcomes.
You’re about to discover that huge financial gyrations, inflation, loss of personal freedom, and out-of-control government are all things that we have been warned about for centuries and are the direct consequences of the monetary system itself. In fact, most world history is determined by monetary history. So what lessons can we take from the past to help us navigate the perfect economic storm that awaits us? Debasing a nation’s currency supply to pay for public works and war is a pattern that just repeats and repeats throughout history, and it’s a pattern
that always ends badly. In this double episode, we’re going to create a timeline to show the similarities between ancient Rome and the United States today. Just like the USA, Rome started out as a republic after overthrowing a monarchy. So let’s begin with their early economy in around 500 BC. In the early days of the Roman Republic, for the first 178 years, there’s no evidence of big inflation.
They were using gold and silver coinage mostly as their currency. Small denominations were made out of copper and bronze. Then Hannibal of Carthage starts to harass Rome in something called the Second Punic War. And to pay for this war they did deficit spending by taking the coins that they took in in taxes, melting them down and adding cheap and abundant base metals such as copper so that they could mint more coins.
This caused a big inflation and the inflation was one of the factors that brought the Roman Republic down to a dictatorship, the Roman Empire. Most of Rome’s gold and silver was stored in vaults under the floor of their treasury, which was also known as the Temple of Saturn. If you visit Rome, go to the forum in the center of the city where you can still find the ruins of the temple today.
And here’s something I found really interesting. The US Treasury in Washington DC has almost exactly the same design. So now let’s start filling in our timeline of events to keep track of the major similarities between Rome and the USA. We just learned that the early Roman Republic enjoyed a long period of practically no inflation because they used sound money, pure gold and silver.
Interestingly, the United States started on the same path. From the late 1700s to the early 1900s, prices were very stable thanks to laws that mandated the use of gold and silver as money, and our people were not robbed by inflation. But in both instances, it was the ongoing debasement of the money for war spending and public works that led to economic chaos.
Tell us the parallels between Rome and what’s happening in the United States today. Well, they’re obviously two very different societies, but there are some broad parallels. Rome was a republic. They made sure they had two people each year who were the rulers, the consuls. They always changed because the Romans were worried.
They’d had a monarchy before, very unpopular. They overthrew it. So they didn’t want anyone getting too many powers. What did in Rome, no surprise, excessive taxation and debasing the money. When you look at the coinage, it started out being an exact measure of copper for the sesterci and silver for the denarii, and by the time it was all over, worth absolutely nothing with perhaps a wash of silver to make it look like the original thing, which is exactly what we’re doing now. So these patterns
repeat themselves. They always repeat themselves. The Romans were the first culture to understand that a currency maintains its value because of its rarity. Julius Paulus once said, This device, being officially promulgated, circulates and maintains its purchasing power not so much from its substance as from its quantity.
not so much from its substance as from its quantity. Even still, the Romans never stopped churning out more currency, just like the USA today and the ancient Greeks before them. But in their race to debase, the Romans came up with some new twists of their own. The first of these twists was coin clipping.
Whenever a Roman would enter a government building, they’d simply clip the edge off of their gold or silver coin. They would save up all of those clippings, melt them down, and mint more coins, expanding the currency supply. And when that wasn’t enough, they developed the art of revaluation, where you just take a coin and you stamp a new value on it.
You got one? 100! That simple. The move away from precious metals to something less than precious metals, and the Roman Empire famously clipped their coins. This was a debasement of the currency. There wasn’t a paper currency, but it was a debasement of the currency. It wasn’t a paper currency, but it was a debasement of the currency. In the U.S.
, there’s a very interesting phenomenon going on where they’re not clipping coins, but when you go to the supermarket, you find that the portions of the items at the supermarket on sale are shrinking. You know, the servings on various other consumer products are getting smaller and smaller, but this price is the same. So it’s very similar to that old Roman coin-clipping trick from 2,000 years ago.
