Thursday, February 3, 2011

Money For Nothing: Fall of Rome, 4.

So I've promising new insights into the fall of Rome from the perspective of an early modernist.

How am I going to deliver? Consider the most dramatic and physical evidence of this empire that we have to hand, its coinage. About that I want to think, and talk like an Eighteenth Century gentleman, to the extent that a plebe like me can. Why? Because I have a hard copy of Wealth of Nations to crib, a circumstance worth a pause before the end.

So what would a Scottish country gentleman say? To start with, this is a skill of the hands that speaks through the brain. Like Scrooge McDuck, the gentleman would properly start by plunging his hands into a pot of Roman money, and ask himself am I going to accept payment in this stuff?
In some cases, the answer was fairly obvious. The original Roman coinage was copper, and more, including some  ploughed out of the ground from a field not far south of Edinburgh was bronze. Hardly worth bothering with, even if the location gives us pause. Then there would be gold aureii and silver denari, thick, "turtle-like" coins with wide edges, made by an almost unbelievably labour-intensive process involving hammering cold pellets of metal very hard in a race against stress-hardening, or in a loosely-controlled industrial setting for hot-forged ones. (A serious workplace organisational problem, since it led to endemic losses by theft and ultimately labour action by the Roman mint workers that supposedly cost Emperor Aurelian 7000 soldiers' lives to suppress in 272AD.)

Most of the denarii to hand were issued by third century Emperors, and they were awful. And that's saying something. Smith was a cynic about such things. He had seen bad English coin, worse Scottish, and worst French, for princes often find reason to debase their coins, little to increase it, and the very arrangement of the examples tells us all we need to know about the kind of princes who step on their coinage. He is forced to admit that the amount of silver in the English money had gradually decreased from Henry II's good old penny of 1158 until arrested by Philip and Mary, but he  supposes that this must be because of the flood of silver from the New World. (But he is wrong!)  The decline in the Roman case is worse than even a Catholic monarch could contemplate. Starting from an Augustan coin 98% pure, the Roman denarius reached 35% silver content in the late 200s, before Aurelian's strike-breaking.

Aurelian to Diocletian to Constantine is a bit of an elision, but these emperors saw the need for a new coinage. Smith was a little too young to remember the English recoinage crisis of 1696, but the general consensus was that the shift to milled coins had been a great success, even though it was curiously  hard to come by good silver coins in the Britain of Smith's day. (The country would officially switch to a gold standard in 1818.) Diocletian's reforms seem similarly impressive. The old 98% bullion level was restored, and under his successor, Constantine, thin, new coins were issued, the famous solidus and siliquae. The Scottish gentleman would be alert to new risks in the form of clipping and counterfeiting, but Roman coins did not suffer from this, or apparently did not. Nowadays,  metal detectorists have discovered multiple clippedcoin hoards around the British Isles dating from the years after 403AD, apparently. One province was an exception to the rest.

Setting aside what he could not know, Smith and his contemporaries drew a simple conclusion. The Roman Empire fell during the third century AD. The, Domitian unfell it; and new causes had to be sought to explain its next and final fall a century later. Well enough; but we need to understand why. 

So, again, we have the common modern explanation: inflation. It seems like this is what Smith is saying about the Price Revolution. The flood of American silver has rendered silver bullion more readily available, so that, too much bullion having been struck into coins, a bushel of corn, all other things being equal, fetches more pennies when sold on the market. For demand for corn cannot fall too low, and when it is scarcer than silver coins, more coins will be bid for the bushel. Or as we said to explain what was going on around us back in the 1970s, "too much money chasing too few goods."

Only, Smith isn't saying that. He's not throwing out a theory of what money is here. Maybe he does later in Wealth of Nations, but "inflation" isn't really on the agenda here. On the contrary, he points out how easily Oxford colleges have beaten the problem by simply specifying that a third of their rent be paid in corn, or at least, for what that corn fetched on the local market. Whereas perpetual rents specified in money have gradually impoverished the landowning class, rents specified in corn have held their value! And with that, Smith is off to more interesting destinations.

As for moderns, we've had enough talk about fiscal and monetary policy over the last forty years to understand that we were being a little naive back in the Whip Inflation Now days. To the extent that inflation is driven by money, it is by an increase in the actual money supply, not of cash in hand. To the best of my knowledge, macroeconomics has no theory of what "the money supply" looks like before central banks, but it is clear enough that there were (socially entangled) lines of credit before central banks, and therefore a non-bullion portion of the money supply. It's my intuition that this will be important when we actually explain the Early Modern Price Revolution, and I'm going to use that theory as a black box in my hypothesis about (drum roll please) the Fall of the Empire.

Again, I'm disavowing any attempt to explain what happened in the third century, even if I do find it curious that the third century Emperors didn't debase their gold coins.

What Smith is saying, or at least what he is plugging back into, is an eighteenth century psychosis with no equivalent today: fear of a "lack of ready money." What the Eighteenth Century understood well was that there were times when there were no coins to be had. What caused these "silver famines?" Way back in Roman times, one of those Pliny guys suggested that it was because all of Rome's silver was being exported to India to pay for luxuries. The idea still rattles around today. Indians, being barbarians, like bling, so they hoard all the coins that come their way. And as for rich people and their luxuries, am I right or am I right? Prejudice, moral panic and status anxiety, all wrapped up with a bow. Apart from the entire lack of evidence (and a strong argument against; have I linked to Jos Gommans lately?) it's the perfect explanation.

