LESSONS LEARNED #1 “The meaning of bipartisan depends on your point of view; on the Right it means compromise whereas on the Left it means unconditional surrender.” -Old Pithy

Posted by PITHOCRATES - February 18th, 2010

IN THE THIRD century, the Roman Empire had a large bureaucracy and a large army.  Both were costly to maintain.  They raised taxes and debased their silver coins (i.e., their ‘silver’ coins had less and less silver in them) to pay their costs.  They debased the coins so much that, in time, no one accepted them as legal tender.  Even the Romans.  To pay Roman taxes you needed gold.  Or you paid ‘in kind’ (if you grew wheat you gave a portion of your wheat to pay your tax obligation). 

Rome paid her soldiers and her civil servants with gold.  The emperor needed them to maintain his power.  The people, though, suffered runaway inflation with the debased coinage.  As they inflated the money supply (by debasing coins or simply making new coins out of base metals instead of precious metals), prices soared.  As did taxes.  Unable to work the land without losing money, people walked away from the land.  Then Rome passed laws that bound these people to the land.  Serfdom was born.  If you were born on the land you would die on the land.  And in between you would work the land.

They forced artisans to stay in their jobs, too.  And their sons.  Jobs became hereditary as people wouldn’t work them voluntarily.  If a father made shoes his son would make shoes.  The son had no choice.  The economic oppression was so bad that when the Western Empire finally fell, the Roman citizens looked at the Germanic tribes not as conquerors but as liberators.

GREAT BRITAIN BUILT a global empire.  She built it with sea power and overseas colonies.  She fed her domestic manufacturers with raw materials from these colonies.  She then sold her manufactured goods overseas.  On British ships.  Through British ports.  Raw materials in.  Finished goods out.  Hoard bullion. 

This is mercantilism.  Encourage exports with subsidies.  Discourage imports with tariffs.  Maintain a favorable balance of trade.  Colonies help.  They can provide the material you would otherwise have to buy.  You can then build stuff with all that raw material.  Then sell it overseas for gold and silver.  If these protectionist economic policies work you become a wealthy nation.  However, the reason why we use gold and silver for legal tender is because it is scarce.  There isn’t a lot of it around.  Hence mercantilism can be a zero-sum game; if you gain bullion someone must lose bullion.  And Great Britain wasn’t the only mercantile empire.

It is rather ironic that nations pursuing economic policies to enrich themselves plunged themselves into wars that bankrupted them.  To help pay down her debt Great Britain taxed her North American colonies.  Opposition to the taxes resulted with punishing ‘coercive/intolerable’ acts against the colonies.  These acts resulted with the declaration of American independence.   Not quite the goal of the ‘coercive/intolerable’ acts. 

France, another monarchy, was heavily in debt from war, too.  Despite this she helped finance America’s war for independence from monarchy.  In the battle for empire, the enemy of my enemy is my friend.  Even if your new friend is not a friend of monarchy.  Not a wise thing to do when poverty and hunger rage through your lands.  The next thing you know is that your subjects will be talking all that liberty nonsense.  And, well, we know what happened next.  They did.  The French Revolution saw the beheading of King Louis XVI, the rise of Napoleon and plunged Europe back into war.  Painful can be the lessons of history.

GOVERNEMNT FOR THE sake of government ultimately pits the government against the governed.  Mercantilist economic policies lead to war.  And bankruptcy.  These policies brought down the Roman Empire.  They plunged France into The Terror and chaos.  They saw the first resignation of a prime minister, Lord North, after a vote of no confidence.  Great Britain would come out better than France, though.  With a change in her relationships with her remaining colonies (similar to what her former American colonies had proposed before their break), and a move from mercantilism to capitalism, the British Empire prospered and led the Industrial Revolution.  Her empire would rule the world for another hundred years, give or take.

The Roman and British Empires flourished when based on the rule of law and economic liberty.  They foundered when they did not.  Bad government begat bad fiscal and monetary policy.  Excessive government spending brought one down and forced change on the other.

The Founding Fathers built America upon the rule of law and economic liberty.  It was once the flower of capitalism.  But that flower has faded.  The amount of wealth transferred from the private to the public sector continues to grow.  We replaced specie (such as gold or silver, or paper backed by gold, silver, etc.) with fiat money (paper not backed by specie).  We continue to inflate our currency.  We are moving from capitalism back to mercantilism (subsidies for politically connected domestic industries to help them export, tariffs to restrict imports to protect politically connected domestic industries, excessive government regulation to protect politically connected domestic industries, the merging of financial markets with government to provide the money for the politically connected, etc.).  But it’s not to build an empire.  No, it’s not our military spending that’s crushing us (it’s less than 25% of the federal budget); it’s the cost of non-military spending that is.  This once great land of fierce, rugged, individualism has become a nanny state.  And, like Rome, the American government is taking care of her civil servants at the expense of her taxpayers.  An American aristocracy lives well while her citizens suffer high taxation and the consequences of inflationary spending. 

We have a lot in common with Rome.  Pity it isn’t only her grandeur.

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