Cato Institute senior fellow Jim Powell wrote in Forbes magazine about the inevitable and predictable decline of rich nations that debauched their currencies in order to pay their bills. Powell said that politicians’ urge to promise and then to spend is almost overwhelming, calling it “a visceral urge to spend money they don’t have. They can’t control themselves. They’ll weasel their way around any efforts to put the lid on the cookie jar.”

The Roman Empire was on a gold standard, minting and using the aureus from the 3rd century B.C. until the 4th century A.D. The aureus initially contained 10.9 grams of gold, which was worth about 25 denarii, or about a month’s wages. As the empire devolved into promising more and more services (grain subsidies, public entertainment, and a huge bureaucracy and military establishment) it soon exceeded revenues generated through taxation. To make up for the difference, the aureus was steadily debased so that by 50 B.C. it contained 9.09 grams of gold, 8.18 grams by 46 B.C., 7.27 grams by 60 A.D., 6.55 grams by 214 A.D., 5.45 grams by the year 292, 4.54 grams in 312, and 3.29 grams by 367.

Paper money was more easily debased, as the Chinese discovered. Powell noted that seven different Chinese dynasties issued paper money to pay their bills and all of them eventually collapsed or were defeated by others that issued their own paper currency. Between 1260 and 1390, the money supply increased by more than 3,200-fold, causing the collapse of the Song and Yuan dynasties. The Ming dynasty’s currency lost 99 percent of its value by 1425, and the following Ch’ing dynasty destroyed its currency altogether within 11 years. It tried again with a new paper currency which lasted only eight years.

In England the penny contained 1,438 milligrams of silver in 1299, but by 1526 it had been debased to 687 milligrams, falling further to 518 milligrams by the year 1552 under King Edward VI.

But Powell noted that the worst debasements occurred with the establishment of central banks around the year 1900. Central banks served two primary purposes: to allow governments to spend more than they could raise in taxes or borrowing, and to protect the banking cartel when its members were threatened with insolvency.

What about the rich United States? Powell is pessimistic, claiming that “as long as there is money in the lockbox, political pressure will be overwhelming to spend it [and] the tens of millions of voters who receive government benefits … are likely to demonize courageous politicians who suggest the government can no longer afford to pay for everything.” The opportunity to rein in spending will come with the default, which will become immediately and painfully obvious when government benefit checks are late, prices at the grocery store are being raised every week, and the stock market tanks. Only then, says Powell, will it be “likely to break the iron grip of pro-spending lobbyists and [begin to] make serious reforms possible.”

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