It’s another form of currency debasement, but it’s hidden through cardboard and marketing and fancy presentation, but the people are nevertheless having their currency debased. So why should you care about this? The quality of a society is directly proportional to the quality of its money. Stable money leads to stable prices which leads to a stable society, whereas debasement of the currency leads to the demise of empires.
The major reason for Rome’s ongoing currency debasement was to pay for their ever-expanding empire and never-ending wars. The precious metals content of their coinage fell further and further until it had next to no connection with the pure gold and silver that had initially provided them with a stable economy.
Cut to today, and we see the same pattern. Today, and we see the same pattern. Up until the outbreak of World War I, the United States had very high levels of precious metals in its coinage, and Treasury notes were backed by gold at a one-to-one ratio. From there, the USA debased its currency more and more to pay for World War II, the Korean War, and then the Vietnam War, until finally, the link between gold and the U.S.
dollar was severed completely. For those new to the series, let’s revisit the pivotal event that has managed to sneak under the radar of modern historians as nothing more than a side note, even though it will have repercussions for generations to come. It was an unprecedented act of global debasement by a modern wannabe emperor that would make any Roman ruler hang his head in shame.
Most people think that President Nixon’s criminal activities were limited to wiretapping and spying on the competition. But his greatest crime came on August 15, 1971, when he severed the last ties between the dollar and gold when he ended the Bretton Woods system. I have directed Secretary Connolly to suspend temporarily the convertibility of the dollar into gold or other reserve assets, except in amounts and conditions determined to be in the interest of monetary stability and in the best interest of the United States.
The Bretton Woods system tied all of the world’s currencies to gold through the U.S. dollar. But instead of running out and hanging the guy when he took the world off of gold, the world just yawned and accepted that we were now on a fiat currency system, that we were now on this infinitely expanding system, that we no longer had money, we had currency.
Money should be a fixed measure of value. It’s like 5,280 feet in a mile, or 12 inches in a foot. I gave you the example. Imagine trying to build a house, say, 2,500 square feet, if the foot changed each day. It was 12 inches one day, 10 the next, 20 the next. Very hard to do if that’s changing. Or the clock.
I like, yeah, this. 60 minutes in an hour. Imagine if they floated the clock. So you had 60 minutes an hour one day, 30 the next, 90 the next. You’d soon have to have hedges driven futures to figure out how many hours you’re working. You’re baking a cake. I love this example. And it says bake the batter for 45 minutes.
Then you have to figure out is that inflation adjusted minutes? Is it a California minute, a Nevada minute? It just makes life infinitely complicated. So when you have a fixed measure, when you go to the market, you assume if you’re getting 16 ounces of liquid, it’s 16, not 13, not 18, just makes commerce, which is the source of wealth, people doing things with each other, infinitely easier.
It is very odd that we’ve established a situation where what people do is scramble to borrow liabilities. Certainly, I guess the most attractive liability in the world, or put a different way, the most attractive free trading lie on the planet is the U.S. dollar. We joke in investment conferences it’s the worst currency in the world, except all the others.
If you’re going to trade in a world, except all the others. If you’re going to trade in a lie, it better be a liquid lie. What the United States dollar has going for it is the most liquid lie in the world. I mean, if you think about the advantage that we have now, yes, it’s a horrible thing to do morally.
But what we do is amazing. It’s amazing that we can get away with this. We print a lie, a dream on a piece of paper, and we ship it to Brazil and they send us coffee. And we ship the same lie to Germany and they send us a Mercedes. And we ship the same lie to Japan and they ship us a stereo. It’s actually a pretty cool deal.
I feel bad about it in a sense, but it’s grandly amusing in a sort of a cosmic sense. You just need to understand that somehow, sometime, some way, there’s going to be a reckoning. The dollar’s involved worldwide as a major currency, so it’s one half of everything we do. And it has no definition.
