Central planning — like war — never changes. It has always been a powerful and effective way of achieving an explicit objective (e.g. building a bridge, or a road), but one that has has always come with detrimental side-effects. And the more central planners try to minimise the side-effects, the more side-effects appear. And so the whack-a-mole goes on.
This was true in the days of Rome, too.
From Dennis Gartman:
Rome had its socialist interlude under Diocletian. Faced with increasing poverty and restlessness among the masses, and with the imminent danger of barbarian invasion, he issued in A.D. 301 an edictum de pretiis, which denounced monopolists for keeping goods from the market to raise prices, and set maximum prices and wages for all important articles and services. Extensive public works were undertaken to put the unemployed to work, and food was distributed gratis, or at reduced prices, to the poor. The government – which already owned most mines, quarries, and salt deposits – brought nearly all major industries and guilds under detailed control. “In every large town,” we are told, “the state became a powerful employer, standing head and shoulders above the private industrialists, who were in any case crushed by taxation.” When businessmen predicted ruin, Diocletian explained that the barbarians were at the gate, and that individual liberty had to be shelved until collective liberty could be made secure. The socialism of Diocletian was a war economy, made possible by fear of foreign attack. Other factors equal, internal liberty varies inversely with external danger.
The task of controlling men in economic detail proved too much for Diocletian’s expanding, expensive, and corrupt bureaucracy. To support this officialdom – the army, the courts, public works, and the dole – taxation rose to such heights that people lost the incentive to work or earn, and an erosive contest began between lawyers finding devices to evade taxes and lawyers formulating laws to prevent evasion. Thousands of Romans, to escape the tax gatherer, fled over the frontiers to seek refuge among the barbarians. Seeking to check this elusive mobility and to facilitate regulation and taxation, the government issued decrees binding the peasant to his field and the worker to his shop until all their debts and taxes had been paid. In this and other ways medieval serfdom began.
So much for the view that increasing aggregate demand is the recipe for wider prosperity; Diocletian surely raised it a lot. But that didn’t really accomplish much, either in terms of wider prosperity, or in terms of the sustainability of the Roman civilisation. Raised aggregate demand is only useful if it contributes to creating and producing things that society needs and wants. And as Hayek brutally demonstrated, central planning is notoriously useless at determining what people actually want.
Of course, no modern centralist (e.g. Krugman) explicitly endorses price controls although, I am sure some of the more Hayekian or Paulian-minded among us will point out among other things that the minimum wage and the setting of interest rates are both kinds of price control. Diocletian however, was far more expansive.
The first two-thirds of the Edict doubled the value of the copper and bronze coins, and set the death penalty for profiteers and speculators, who were blamed for the inflation and who were compared to the barbarian tribes attacking the empire. Merchants were forbidden to take their goods elsewhere and charge a higher price, and transport costs could not be used as an excuse to raise prices.
The last third of the Edict, divided into 32 sections, imposed a price ceiling – a maxima – for over a thousand products. These products included various food items (beef, grain, wine, beer, sausages, etc), clothing (shoes, cloaks, etc), freight charges for sea travel, and weekly wages. The highest limit was on one pound of purple-dyed silk, which was set at 150,000 denarii (the price of a lion was set at the same price).
And how did it work out?
The Edict did not solve all of the problems in the economy. Diocletian’s mass minting of coins of low metallic value continued to increase inflation, and the maximum prices in the Edict were apparently too low.
Merchants either stopped producing goods, sold their goods illegally, or used barter. The Edict tended to disrupt trade and commerce, especially among merchants. It is safe to assume that a gray market economy evolved out of the edict at least between merchants.
Bernanke of course is much more sophisticated; he uses the facility of the primary dealer banks to hide the currency inflation necessary to monetise government debt. Central planning wins again? No; central planning always comes with unpredictable boomerang side effects.
I suppose, though, that it is comforting that history is repeating itself. After the horrors of mediaeval feudalism, we pulled ourselves up anew from the wastes of history.
