Inflation and the Emperor Who Planted Cabbages

Invest in inflation. It’s the only thing going up. – Will Rogers

As Americans are struggling with inflation to pay their bills, buy food, gasoline, and other necessities such as medications and rent, few have the knowledge to point to the culprits of such accelerated overall price increases:

-          - the inept government run by Democrats at the federal level

-          -  the production and supply chain disruption, bankruptcies, forced unemployment, and generous welfare to stay home, all caused by the continuous Democrat lockdowns and political fear posturing over a flu virus

-          - Joe Biden’s disastrous reversal of anything relating to fossil fuel production which escalated gas prices and made America once again dependent on foreign oil supply

-          - the Green New Deal which is destroying the economy

-          - Congress’ out of control spending of trillions of dollars printed ad nauseam, with no  backing up of goods or services

Inflation is an ancient enemy, with its cousin, stagflation, inflation while the economy is stagnating. Inflation measures via the consumer price index (CPI) the rising prices of goods and services which leads to a decrease in the purchasing power of the dollar. The same dollar used to buy a basket of goods today will buy a smaller basket due to rising prices.

The consumer price index (CPI) calculated by the Bureau of Labor Statistics (BLS) uses a weighted average of various goods and services Americans buy, i.e., food, shelter, transportation, doctors, dentists, medicines, and is differently gauged for rural v. urban inhabitants.

The method does not accurately reflect price increases as Americans use some services more than others, and housing costs, healthcare, and education vary from region to region. The CPI calculation methodology has changed more than twenty times and is still not an accurate measure of inflation.

What causes inflation?

-          Consumer demand for goods is much larger than supply, pushing prices of supply available up – see the case of new cars, the supply is much lower due to an alleged microchip shortage, therefore dealers add an average of $5,000 to the price of new cars

-          Increase in supply of money and credit to consumers – the government spending and printing money more freely

-          Price of goods increase because of higher production costs due to higher price of raw materials and higher employee wages

-          Wage push inflation – people expect inflation rates to continue (Federal Reserve target of keeping inflation at 2 percent rate per year) so employers increase wages, followed by increased consumption rates, which pushes prices of goods and services up.

-          Most economists agree that one compelling cause of inflation is the money supply that expands too rapidly, i.e., printing too much money.

The buying power of the dollar declines rapidly during high inflation. A classic example of galloping inflation is the German mark. In 1918 at the Armistice, one mark bought the same amount of goods and services as 726 million marks in 1923, just five years later. Burning paper money was cheaper than buying firewood.

Inflation is not bad for debtors; if you earn $1,000 you may have borrowed five years ago, is much easier. What you pay back the lender, the $1,000 buys less than it did when you borrowed it.

There was a time when breaking the law and causing inflation resulted in the ultimate punishment – death. To be more specific, Roman Emperor Diocletian, to curb rising inflation, devised a set of regulations in 301 A.D. Anyone caught defying his edict was killed.

Emperor Diocletian listed 1,000 items with fixed prices that could not exceed a certain maximum price, i.e., food, raw materials textiles, wages, and transportation. Anyone caught charging more for his listed items or trying to sell their wares on the black market for higher prices would be summarily executed without any benefit of a trial.

How bad was this inflation that Emperor Diocletian was trying to shrink? According to historians, the inflation rate was 1,000 percent during a period of 17 years. Reducing money printing was one way to deal with inflation. The government of that time tried to deal with the escalating inflation by debasing the currency so that instead of coins minted from precious metals, coinage was made mostly of copper.

But, debasing the currency, making it inferior in metal quality was a mistake, it did not go unnoticed to merchants who began to demand higher prices for the goods they sold and to citizens who demanded more wages for their work, resulting in more inflation.

But what caused this galloping inflation to being with? A half century of political turmoil, instability, non-stop warfare with the barbarians, the capture of the previous emperor, Valerian, by the barbarians in 259 A.D. Speculators caused a financial crash in which people hurriedly turned their available cash into goods.

Diocletian’s government failed to put blame on its shortcomings in dealing with “speculators who gambled on grain futures.” It is, however, written in the preamble of Diocletian’s edict, that those responsible were “men who have nothing better to do than carve up for their own advantage the benefits sent by the gods … men who are themselves swimming in a wealth that would satisfy a whole people, who think only of their gain and their percentage.”

Diocletian, a man of low birth, was proclaimed Emperor at the age of thirty-nine by his troops. He found out painfully that he could not reduce inflation by legislation – people, who saw their money devalued again, rushed to stockpile all the goods they could find and afford before their money lost value even more.

The black market flourished, one of the unintended consequences of bad price and income government policies. Emperor Diocletian managed to keep the empire together for a while and was one of the few leaders of that time able to retire and to eventually die in his own bed, a rare feat for emperors. At his villa in Salona, the modern Yugoslav town of Split, he grew cabbages. When approached to return to the life of command, he is alleged to have said, “if you could only see my cabbages, which I planted with my own hands….”

People in our modern economy hurry at times to exchange their available cash for goods they hoard during unstable times of fear and shaky economy caused by terrible government leadership.

Yogi Berra is famously alleged to have said, “A nickel ain’t worth a dime anymore.” Inflation does that to currencies. Of course, you could use the barter system and exchange goods for goods. The colonists used bullets and gunpowder as a medium of exchange and one town famously made money out of rectangles of wood. Colonists also cut up coins to make change, making a half coin worth four bits and a quarter coin two bits.

Cash will eventually become obsolete, replaced by chipped cards, and controlled entirely by government via technology. We are unsure how they would devalue balances to express inflation, but we are certain that they will immediately collect all taxes owed, and unless we do as they say, our electronic balances will be inaccessible to us.