I used to get a charge out of asking Bernanke and Greenspan, define a dollar, and you know, they can to get a charge out of asking Bernanke and Greenspan, define a dollar. You know, they can’t define a dollar. You know, in the old days it was a weight, a weight of silver, a weight of gold, and that’s what it was supposed to be according to the Constitution. Well, Dr.
McCracken, not being an economist, can you explain to me briefly how in the world do you determine what a value of a dollar is in relation to a French franc, for instance, if you can’t convert that dollar into gold? What standard do you have? What is it worth at all? That’s going to be determined in the marketplace, just as really largely it has already. Well, what is this going to do then to, for instance, the speculator in gold? How is this going to affect him? Is the price going to drop or rise? The official price of gold, of course, has not been changed.
That was not a part of this program at all, nor is that contemplated. Well, maybe they should have contemplated what was likely to happen because for anyone who had studied history, the outcome was perfectly clear. Rather than help the economy, Nixon’s actions made things a lot worse and the public started feeling the effects of inflation much more acutely.
It was hard for savers to keep their heads above water unless they had saved in the ultimate stores of value, gold and silver. Just as it had always done throughout history, gold once again accounted for the expanding fiat currency supply by rising in price to cover that supply. Gold had done this as recently as 1934, when the USA’s debasement really started heating up and gold was revalued from $20.67 an ounce to $35 an ounce.
Now the process began again as the public bid the price up from $35 an ounce in 1971, climbing all the way to $850 an ounce in 1980, easily accounting for the massive quantities of currency the USA had conjured out of thin air now that Nixon had removed all restrictions.
Gold had once again held an out-of-control currency to answer. Getting back to the Julius Paulus quote about the value of a currency being decided by the quantity rather than the content, one of the biggest economic hurdles that mankind repeatedly trips on is that we have never been able to control the quantity of currency. And this is one of the reasons why gold has always been the ultimate money.
It can’t be printed and it keeps us in check. Today, I think cryptocurrencies are a very exciting development and have tremendous possibilities. The bottom line is that governments have a long history of trying to cheat gold, either through debasement or manipulation of the markets. But here’s the thing. In the end, gold always wins.
And that brings us back to the Romans, who went through many cycles of currency debasement for war spending, then inflation being felt by the public, then revaluation of the currency, then more debasement for deficit spending on war, resulting in even more inflation being felt by the public. The cycle repeated again and again. Those who were able to hold gold outside the official system maintained their purchasing power.
Those who did not suffered greatly. In 270 AD, Emperor Aurelian took power and had the now worthless official coinage recalled and minted again to contain a small amount of silver, just 5%. This act brought a new vitality to Rome, but unfortunately it was short-lived as government after government gave in to the temptation of spending beyond their means.
Eventually, wars were funded by levying huge taxes on businesses and the rich. This only had the effect of closing down many essential businesses. The more meddling the government did with the economy, the worse things became. The government started confiscating private property by force to fill their empty state coffers. Rome was sliding into ruin.
And that brings us to Emperor Diocletian. His actions are the first recorded example of the following hidden secret of money. Wage and price controls do not work. He came to power as inflation was surging, but his decisive actions only added fuel to the fire. So because the economy was getting worse and worse, Diocletian created a whole bunch of great government solutions.
He created a bunch of works projects. He hired a bunch of the homeless and people that were unemployed, made them soldiers and government employees, and this caused deficit spending to just go out of control and inflation raged into what is known as the first documented hyperinflation. So to get inflation under control, in 301 AD, Diocletian issued his infamous Edict of Prices.
This was a massive volume of a list of all of the wages and the prices people could charge for goods and services. And it was all enforced under the penalty of death. So what happened was instead of risking your life to sell something at a profit so that you could stay in business, people just closed up shop.
Instead of doing a job that was listed in the book that was below a living wage, people quit their chosen career and tried to pursue a job that wasn’t listed in the book. The result of this was that Diocletian came out with a law that said every son had to go into his father’s business under the penalty of death.