Why, before the Internet came along, could central commercial planning effectively achieve such serious objectives? Many reasons, I suppose, but which mattered most? Perhaps it was the ability of friends or business partners to monopolise a certain area’s currency? This ability presumably existed for hundreds if not thousands of years? I don’t know. I do, however, understand that owning the exchange mechanism is important, so much so that such ownership should be concentrated as widely as possible, amongst as many different, competing people as possible, for the benefit of Peace and competitive, commercial prosperity.
Which is why I do, after reading articles like those below, think this time is different.
Bitcoin, the financial traders’ anarchic new toy: http://tinyurl.com/7c9npbj
Bitcoin, gold and the demise of fiat money
I have contacts at the Perth Mint. You can get your own coins minted with your profile, and bury them hoping to be considered a King one day 😛
Ha! One day I may do that…
I noticed you Roman coin has a slight clip. I think 2000 years ago, someone made a living clipping the coin!
BTW Excelent post using historical sarcasm.
Central Planning appeals to the human ego, the will to power. Having the power to get other humans to behave the way ‘I’ want is intoxicating for many humans…it is a disease. The sane who have no such desire tend to not go into politics…so we get crazies who tend to dominate.
The cure for those intoxicated by the will to power is to remember their own death, it will happen and all greatness will be gone.
I think you probably realise that I am no great fan of calling other people’s opinions “diseases” (see Kari Norgaard). I agree central planning is a seductive mindset, but I am really uncomfortable calling it a mental illness.
I agree with you, John, but the controlling impulse in those who seek power over others is offensive to those who believe in individual liberty. What trait residing in those who believe in individual liberty would offend the central planners?
Indeed. I actually think whichever person(s) is most “successful” at ‘singularly’ controlling masses of other people by force nowadays will probably be doing a disservice to their own memory. Certainly to the wider community & probably amongst quarters of their own family & friends, even.
Talk about unintended consequences.
Confucius, 6th century, said something along these lines, and I’m inclined to agree!
“The natural Universe maintains order without giving commands, and the ruler should do likewise, remaining motionless like the North Star and letting the people revolve spontaneously around him. If you yourself are correct, even without the issuing of orders, things will get done; if you yourself are not correct, although orders are issued, they will not be obeyed”
Is this why the neo-Confucians are winning?
I think so Aziz. This Harvard Law Professor essentially concurs similarly towards the end of this superbly enlightening discussion.
Thanks for your contribution to global wisdom.
But then again if a switched on leader cares about the long term he’ll be less inclined to plunder those beneath him, anyway, presuming he prefers carry through his disproportionate degree of influence amongst those around him beyond his own life (i.e. to his own son/daughter) ….
This line of argument has been properly thought about in the controversial book:
“Democracy: the God that Failed”
That idiot’s talking out of his rectum.
A quick couple of examples. The Dutch in the 17th century were competing with Britain for supremacy in global trade. Essentially they had the better of it, for 1 primary reason. They were able to borrow money at lower rates of interest than the British. The Dutch were seen a s less risky, because their parliamentary estates stood behind the debt, not the British Stuart monarchs.
From the Britsh perspective, everything changed in 1688, when James the second, the last Stuart king and idoelogical beleiver in the divine right of Kings was overthrown.
Suddenly, Parliament was supreme, and interest rates on British debts plummeted.
We were able to borrow much more cheaply from then on, and in a series of largelly succesful wars were able to acheive near global hegemony. The French, by contrast, crippled by fear of Royal bankruptcy, had to pay interest rates far greater than the Brits, despite t5he French economy and population level being 3 times larger.
Kings are bad debtors. With a flick of their fingers they can destroy creditors, and frequently have.
I have been reading a bit of Michael Hudson today, and I think you are historically correct:
I have never been a fan of monarchy, and I think the criticisms of democracy in the above video are spurious.
Yeah, his arguments are idiotic.
He claims that kings who inherit power will value their country more than politicians who’ve strived to earn it. But we’ve all known rich kids that carelessly fritter away their inherited wealth, while self made men invariably strive to keep every penny. It’s their children who lose it.
No one is denying the Romans mucked up? Not I, at least, but pointing to ways they could have managed a bad problem better than how they did manage it.
