CHAOS-ONOMICS: Strangely Attracted to the Truth
May 8
chaos-onomics.com
That men do not learn very much from the lessons of History is the most important of all the lessons of History.....The charm of History and its enigmatic lesson consist in the fact that, from age to age, nothing changes and yet everything is completely different. - Aldous Huxley
I can remember the almost palpable distaste for History among my college friends, including myself. Hard science, computers or economics was the path to future riches and what did history have to teach us anyway, after all, haven't we "evolved" since those dark days. How silly young men can be. I had a great opportunity to spend 4 years reading about the history of the world among some of the greatest scholars and libraries in the nation and in some senses, I wasted it. Oh well, better late than never. If nothing else, I may have learned one mechanism by which Huxley's notion of men not learning history proves true, faith in the notion of evolution or progress particularly with respect to man's ability to reason.
In a sense, this faith in man's ever improving ability to reason is a conclusion based on spurious correlation. Within any enduring culture, the passage of time will inform successive generations with certain techniques as past experiments become today's accepted practices. This wealth of accumulated knowledge, whether we choose to access it or not, is to my mind, the foundation upon which modern man amazes himself. In other words, to paraphrase Newton, without the shoulders of giants on which to stand, even he couldn't see very far. He ably proved my point that it isn't so much the mind that processes the data, as the lessons with which we choose to inform our world view that dictate our success, by losing quite a sum in the South Sea Bubble. He was, by most accounts, a very clever man, who let greed cloud his recollection of the economics of inflation.
While it is somewhat common knowledge that inflation was a problem in Rome, I find it instructive to reacquaint my awareness with specifics. As an example, consider the following from Fordham University's Ancient History Sourcebook;
The third century crisis in Roman government took a number of forms - political, military, and economic. "By the reign of Claudius II Gothicus (268-270 A.D.) the silver content of the denarius was down to just .02 percent (Michell 1947: 2). As a consequence, prices skyrocketed. A measure of Egyptian wheat, for example, which sold for seven to eight drachmas in the second century now cost 120,000 drachmas. This suggests an inflation of 15,000 percent during the third century." (Bartlett, citing Rostovtzeff 1957: 471)
The inflation problem got so severe that the Emperor Diocletian issued an edict on prices which began;
For who is so hard and so devoid of human feeling that he cannot, or rather has not perceived, that in the commerce carried on in the markets or involved in the daily life of cities immoderate prices are so widespread that the unbridled passion for gain is lessened neither by abundant supplies nor by fruitful years; so that without a doubt men who are busied in these affairs constantly plan to control the very winds and weather from the movements of the stars, and, evil that they are, they cannot endure the watering of the fertile fields by the rains from above which bring the hope of future harvests, since they reckon it their own loss if abundance comes through the moderation of the weather.
Sadly for the Western Roman Empire, Diocletian's price controls proved about as effective as Nixon's 30 years ago, i.e. not very. Also problematic was the lack of precious metals sufficient to restore value to the currency throughout the empire. Eventually, this lack of functional money contributed to the collapse of the empire as inefficient barter replaced moneyed trade even in the payment of "taxes."
The lesson to which I draw your attention is twofold. First, these money games have been a feature of civilized man for thousands of years. Second, and more important is the idea that one can go to far in playing these inflationary games. The empire was quite adept at suppressing dissent so I would imagine that economic critiques in the early stages of the inflation would have been publicly ignored even if they were forthcoming. Of course, ignoring the early warning signs is the way you create a real big mess.
In what ways has man progressed in 1700 years? I would say man's level of sophistication, in the Greek sense of the term, has increased of late. Now instead of simply ignoring the eventualities of certain policies we propagandize people into believing that huge expansions of fiscal deficits, rising prices and lower interest rates are a recipe for deflation. Consider today's graph which depicts year or year changes in two commodity indices relative to the Baa corporate bond rate. Keeping inflation under control is normally accomplished by raising rates when commodity prices rise, as Greenspan did in 1994-95, and Burns did not in 1971-72. With easy Al signaling his intent to ease again, how long will it be before people realize that one can make nice money borrowing at 6% and buying soybeans. Gosh, then these people might actually start cheering for a drought, which recalls Diocletian's preamble. |