When governments start meddling with an economy, the result is always the same. Prices become distorted. This is a huge danger because prices act as a signal for an economy. They indicate to producers and buyers where true value lies. The outcome is always economic turmoil, shortages, and black markets.
We’ve seen what happened to gold when Nixon started his economic interference, so now let’s go back and see what happened when Diocletian started his jumbo sized meddling with the economy. We know when Diocletian created the Edict of Prices that the price of gold was 50,000 denarii per pound. And then we also know from transaction receipts around 50 years later, the price of gold had risen to 1,200,000,000 denarii per pound.
That’s a 42,400% hyperinflation over a 50-year period. That would be similar to if gold was $35 an ounce 50 years ago. Today, one ounce of gold would be about a million and a half dollars. Another analogy that I can make is if an average family car was about $2,000 50 years ago, today it would be selling for $85 million.
Just imagine 85 million on the windshield of a car at a car lot. That’s the type of inflation these poor people suffered through. Well, way of wage and price controls upends an economy, gives more power to the government. What are price controls? Prices are supposed to convey information. That’s what markets are about, knowledge and information.
So a price will tell you something is dear. Oh, get out and produce more. The price is low. It may be producing too many of it. So it’s a way of conveyance of information. So you devote your efforts to something that people want, not what a bureaucrat dictates. So when governments trash the money and your prices, nominal prices are going up, the government response is, oh, they’re greedy speculators or merchants or whatever.
And so you say you can’t charge as much. Well, what that means is you get a black market, and you hurt the production of the thing. The idea that government can substitute for people interacting among themselves is preposterous. This pattern of failed price controls is something we see throughout history and across the globe.
Skip forward over 1,500 1500 years and governments still hadn’t learned their lesson. During the chaos of the French Revolution the government issued a set of wage and price controls known as the law of maximum also imposed under the penalty of death.
It’s worth noting that when wage and price controls are implemented government always tries to deflect attention away from the problems that it has created itself by shifting the focus to businesses who are labeled as greedy hoarders or price gougers. In reality, most are just average people trying to keep their business afloat, doing their best to deal with the unstable supply and demand curve created by government meddling.
And France was no exception to this blame game. During the Law of Maximum, many innocent people were executed, food shortages developed, and black markets ruled until finally, 15 months later, the act was repealed because it didn’t work. And all the stored-up energy of government manipulation was unleashed at once, leading to a further period of chaos and inflation for France.
I agree with Steve Forbes. The idea of wage and price controls is absolutely preposterous. Now we’ll skip forward another 200 years and government was at it again. Many people don’t realize that Nixon’s speech from 1971 also included the announcement of a 90-day wage and price freeze.
The United States was suffering from big inflation thanks to deficit spending for the Vietnam War, silver had been taken out of circulation in 1965, reducing our coinage to worthless flecks of base metal, and the paper currency supply had been expanded greatly. Did that sound familiar? Just like Diocletian, Nixon’s team of economic boffins thought they could curb inflation by fixing wages and prices.
The time has come for decisive action, action that will break the vicious circle of spiraling prices and costs. I am today ordering a freeze on all prices and wages throughout the United States for a period of 90 days. Working together, we will break the back of inflation. You’d think that these people would learn from history, but they don’t.
To get an idea of how out of touch the men with their hands on the economic levers were, listen to what Nixon’s advisor had to say about the duration of the controls. Would it be your anticipation that it would take more than 90 days to break the back of inflation, as the president put it tonight, that there would have to be a further extension of an actual wage price freeze? I would not, no I wouldn’t, I don’t think one can say that it will necessarily take longer.
We’re sailing to some extent in an uncharted sea here. But this, I think, is a reasonable estimate of the time that’s going to be required. Dan Rather. President Nixon is expected to speak for about 15 minutes on his new economic policies. The President’s address tonight comes against a background of the following facts, among others, record high gold prices and rapidly increasing cost of living figures for most Americans.