Regarding your above disapproval of Hoppe: I only point you towards two articles, (1) one by the author and (2) another mentioning him, plus add two of my own points:
(a) You say, quote, “politicians strived to earn power” unlike Kings who just inherit power. Forgetting, for the moment, that politicians derive personal income by stealing money from their neighbours, consider this example: Party X wins power led by Z. Z feels ill in middle of leadership, affords leadership to Y, his immediate subordinate. Quite a close parallel to what you said you don’t like about monarchical governance, no?
(b) Hoppe doesn’t want monarchical rule instead of a free society. He wants a free society. Hoppe just argues why, if a free society isn’t practically achievable, he thinks governance via governance is better than governance via democracy.
Hudson, Aziz, seems to be throwing everything on the line in that above article he writes. Feels like he’s trying to squish *the* reality of society into a few one liners…but admittedly, he’s far smarter than me, but if anything this seems like an idea battle between Hoppe & Steuart …interesting, however, your handy slab of Hudson’s text…I think points the way to a deeper understanding…
Hudson essentially says….in the last paragraph above your bolding:
James Steuart explained…[that for monarchical]…debts to become binding upon people who didn’t voluntarily agree to risk shouldering those debts themselves…elected representatives were needed…to my mind at least, this seems quite absurd, intellectually speaking at least, insofar as H defers to how Steuart supposedly ‘rationalised’ why “elected representatives” are “needed” to snatch (steal) money off innocent bystanders to pay for debt those innocents had no part in initially assuming…..
What’s the point of affording someone on death row the chance to pick their executioner?
I agree that what this guy says makes little sense. One point I think is valid is his musing that democracy in a small society could work well. I believe the founders of the United States understood this limitation and, with some vision that America could grow to be much larger than the original thirteen sovereign states, they formed the union as a federation of the states with a delegation of limited functions to the newly formed Federal government. It seems to me that their intent was to foster a successful potentially large democratic republic by retaining sovereign functions to the states and the people to avoid the prospect of the future diversity of interests and opinion overwhelming the federation. We Americans have now managed to skirt those precautionary barriers so that we have arrived at the destination which was to be avoided.
Would be very interested to hear the ideas from such a high quality forum of thinkers about this short interview with Hoppe…where he’s obliged almost to communicate his whole world-view of intellectual thought into a boiled down few minutes…..
ANARCHO-CAPITALIST LIBERTARIANISM: WHAT IS IT?
Benevolent Dictators i.e. Wise caring Monarchs and their progeny are my choice of Government. It avoids the selfishness of the red bloods spilling red blood.
And by this I mean real Blue Bloods. Not Red Bloods who gain power through war. I mean Blue Bloods by the very meaning. Not of this world or supreme enlightement. Divine Right. Benevolence.
Then the framework is set in stone, and the future generations are seen as more valuable than the present. This is how society advances equitably and fairly.
But no one is capable of this because humans have Red Blood. It is a philisophcal dream. Only a dream!
The various religious texts try to herd the cats so to speak. Possible but very diffcult.
By the way Aziz, while I have you here, total random question please, but I’m so in admiration of your clear thinking and clearly very competent technical abilities, I must ask:
Do you care to mention some of your favourite movies? I enjoy watching movies recommended to me by people whose intelligence I admire 🙂
I enjoy a fairly eclectic melange of comic farce, sci-fi, post-apocalypticism, and noir. My favourite film from the last year or so was Four Lions, which is a comedy about terrorism. Though the films I have watched the most of lately have been BBC nature documentaries.
Watch Mad Max series. Predicts the end times very well. First one was Australian art direction (Psychological thriller) 2nd and 3rd dumbed down for world (US) audience.
Highest profitable film of all time. Guiness book of records.
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Interesting! Yeah nature docs rock, check this out.
So uh yeah Bitcoin. There will only ever be 21 million of them so you dont gotta worry about debasement. Of course the bitcoin system strikes directly at the root of current power structures, so they might try to shut off the whole internet to stop it … might.
I am not a fan of bitcoin. It is the ultimate fiat currency. I have faith in Mother Nature, not algorithms.
Yeah owners of bitcoins are askingfor the first cell in FENA reeducation camps.
Don’t mess with the Fed Mafia
The late Roman central planning phase had a lot of problems associated with it, but it fulfilled a need at the time. Roman power lasted a century longer than it might otherwise have done.
