Tuesday, July 8, 2014
Why the US Government Should Maintain the Dollar as a Strong Currency: the Story of the Two Romes, One in Decline and One Rising
Why the US Government Should Maintain the Dollar as a Strong Currency: the Story of the Two Romes, One in Decline and One Rising It is One Thing for the Value of the US Dollar to Fluctuate Against Other Currencies and Quite Another for it to Be Debased for Trade Advantages Lex Loeb Contributor Network . The Division of Rome into two separate seats of power after Emperor Constantine Created Constantinople created two separate imperfect economies one that thrived and the other that failed. The old Italian Rome had the same bad habit of Byzantium of importing more than they exported. Bother had mad Emperors prone to go crazy with deficit spending particularly that used to finance campaigns of war and to build defenses against attack. Old Rome was capable of being more productive than the New Rome. Old Rome had better more productive land than was generally found in areas controlled by the Byzantines. The advantage enjoyed by Byzantines was actually more relative free trade. Emperor Constantine chose the site for his new city because it was the nexus of the most lucrative trade routes that linked East to West and North to South. The Site controlled both water and land trade routes to China, India, African and Europe. Constantine moved his roman capital to Constantinople because of this strategic significance. There would again be any other middleman between European Rome and the rest of the world with Constantine's strategic control of this territory. This Byzantine roman control would last until the Muslim turks Constantinople and turned it into Istanbul. Istanbul remained in control of the terminal points of the same trade routes until trans Atlantic shipping began with Christopher Columbus. Venetians may have given the turks a little competition and later the Suez canal opened a new shipping route that could have broken the Byzantium strategic location monopoly. The Romans were taking tolls on trade volumes long before Emperor Constantine. My theory about why Hadrian's Wall in Britain was built and also the Great Wall of China was that the purpose was less about defense than it was to control trade as to be able to take tolls on imports and exports at the relatively few open gates where customs inspectors could be stationed. In Ancient times tolls were taken as a percentage of goods that passed though as they were inspected. When the Emperors were not as powerful as they could be being too far away the system would have been much the same as corrupt police at a border crossing demanding tribute for the right to pass. Understanding that Constantine established Constantinople as the most important toll booth in ancient times is critical to understanding the real history. Constantinople and later the borders of Byzantium were not the first nor the last trade toll booth that trade route caravans and shippers encountered. Rome's Port at Ostia and other Ports would take their percentage on a variety of different levels. The equivalent of the modern day long shore-man union was operating in Rome's ports and they certainly took their cut too. Byzantium was very well placed in it's controlling so by that very nature it has relatively freer trade than old Rome did. By the time Goods from India got to Ravena or Rome, after passing though Constantinople, the mark up would be much higher in the rest of Europe because Ports and merchants had no choice but to mark up prices over additional local tolls. Byzantine did a thriving business with western European Rome re-exporting imports value added imports including silk woven form raw silk they imported. Byzantine, nevertheless retained what our economists and politicians call a negative balance of trade since they tended to import more goods than they exported. In later imperial years with the rise and success of Islam , A lot more was being imported from the Muslims who were also managed to divert shipping and caravans away from Constantinople with lower toll rates. Western Rome fell into decline as the Byzantine empire began to rise and thrive. The main difference to be freer more direct foreign trade. Running import deficits might have harmed the Old Rome but did nothing to stop the rise of Byzantium. Old Rome maintained trade links with Spain , Gaul and the Far north lands that gave them more direct access to certain goods not controlled by Byzantium. Unlike old Rome the Byzantines had another trade advantage. It was a relatively stable currency. The Byzantines suffered with problems of recurrent inflation just like Old Rome did but they had a secret weapon that Old Rome did not have to defend their economy and it was made out of Gold. If you go to a coin shop and ask to see a Bezant. There were lots of them minted. The Bezant is the Byzantium equivalent to the modern day US dollar. It was a very widely accepted currency though the Muslims did not enjoy receiving coins with picture of emperors and the cross of Jesus on them. The Bezants are of remarkable quality compared to sloppy look roman coins. The Gold in them tended to be less debased than that of other currencies. It was not the gold, however, that made the bezant one of the most stable currencies in the ancient world it was the availability of the coins to settle transactions and the lack of variability of how they were minted that made them so much better than coin de jour the present roman old Rome emperor was minting and debasing to try to gain some trade advantage over trading partners. The Stable currency of Byzantine, the bezant, could have been printed on paper like the dollar and it would have been far more stable as a currency. The economic data from one Rome failing and the other new Byzantine Rome thriving cannot be blamed on having an import imbalance because both Romes suffered that same problem. Old Rome had viable production for trading . Byzantine actually produced less than it imported like the USA today . Byzantium did fine. It thrived using the stable bezant for 400 till its conquest by the turks. The record of the minting of the bezant maybe the longest continuous minting of any