The wholesale price index rose by 2.1% during the month of May. The index of industrial commodities in the last three months has risen at an annual rate of 15.9%, the worst since the Korean War 20 years ago. All of that part of the general background of the president’s remarks tonight. Every American family is confronted with a real and pressing problem of higher prices.
And I have decided that the time has come to take strong and effective action to deal with that problem. Effective immediately, therefore, I am ordering a freeze on prices. This freeze will hold prices at levels no higher than those charged during the first eight days of June. It will cover all prices paid by consumers.
What was Albert Einstein saying? What kind of an idiot would do the same thing over and over and expect different results each time? And it’s the same pattern that’s happened repeatedly, cycle after cycle after cycle after cycle for thousands of years. A country borrows itself into bankruptcy. It creates more money to try to pay its debt.
Prices go up. People rebel. The whole system falls apart. And I’m scared about it. Countries collapse over this. They go to war about this kind of thing. Rebellion in the street. Overthrows of government. The whole nine yards. There is nothing to be gained from inflation and everything to lose and we’re going to lose everything.
Around the world, people don’t seem to realize that government intervention always makes things worse. It’s the government manipulating things. Whenever you manipulate something and try and control it over here and not allow the free markets to balance everything all by themselves, something comes squirting out way over here that you just don’t expect.
For instance, the dot-com bubble popped in 2000. Alan Greenspan lowered interest rates to try and get the stock markets back up again, and he accidentally created a real estate bubble that’s now devastating the world. Back during World War I, they inflated the currency supply tremendously. The Federal Reserve was born just at the beginning of World War I.
We added to the currency supply by adding bonds to back our currency along with gold. Then there was this big, it’s called the Depression of 1921. It’s the single greatest deflation that the U.S. has ever seen. It’s bigger than the Great Depression. The contraction of the currency supply was huge. The reason nobody knows about the Depression of 1921, they only know of the stock market crash of 1929 and the Great Depression, is because the government did not rush in to save us. The Federal Reserve didn’t try to suddenly lower
interest rates down to zero. They didn’t manipulate the free markets. They let the free markets work. It was horrible for a year. There were bankruptcies and foreclosures. People lost homes and things like that. But the bankruptcies and the businesses that that the bankruptcies and the businesses that that folded there were new businesses that were more efficient that grew up to take their place and when a home gets foreclosed on it gets resold to somebody else and yes it was horrible but the people that were leveraged out
or the people that weren’t in full control of their finances or the inefficient businesses that were just hanging on by a thread anyway, yeah they went under. But because the government didn’t rush in to save us and the Federal Reserve didn’t try and manipulate the economy, the free markets healed it all and in 18 months it was a memory.
In fact, 10 years later, nobody could even remember the memory. It was gone. Mark Twain is often quoted as saying, history doesn’t repeat, but it sure does rhyme. And as you’ve seen from this episode, that sure rings true. The wage and price controls, we will probably end up trying this in the United States sometime in the future.
And, you know, they tried it during Diocletian. It didn’t work. It destroys the economy, and eventually they have to repeal the act. They tried it during the French Revolution. It didn’t work. It ruins the economy, and they have to repeal it. Nixon tried it. It didn’t work. It ruined the economy, and they had to repeal it.
It’s not going to work the next time they try it. This stuff just keeps on happening over and over and over again, and part of it is caused by the four-year election cycle. All of the politicians are worried about what’s going to happen on their watch, and they push all the problems forward to the next administration.
They really don’t care what’s going to happen out in the future. They care what’s happening, you know, how they’re remembered. So I’m expecting this to happen in the United States sometime. Right now I’m expecting a deflation, but when we get to big inflation or hyperinflation, you can pretty much count on the fact that they’re going to make the same stupid mistakes because politicians do not read monetary history.
This is just the beginning of the similarities between ancient Rome and the USA. In the next episode, we’re going to focus on some more amazing events that are echoing throughout history to today, and we’ll see what the future holds for the United States if we continue down the same path so many societies have gone before.