His biggest problems were corruption and in-efficiency within his booming bureaucracy, and, crucially, an inability to tax the very richest. The landholders, many from senatorial families, became so powerful they were able to avoid the huge financial burdens placed on society as a whole, and were able to monopolise the most senior offices.
That obviously compounded as time wore on, so they got richer and more powerful, and were able to buy distressed assets from the squeezed lower aristocracy and urban upper-middle class ( who were not able to avoid taxes).
It has been well said, that the Roman empire fell because the rich didn’t pay tax.
A possible theoretical solution may have been defecit spending by borrowing, selling “proto bonds” to wealthy investors. The idea seems not to have occured to them, and there were too many civil wars and usurpations to have made it a practical possibility anyway.
The late American central planning phase had a lot of problems associated with it, but it fulfilled a need at the time. American power lasted a decade longer than it might otherwise have done…
So what is the take away from all of this, gentlemen? I shall tell you: Cronyism, certain degrees of nepotism, and obscene amounts of wealth influencing politics is bad!!
@ Synopticist “His biggest problems were corruption and in-efficiency within his booming bureaucracy”
There goes the perenial problem. Humans are just not that perfect to be part os a well oiled machine.
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Yeah exactly, thomaz jefferson.
You seem to have supposed, synopticist, that had the rich Romans just allowed the bankrupt sectors of the economy to be sold off to the highest bidders (i.e. the smarter businessmen), then that would have curbed the longevity of the regime, so to speak.
But is there any evidence of this? There cannot be, fair enough, it’s a counter-factual what I’m suggesting, but it’s equally if not more reasonable to suspect that had the economic system re-birthed itself, via creative (peaceful) economic destructive the way capitalism when allowed to operate freely, the Roman regime would have lasted if not as long then perhaps even longer, thanks to stronger commercial influence
The highest bidders would have been the aristocratic senatorial elite, not succesful businessmen. That was part of the problem.
Diocletian and his partners, the Tetrachs, acheived an immense mobilisation of the empire to stave off it’s collapse. The cost was enormous, both financially and socially, and involved the almost complete elimination of social mobility. Occupations became heriditary for example, bakers had to marry bakers daughters, and soldiers had sons had to become soldiers. A prot-caste system began to evolve.
The whole system was wildly inneficient, inflexible and corrupt of course. But it worked, for a while.
The caste system is very efficient. The dexterity and mental ability of certain people who fit into certain roles in society magnify as DNA is interbred with these characteristics.
And don’t forget he skill that is transferred from generation to generation. Remember Jesus was known as THE Carpenter because his father trained him. I assume Josephs father was a Carpenter too.
From my fairly limited studies, the caste system in India was robust but not very dynamic, which is why the princely Indians were overrun by imperial Britain.
First off, when history about WWII is so massively unknown/grossly distorted (as Dr Faber has pointed out, it is in fact true that until recently at least the “winners” write history), I take with a handful of salt any discussion about history from hundreds of years ago, preferring to think of it as a “movie based on real events” …. Secondly, let’s pretend the exact historic record is before us right now, in total, full detail….I would agree with you that…”the highest bidders would have been the aristocratic senatorial elite, not succesful businessmen”…. but your, perhaps inadvertently, just obfuscating the wider point…person X of the “aristocratic senatorial elite” .. who bides his time seeing things necessarily must come down in price for fair(er) value to appear …. though perhaps not a succesful businessmen in the true sense of the meaning, certainly is closer to that ideal than .. person Y of the “aristocratic senatorial elite” who struggles, pointlessly in the end, against bankruptcy, foolishly believing in his ability to, once again, postpone the inevitable…
I would draw your attention to the word kakistocracy,
derived from Greek society funnily enough….
and suggest because things occur over time due cumulative effort(s)….
a kakistocracy (which if I may say so, is probably a suitably appropriate term to paint the nature of Roman society with, when speaking in such generalities)….
doesn’t snap into Nirvana overnight, ever..but rather slowly evolves from bad to less bad…
the leader goes from being the dumbest person in Rome to the second dumbest, i.e.
not particularly a thing to want, of course, but undeniably a move in the right direction
Kakistocracy sounds like Wall Street.
