Sunday, August 14, 2011

The decay of the welfare state – What can we learn from the Roman Empire?

Are we heading towards the same destiny that hit the Roman Empire only a few hundred years after Jesus Christ was born? The the smily fascistization of free enterprise, socialization the US health care sector, is made on a morally corrupt and rotten ideology.

Every society is building its strength on a moral ground. In the US that moral has been written into the Constitution granting the citizens law and order, as well as, a sincere respect for all citizens’ property and income. When the representatives believe that they by the power of the government apparatus unpunished can plunder certain citizen groups on their incomes and property, they are fatally mistaken.

In ancient Rom a large scale social welfare support was introduced by Gajus Gracchus (158-122 BC). All citizens of Rome were entitled to buy a monthly ration of grain at a fixed price. The subsidized staple food of Rom became immediately the weapon of choice for the ruler to stay in high favor with the crowd and to maintain control over the political power.

Cheap grain was initially sold without any means test to every individual willing to queue up. From the beginning about 50,000 people used this benefit. The free food policy evolved gradually over a long period of time. Since the inception of the system the number of people living on public social assistance increased and few rulers in power dared to put an end to it. The first ruler to make an attempt was the great commander Lucius Cornelius Sulla (138-78 BC), but it was stopped by severe social riots forcing him to retreat. Then no less than 200,000 Roman citizens received public social assistance and did stand up in defense of their right to cheep basic food.


At the time Julius Caesar seizure of power (49 BC) the number of people living on social welfare assistance had increased to a staggering 320.000, in a city with 1 million inhabitants. Publius Clodius Pulcher abolished the charge in 58 BC, and began distributing the grain for free. The result was a sharp increase in the influx of rural poor into Rome, as well as the freeing of many slaves so that they too would qualify for the dole. Ceasar managed later to introduce a means test that squeezed down the social welfare population to 150.000.

After his death followed several weak rulers, causing the number to again reach 320,000, a number that Gaius Julius Caesar Augustus (from 31 BC) by a new means test managed to squeeze down to 200,000. The welfare system had by then become a well-established institution by its own power that withstood every attack during the coming centuries.

One notable act of Marcus Ulpius Nerva Traianus, commonly known as Trajan (98-117 AD), was his formalization of the Alimenta, a welfare program that helped orphans and poor children. It provided general funds, as well as food and subsidized education.

Under Septimius Severus (193-211 AD) free oil was also distributed. Subsequent emperors added, on occasion, free pork and wine. A milestone in evolution was made 274 by emperor Lucius Domitius Aurelianus commonly known as Aurelian (270-275 AD) who not only made the right to social welfare hereditary but also boosted welfare benefits considerably by providing baked bread instead of corn supplemented by pork, olive oil and salt.

The Romans did not only demand cheap basic food but also subsidized culture. The emperors assumed the responsibility of providing the citizens with publicly funded entertainment and arts programs. One historian estimates the modem equivalent of $100 million a year was poured out in circuses and gladiator duels alone.

None of the emperors, not even Caesar or Augustus, dared to circumscribe the Roman’s welfare privileges. Indeed they had access to the Praetorian Guard having power to crush any insurrection. However, they preferred to be generous and to keep the crowd in a good mood. They wanted to be greeted with enthusiasm by the crowd of people at the public celebrations and entertainments. Ovations and cheers was sweet music for the emperors that they where willing to pay a very high price for.


Monetary, fiscal, military, political, and economic issues are all very much intertwined, because any state normally seeks to monopolize the supply of money within its own territory. The development of Rom to an empire was created by an expensive military power and plentiful of stupendous palaces and monumental buildings. Combined with immense costs for the military, free food and entertainment the emperors need for incomes became insatiable. The expenditures grow fare above the tax revenues, a problem the government solved by reducing the value of the money value. By other words inflation was created.

In absence of a modern monetary system, where the printing press for banknotes could be used, the rulers had to deteriorate the coin.

The silver coin denarius was introduces 268 BC and contained 95 percent silver. Nero reduced the silver content to 90 percent. Trajan (98-117 AD) reduced the silver content to 85 percent. Debasement continued under the reign of Marcus Aurelius (161-180 AD), who reduced the silver content of the denarius to 75 percent, further reduced by Septimius Severus to 60 percent, and Caracalla evened it off at 50/50.