Well, except for an even better explanation that starts with some low fellow showing up in the drawing room of a distinguished country gentleman and demanding payment on some bill, tax notice, or dissolute offspring's gambling debt immediately. Here is a gentleman of impeccable credit, yet no-one can give him the cash he needs to pay this bill! There is no money to be had in the county right now, they sigh, full of regret. You will have to make your terms. Smith revisits Roman coins late in Wealth to draw a picture of the Punic War debasing, when poor Romans rounded up vast quantities of the new coins and forced them on their creditors in payment. Not only questionable behaviour, but one that freed them from the patronage ties that had compelled them to vote for their creditors, releasing their votes to seek out rabble rousers! Cheap money endangered the republic!

How does a local, immoral "silver famine" come to be? Simple: people  are hoarding all the silver. This explanation invokes another kind of moral panic. By people, one means, of course greasy, dark-skinned foreigners; sketchy Whig politicians; Jesuit-sheltering Tories; too-clever-by-half Scotchmen; upjumped tradesmen; and big-nosed Jews. Or kings: one reading of Beowulf takes the treasure hoarding at the end as an indication of social decay. (And Google searching for it reminds me that the New Deal banned gold hoarding.) For those who wish to replace a simple moralist's lesson with a complicated one masquerading as a mechanical law, we have Sir Thomas Gresham, the Tudor merchant and statesman and his dictum that "bad money drives out good." When the prince despoils the coinage, either directly by debasing or simply not enforcing the anti-counterfeiting laws, people hide away or export their good coins rather than be rooked for the lost of the bullion on the exchange.

Gresham's law gets us to the notion that the bad coins of the third century must have caused the fall of the Roman Empire. By this measure, Diocletian is the hero who pulls the state back from the brink. Or is he? Diocletian notoriously also instituted wage and price controls. I'm appalled to see that the story I heard from Poul Anderson's science fiction, that this was the beginning of a new and appallingly statist Empire, is also found in the John Birch Society's Blue Book.  Domitian's recoinage is doomed to fail, but instead of admitting defeat, he  imposes "the cancer of collectivism" on the entire Empire.

The argument is, of course, that mere edicts, no matter how oppressively asserted, could not check an inflation that was a moral cancer. How exactly inflation due to debasing the coinage could continue after a recoinage doesn't need to be specified since, after all, there are those wage and price control. Besides, one of the historians of Domitian's reign describes inflation.

But consider: the evidence we have is from hoarding. There were a lot of coin hoards buried during the last few decades of the Empire. The huge number of hoards found in Britain in recent years seem to have been deposited in the years after 403/406, using coins minted entirely before that time. There are other coin hoard concentrations from northern France from the 450s. A romantic takes this as evidence of people burying their treasures just before suffering a fate worse than death at barbarian hands. (Look, I'm talking about barbarians here. If there aren't heaving chests and flushed cheeks, I'm doing something wrong.)

I'm going to suggest an alternative: deflation, the  Eighteenth Century account of hoarding. Generalised deflation can accommodate localised inflation when the army comes to town. In fact, it would be the brief-run inflation would be the worse for the ongoing deflation. That would explain all the indecorous scrambling after bullion by both later third-century Roman emperors and their barbarian adversaries/allies, possibly even their developing taste for gold coins, which even in this period were not regularly emitted by the mints, but rather dumped in episodic "donatives."  The Emperor would demand a gift of plate (we actually have a record of one such), and dump it on the court.  The Huns and Franks and the like would respond, at some delay, for a demand for payments in gold. Given that silver seemed to be ever harder to come by, why not go for gold, instead? The fact that this would not work in the long run is -well, evidenced by the fact that it didn't work in the long run. Everyone is running around looking for cash money, presumably responding to demands for cash on the barrelhead from within their patronage networks, and no-one can find it, even though more and more coin is being buried in the ground! It sounds bizarre --or like a typical deflationary feedback loop.

Now, I'm going to take it that these  demands for bribes and donatives and free gifts to the Emperor happened not along the frontier, but rather along the main military axis --the horse road. That's where the silver that was being drained out of North Africa was ending up. Britain is a special case because it's still integrated into the Roman military economy as a source of horses, but there is no longer an army to bring payrolls into the country. To keep coins in circulation, no wonder that they are clipped.

So, My copy of Adam Smith's Inquiry into the Causes of the Wealth of Nations is quite a nice one. It's the University of Chicago edition, and I got it for a steal at a bookstore in a small town in western Washington state during, I think, the mid-90s. At least, I remember talking to a gun dealer who was quite offended by Clinton's "assault gun ban." The reason it was so cheap is that some Libertarian financier had subsidised the print run, and somehow the book had reached this little corner of the land, perhaps in the trunk of a salesperson who was staying at the local motel that very nice taking comfort from the Gideon Bible in his bedtable drawer. God, guns, and Adam Smith. What else do you need?

I'm never going to sort out whether my Libertarian benefactors meant to prevent or aid social collapse with their gift. I have a feeling that they would have loved for me to have some gold on hand against the inevitable out-of-control inflationary spiral, but if it came down to hoarding, would have been more impressed with a bunker full of gas, ammunition, and food. That thinking, incidentally, is precisely why I'm so dismissive of the idea that the men behind those hoards were digging in pots of gold in the last seconds before the Anglo-Saxons arrived. That's the time when you want to have invested in friends, horses, corn, and castles long since. If the Nazis needed armed local collaborators to rule their territories, I imagine so would have the average Anglo-Saxon petty king, and the average Roman aristocrat would have fit right in.

If I'm right, we need to come back to the deflation. I'm going to throw it out that we are not seeing an actual silver famine. Silver is being driven out of circulation by a deflationary spiral rooted in the collapse of credit. People's socially-entangled credit cards are maxed out. Even the ones with positive balances! So there's a social collapse going on here.

What caused the fall of the Roman Empire? How about barbarism and religion? It is, after all, the spectre driving my Libertarian friends. Be the change you want: become Saint Conan.

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