Hard Money

People are people and empires are empires. One of the most rewarding of our past sessions was MM 12/4/17 The Fate Of Empires with its focus the extended essay covering the dynamics powering the rise and fall of ten representative empires – Assyria, Persia, Greece, Roman (pre- and post-Augustus), Arab, Mameluke (Egypt, Syria), Ottoman, Spain, Romanov Russia, and Britain – over the last four thousand years. Each was served up not so much for individual analysis but to highlight some of the common underlying dynamics.

The hope then was to apply those lessons to our own day and age. In particular, we wanted to better understand the insidious way that the wealth effect might have sapped certain virtues which were fundamental to their ongoing growth and stability. The takeaway was an appreciation for the way money can be both the builder and destroyer of human civilizations.

And so it is now with our upcoming focus article as we take on the History of Hard Money: The Denarius and the Fall of Rome. Spend just eight minutes reading the piece before you think we are somehow special and can blithely dismiss the lessons of history. Note certain profound parallels, some of which are as current as today’s WSJ. Rome was not the first or will it be the last empire to sow the seeds of economic decay through currency debasement.

The hard money backbone back then was the silver Denarius which maintained its purity for three hundred years as Rome remained committed to a stable monetary system until 64 AD. It was then the first round of Denarius debasement began with the reduction of that coin’s silver content, slowly at first and later accelerating over the course of twenty emperors until it was reduced to worthless pieces of a copper alloy with a thin layer of silver.

Just think of that as we fast forward some two millennia until 1964 when our own silver coins became mere tokens by no longer containing any significant intrinsic value. That profound lesson of history was unfortunately lost to this then-kid for otherwise he’d have known to have simply held on to and stored as many dimes, quarters, and half-dollars as he could for each such coin would now have increased by a multiple of forty-five for their simple melt value (down from a recent eighty-one multiple, but still).

There are so many ways to make the same point, think gold, which is not so much out of any love for any particular hard asset as it is in the way to demonstrate that our so-called money in the form of fiat (untethered currency) can so quickly evaporate with its unrestrained printing. Think Rome, think the dollar which has lost and will continue to lose value expressed in nominal terms. We’d studied this at a much deeper level in MM 6/8/20 WTF: What The Fed.

But the upcoming session has less to do with any investment advice than to the societal implications. We might start with the Cantillon Effect which means newly created money does not enter the economy evenly but instead flows at specific points – typically through banks and

large financial institutions – and spreads outwards from there, giving time for the well-connected to purchase assets before the inflation drives up nominal prices for everyone else i.e. the unwashed you and me. The problem, you see, is not (necessarily) bad people but bad incentives.

We might discuss the host of economic distortions that follow such magical thinking, including the growing income disparity, the obscene housing prices faced by the young, and the tricks to distract us from the underlying cause. Or, how about that recent Trump Dividend proposal to pay (bribe) every adult five thousand dollars if the GOP wins the midterm? Let us take out our pocket calculators and discuss that gem.

There is one technique that was less available to the Romans to address economic overextension but is front-and-center for us i.e. the piling on of debt through sovereign bonds which only exacerbates and pushes the growing problem down the line to future generations until, yes, there is that MM 9/9/24 Debt Jubilee.

Please note the following RSVP Policy for Member Monday: RSVP sign-up opens up at 11:00am on Fridays via the City Club weekly Newsletter. Seats are first-come, first-served: the first 14 secure a spot at the table, the last 3 on the couch. Cancellations must be made 24 hours in advance or the standard Social Lunch rate applies.