Caracalla was assassinated in 217. Then followed an age that historians refer to as the Age of the Barrack Emperors, because throughout the 3rd century all the emperors were soldiers and all of them came to their power by military coups of one sort or another. There were about 26 legitimate emperors in this century and only one of them died a natural death. The rest either died in battle or were assassinated, which was totally unprecedented in Roman history, with two exceptions (Nero, a suicide, and Caligula, assassinated earlier).

Caracalla had also debased the gold coinage. Under Augustus this circulated at 45 coins to a pound of gold. Caracalla made it 50 to a pound of gold. Within 20 years after him it was circulating at 72 to a pound of gold, reduced to 60 at the end of the century by Diocletian, only to be raised again to 72 by Constantine. So even the gold coinage was in fact inflated (debased).

The real crisis came after Caracalla, between 258 and 275, in a period of intense civil war and foreign invasions. The emperors simply abandoned, for all practical purposes, a silver coinage. By the middle of the third century AD, the denarius had silver content of just 5 percent and year 268 AD the content was reduced to only 0,02 percent, a reduction by 1/4700. The decline in the silver content to the point where coins contained virtually no silver at all was countered by the monetary reform of Aurelian in 274.

Soldiers' wages went up. But silver content went down,

making the currency worth less — considerably less. (source: Mapping History)

It sound a lot, but the price increase was only 1.6 percent per annum. For us it looks almost like as close to a stabile money value you can get. However, the inflation ratio increased, as it use to do in a welfare state. And during the hundred years beginning 200 AD to 300 AD and the price for an artaba (approx 77 lbs) wheat from 12 to 120,000 drachma, i.e. 10 000 times the original value. Roman historians refer to this period as the "Crisis of the 3rd Century." And the reason is that the problems of the Roman society in that period were so profound, so enormous, that Roman society emerged from the 3rd century very different in almost all ways from what it had been in the 1st and 2nd centuries.

At that time Rome was going fast on the downhill slope, with stark increase in prices, averaging 10 percent per annum. The only people who were getting paid in gold were the barbarian troops hired by the emperors. The barbarians were so barbarous that they would only accept gold in payment for their services.

Since prices were rising too rapidly it became impossible to count on an immediate proportional increase in the fiscal revenue, because of the rigidity of the apparatus of tax collection. Of course, people having savings where hit harsh by the inflation, particularly small savers in coins. Such inflations are in reality working as a systematic plundering of the savers assets and discourage the desire to save.


During the centuries prior to Christ’s birth, when the Roman Empire evolved, the society’s financial base was created on a healthy model that stimulated entrepreneurship and productivity. Without a free market economy with free production and trade no development would have taken place. Taxes and duties where favorable to businessmen and the agriculture blossomed. The farmers developed a capacity big enough to provide Rom with all staple food needed. Artisanship and commerce flourished and enterprises grow.

Then came the redistribution of wealth, transforming Rom to a welfare state, with free bread and entertainment, as well as, with extensive government support for a place to live at, child support (due to the low nativity), and lots of jobs in the constantly expanding public sector. This development was not possible to slow down, as it created its own unstoppable force. Oppression and extortion began early in the provinces outside Italy and reached later fantastic proportions. The mob of Rome and the palace favorites produced nothing, yet they continually demanded more free gifts.

This was gradually leading to taxation on the citizens living in Italy, and later leading to an intolerable tax burden on the productive classes, as they earned good money and often managed to buildup considerable fortunes. Emperor Nero once declared, "Let us tax and tax again. Let us see to it that no one owns anything!" Later, more unscrupulous emperors like Domitian (81-96 AD) would use trumped-up charges to confiscate the assets of the productive entrepreneurs. Most emperors continued the policies of debasement and increasingly heavy taxes, levied mainly on the productive and wealthy.

The war against wealth was not simply due to only fiscal reasons, but also as a conscious policy of exterminating the Senatorial class, to eliminate any rival to the emperor. As the private wealth of the Empire was gradually plundered away though confiscatory taxes, an increasing number of entrepreneurs could not manage their businesses any longer. This caused the economic growth to slow to a virtual standstill. Once the productive were no longer able to pay Rom's bills, the burden fell onto the working class. Evidently average people suffered severely from the deteriorating economic conditions.