coin in western history. For the most part it was not a debased currency nor subject to anywhere near the inflation suffered by old Rome with many different types and styles of coins minted. The idea that the USA suffers from having a gigantic trade deficit and has to correct this by devaluation of the Dollar is absurd considering the Byzantine history as a major net importer with a nice long 400 plus years of currency stability fostering the empire's success. Next time you turn on the television and hear some talking head tell you that the US has to lower the value of the dollar to compete against the Yen , the Yaun , the Euro, etc, just remember the story about the two Romes . One was on the rise while the other fell to oblivion. Coins being made of gold is not what made the currency stable and their economy a success . It was really more a matter of a bezant always being a bezant. It would be nice if the US Treasury would add " In the US Dollar we Trust." to the greenback because that might give it the dollar is always a dollar equation . The conclusion , although a rather general analysis, is that direct free trade is better for participants in an economy than paying compound tolls or trade tariffs to a government, Having an import imbalance or trade deficit is actually a positive thing to have so as to avoid uncompetitive higher costs to produce the same thing or in the case of something like silk, the impossibility of producing it instead of importing it. Having a consistent stable currency where the trusted bezant dollar remains the bezant dollar can keep the richest empire in the ancient western world going for much longer than the USA has lasted so far. Dollar stability is a major danger because all competing currencies are more likely to suffer counter devaluations. If an economy like the USA can afford to hire 5 Chinese rural workers for a day for the same price as hiring one American citizen worker for just one hour then clearly it is in the best interest of the USA to hire as many inexpensive willing Chinese laborers as possible to expand our economy rather than try to readjust the US dollar so our workers can compete on their hourly rate basis. The nonsense money fixing programs from the US government go on and on. The strange thing is if a country like China decides to devalue its currency against the US dollar that policy move does far more damage to the Chinese economy than the economy of the USA if the USA maintains the value of the dollar because it means we in the USA can hire more Chinese workers for the same price and get the Chinese to work harder producing the goods at a discount. It does make US goods more expensive in China but then it is not the $2 a day workers there that are going to become the USA products best customers. It is sort of like having a field of self planting wheat larger than the field that you have to work too hard to plant to get your money back for doing it and not allowing the self planting wheat field to be harvested. It is like being against having wealth. The union mentality is the opposite but it would seem to be foolish having union jobs where foreign labor can do the job for a lot less. The best analogy is a man with a union job lifting 80 lb boxes by hand going on strike against his employer buying buying a forklift for him to use instead of doing it by hand. The forklift does not necessarily automate things so well it replaces the worker. It does help get better productivity immediately. In the future unions will probably object to companies buying robots to do jobs cheaper and better than existing employees. That would be like Byzantium restricting the importation of foreign made silk to protect their weaving economy against having that necessary resource. The virtues of cheap imported foreign labor have had stunning effects in modernizing places like Dubai in recent times. There is no evidence of any unemployment in Dubai with the importation of inexpensive labor from far away places The standard of living in Dubai rivals anything seen in the USA. It is like Los Angeles where we rarely see union workers going on strike against Mexican gardeners or Mexicans working at McDonald's. The issue here is not whether they are legal or not but rather if they are an overall asset or a liability to the economy. The only correct answer is that they are an asset whether legal or not. If foreign resources are cheaper thanks to a strong dollar and beneficial it is better overall to maintain the value of the dollar and to compete against foreign competition with the best of all resources at the lowest possible price. Some historians theorize that the old roman empire with its capitol in Rome debased itself out of existence and that most of its emperors were too vain for their own good spending money harvested in taxes and from the provinces for shocking budget deficits to display excessive personal consumption. The way the romans made up for lost revenue form these budget deficits was to take legions to war and to pirate the wealth of increasingly far away difficult to fight people or to raise taxes on a population of citizens accustomed to Roman State Welfare programs that included bread and circus. It would not have mattered that a bezant was made of gold or even silver so long as traders could have taken payments in bezants and got a fair portion of trade goods in return for them. We have enough experience with paper money to say that it does not have to be subject to devaluation and debasement to retain a fair value. The Byzant would have been an even better currency had it been made of paper because that would have been less dead weight for traders to carry with them long distances on their trade routes. Another point to make is that the role of government protecting it's ability to take a toll on production, imports and/ or exports is not nearly as harmful over the long run as making policy decisions to play with the value of the state currency. It does help if the state can control the point of origin. That could even be a good argument for a limited value added tax as opposed to the income tax and capital gains tax. Find out more about Bezants and their long history of use by reading up on them. .