And as for the Romans, they would certainly have benfitted from shrinking the state, and freeing up society. But that would have implied an intellectual and ideological changeonthe partof the Emperors for which they weren’t equipped. Juliian the Apostate came closest, but he wasn’t in power for long enough to make any real difference.
The Wiki entry for James Steuart (author of the first footnote tellingly deployed by Hudson in the above essay shown by Aziz, insofar as its quite premise-y in that important essay’s context) states:
Sir James Steuart, 3rd Baronet is actually a bit complicating, if Wikipedia is accurate about this supposed fact, that Sir James was associated with Jacobitism.
Why am I blabbering about the Baronet being friendly with Jacobitism, asserting it’s a complicating factor in this context? Why, of course, because Jacobism was…
“a political movement in Britain dedicated to the restoration of the Stuart kings to the thrones of England, Scotland, later the Kingdom of Great Britain, and the Kingdom of Ireland”
Dear Hudson relies on the right honourable Baronet to argue against monarchy?
But in any case, putting this apparently contradictory logic aside for one moment….
This man supposedly was, it is said, one of the first men to write a proper quality book about economics…..in 1767….
Now, don’t misunderstand me, whilst not the most excitable person when it comes to untested, relatively “non-scientific” Eastern/natural forms of medicine….even pulling back from that entire area of (untested, potential) medicine….
Would one have a great deal of faith in his heart surgeon, if during his last consultation with his surgeon prior to going under the knife for surgery, the honourable Doctor began deferring to his bookshelf, and in particular to a specific book, which you happen to see was first published in 1767…would this still confidence with you?
I rather my surgeon seated at his computer reading from Wikipedia, frankly
Alister from time to time I have been known to quite Marxist thinkers or use Marxist reasoning. I think anyone familiar with this blog knows that I am not by any stretch of the imagination a Marxist.
Hmm :S That’s not at all what I meant to suggest! Sorry, my communication skills obviously leave room for some considerable improvement. Far from thinking your rigid, thinking-wise, I think yours is one of the best learned opinions accessible thru the Internet, rivalling even Mish & right up there in my humble opinion with 0hedge
Don’t worry, I’m not saying you think I am a Marxist! (It is me who should have been clearer). The point being that quoting from a monarchist in an attempt to discredit monarchism is a perfectly reasonable thing to do.
By the way, it’s flattering you rate me next to Mish and Tyler. I’m just glad I have regular readers and that my posts get a few comments.
Ah, I c, I c, yeah, my bad….I’ll read from start to finish that Hudson piece this week sometimes…I’ve never liked Hudson’s intellectual arguments ….
The Roman Empire still exists. It is called the Roman Catholic Church.
The leaders were not that stupid. They were leaders for a reason.
Constantine the Great was not Great for no reason. His visions in battle and subsequent conversions was a clever ploy. People suffering mental illnes i.e. visions of crosses in the sky, don’t function too well as leaders. But people who claim to see visions to pursue an agenda are highly rational and intelligent.
It is Orthodox Easter this weekend, and Roman Catholic last . The plate is being passed around. Very reliable tribute!
Happy Easter, Buddy.
By the way, to prove a point, here is what ZH is best at:
Yes the ZH article does educate readers on HFT. HFT is a fact now. Hedge funds rule. But they got greedy:
Most investors are the general public who have retirement saving accounts. The extreme week in week out negativity that does not actually predict a market turning event breeds complacency and a disrespect for the articles. Investors turn off and say the market is rising I better get on as these guys cry wolf. It actually backfires. They earn advertising money by getting an excess of eyeballs promoting a cult following, yet it provides no real service protecting investors.
I only glance at ZH headlines now. The comments are a waste of time. I prefer real market movers like mainstream press headlines. The art of propaganda. Repeat a line often enough and it is accepted as fact. Technical Analysis and headlines is all you need.
The biggest killer to the Equity markets is the extreme volatility. With most of the baby boomers in retirement mode, capital preservation is key. Fund outflows will reach a point where HFT are trading with themselves. There is not a human to scalp!
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Thanks for this background information on the Roman economy. I can now see how this will impact the history of the time in Roman Colchester.
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