To prevent businesses from shutting-down, resulting in mass unemployment, the government was increasingly nationalizing the economy. This caused a total breakdown of the division of labor. The entrepreneur’s difficulties were not only caused by high taxes but also by massive government regulations. At this point 301 AD, the Emperor Diocletianus, commonly known as Diocletian, took action in order to subdue the increasing civil unrest. He attempted to stop the inflation with price controls (Edict on Maximum Prices) on all services and commodities. Despite the fact that a brutal death penalty applied to violations of the price controls, they were a total failure. Goods disappeared from sale, resulting in shortages and destitution. Diocletian put the blame on the merchants; they where the avaricious greedy types who caused the inflation and he spoke about himself as "the protector of the human race."

Every kind of price control where the producer is prevented from charging the price the consumer is willing to pay for is thieving from the producer. This kind of plundering and assault did severely discourage the producers desire to produce. Businesses were literally pulverized under the burden of this public hostility.


Under Emperor Aurelian (270 AD) Rom had one million inhabitants. But here the curve is turning down. The financial assault on the businessmen and the farmers caused the supply to decline. Constantine, the first Christian emperor of Rome issued new taxes. One tax was on the estates of the senators. This was new because senators were usually free of most taxes on their land. He also issued a capital tax of merchants; not their earnings. This was to be levied every five years and it was to be paid in gold. Constantine also required that the rents from the imperial estates, which were rented out to tenants, were to be paid only in gold.

Constantine let the gold coinage sufficiently large that it began to take hold and to circulate more freely. However, the silver coinage failed and at no time in this period did the central government try to control the token coinage. The result was that token coinage was being minted not only by the imperial mints, but also by the mints of cities. In other words, if a city couldn't pay its costs or pay the salaries of its employees, it simply struck up some token coinage and issued that.

When people began to say "it used to be I had five people paying this unit of taxation, but two of them have fled and it's only half the land in production," the response of the government was, "that doesn't matter, you still have to pay for the land that is now out of production." There was no relationship between taxes and actual productivity. All of this resulted in a serous flight from the land, massive evasion of taxes, people left their jobs, and their homes. Businesses closed and the inhabitants of Rome where forced to move to the provinces, basically leaving the city as an economic empty shell. The plundered population left their social status in desperation. The legal market with controlled prices and shortage was replaced by a black market with sky-high prices.

Already by the late 3rd century massive appearance of counterfeits appeared. People needed small change, and they did simply manufactured it. This meant that the amount of token coinage in circulation was uncontrolled and increasingly massive. In the course of the inflation the government found that when it paid its troops in token coinage, or even in debased silver coins, prices immediately rose. Every time the silver value of the denarius dropped, prices naturally rose. The money economy finally completely broke down and the government, in order to try to protect its civil servants and its soldiers from the effects of inflation, began to demand payment of taxes in kind and in services rather than in coin. They wound up, in effect, repudiating their own issued coins, not accepting them for tax collection purposes.

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In the end, there was no money left to pay the army, build forts or ships, or protect the frontier. It was an easy task for he barbarian German chieftain Odoacer to push aside the last Roman emperor, Romulus Augustulus, and install himself 476 AD as the new authority and liberator of a corrupt and decayed ideology. The Roman state was the enemy; the barbarians were the liberators. The early 5th century Christian priest Salvian of Marseille wrote that the Roman state collapsed because it deserved the collapse; it had denied the first promise of good government, which had a just system of taxation. The Roman mass had one wish after being captured by the barbarians: to never again fall under the rule of the Roman bureaucracy.

The more recent American progressive rulers has elevated the government’s power and influence based on a morally rotten and corrupt ideology resembling the Roman ideology to plunder the productive entrepreneurs in favor of good gifts to the poor and unproductive. The county’s moral code written into the US Constitution has been under constant attack since the progressive presidents Herbert Hoover, the grandfather to the New Deal, and Franklin Delano Roosevelt the inventor of the New Deal [for Socialism] introduced the un-American ideology of redistribution of wealth. Ironically FDR’s Treasury secretary Morgenthau admitted that the polices did not work and said that “We are spending more than we have ever spend before and it does not work. . . And an enormous debt to boot!” FDR himself said that government dependency could be “a narcotic, a subtile destroyer of the human spirit.” It appears that politicians act like drug dealers working for making its constituency hooked and dependent on the good gifts. Are the checks and balances in the present US Constitution preventing the political class to sacrifice the freedom of choice and the respect for citizens’ right to dispose over most of their income? Will the never ending innovation of new good gifts to the people and increased taxation on the entrepreneurs finally cause a welfare death like the one Rome experienced 1500 year ago?

Ben Hedenberg

Masters Degree in Law and Economics

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