History repeats. (Or it rhymes, depending on your
choice of words.)
Throughout history, there has been an
extraordinary tendency for governments (and cultures) to follow similar
paths. Even regarding eras thousands of years apart, we see people behaving
in much the same way, over and over. This is particularly true in the case of
“wrong moves.” Over and over, people and their governments make the same
mistakes, seemingly never learning from past errors.
Why should this be? In fact, how is this even
possible? Surely, if a government in the 21 st century were to
make egregiously bad decisions, they are unlikely to be the same bad
decisions that were made in, say, Rome, in the 4th century.
The reason, in two simple words, is “human
nature.” Human nature remains the same throughout time. Two thousand years
ago, governments were typically made up of egotistical, self-centred
dictatorial-types, who were far more concerned with their own power than in
the general welfare of their people. Today, politics remains a magnet for
such people. They therefore will revert to type, when faced with the very
same problems.
Should we cut spending to give the taxpayers a
break? No, we should increase taxation and
give more to ourselves.
If we spend more than we receive in taxes,
should we cut back our expenditures, or should we go into debt? We’ll go into debt, and put the debt on the shoulders of
the taxpayers.
If the debt grows to be beyond what can ever be
repaid, should we cut back expenditures, or should we allow the economy to
collapse? Well, we’re sorry to see the
economy collapse, but rather than deny ourselves, get out the fiddle and let
Rome burn.
The denarius was the coin of the realm during the
centuries when Rome was a republic. Although the gold solidus was used as a
storage of wealth, the silver denarius was equal in value to a day’s wages
for a common labourer and, as such, was more useful as the primary unit of
exchange. During this time, it was a stable currency. However, as Rome turned
into an empire, all that conquest in foreign lands became extremely
costly and it was decided that one way to offset such costs was to devalue
the denarius. Each successive emperor added a bit more base metal than the
previous one and, by the time of Diocletian, there was no silver in the coin
at all, only bronze.
During this same period, Rome experienced dramatic
inflation – a predictable outcome when the coin of the realm is degraded. The
population was in decline as well.
If this sounds familiar, it should. Modern
governments have a tendency to make precisely the same mistakes with regard
to currencies. First, empire-building drains the coffers to the point that
maintaining a sound economy is no longer possible, then successive “emperors”
make the decision to debase the currency in an effort to keep the party going
a bit longer.
Of course, “inflating the problem away” never
actually works. Just as Rome went into an irreversible decline, so the empire
of today is self-destructing, due, in part, to monetary debasement.
So, is the present-day situation identical to
fourth-century Rome? Well, not quite. It’s probably safe to say that, had
Diocletian figured out that the coin of the realm could be done away with entirely;
that is, had he realised he could replace it with paper notes, with his
picture on them, he might well have done so. Certainly, modern “emperors”
have, first, created redeemable silver certificates, then subsequently
supplanted those certificates with notes that were backed by nothing. (At
least Diocletian issued bronze coins, whose value, whilst small, was at least
real.)
But the modern-day monetary magician has one more
rabbit left to pull out of the hat.
Those who believe that the dollar (as well as the
euro and other fiat currencies) is on its last legs are inclined to say, “At
least, after the collapse of the dollar, there will be no choice but to
return to a gold standard. That will put an end to any inflation, plus put
the world back on a solid monetary footing. But this may be wishful thinking.
The US Federal Reserve remains steadfast in its
position that precious metals are a barbarous relic. Certainly, from their
point of view this is true. After all, it’s difficult to fiddle with the value
of gold, as it retains its intrinsic value. Two thousand years ago, the
purchasing power of an ounce of gold was roughly what it is today. And,
whilst the average person may prefer the stability of precious metals,
governments have a strong dislike for the limitations that this places on
them. Governments prefer to be able to fiddle with the value of currency for
their own purposes just as the emperors of old did.
What I believe is most likely to occur as the
dollar collapses is that the Federal Reserve will “come to the rescue” with a
new currency. Not a paper one, that has obvious problems, but one that
“solves all the problems of paper currency.” The new currency may well be
more of a credit card – to be used for literally all monetary
transactions. And, the electronic currency will have an added feature (at
least from the point of view of the government). Since it’s electronic, every
time the user purchases so much as a candy bar, the purchase is registered in
the government data centre. No monetary transaction of any kind can be made,
except through the use of the card. (This latter requirement will, no doubt,
be justified as being necessary to control terrorism.)
And the electronic dollar may only be the first of
its kind. It should not be surprising if other governments see the benefit of
an electronic currency as their sole form of currency, and create their own.
So, does this mean that precious metals truly may
become the barbarous relic, as governments tell us? Not necessarily. After
all, Many countries have taken a painful hit as a result of the dollar being
the world’s default currency. When the dollar crashes, they will take a
further hit. They will not want to re-create that problem by allowing the US
to simply begin dealing in a new “ultra-fiat” currency.
Many of the world’s governments are stocking up on
yellow metal like never before. It remains to be seen whether they, too will
create their own electronic currencies, whether they will switch to
gold-backed currencies, or whether they will attempt a combination of the
two.
If, in fact, electronic currency becomes the norm,
of one thing we can be sure. The emperors will devalue it, as needed.
It will, ultimately, fail and, perhaps sooner, perhaps later, the
world will return to the barbarous relic as it has done countless times for
the last 5000 years. The only uncertainty will be when.
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Jeff Thomas is British and resides in the Caribbean. The son of an
economist and historian, he learned early to be distrustful of governments
as a general principle. Although he spent his career creating and
developing businesses, for eight years, he penned a weekly newspaper column
on the theme of limiting government. He began his study of economics around
1990, learning initially from Sir John Templeton, then Harry Schulz and
Doug Casey and later others of an Austrian persuasion. He is now a regular
feature writer for Casey Research’s International Man
(http://www.internationalman.com) and Strategic Wealth Preservation in the
Cayman Islands.
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The author is not affiliated with, endorsed or sponsored by Sprott Money
Ltd. The views and opinions expressed in this material are those of the
author or guest speaker, are subject to change and may not necessarily
reflect the opinions of Sprott Money Ltd. Sprott Money does not guarantee the
accuracy, completeness, timeliness and reliability of the information or any
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