Empire didn't fall - it was transformed

By DAVID MOON, Moon Capital Management, LLC
February 22, 2009

If you say something frequently enough and with enough conviction, it often becomes treated as fact.

Consider the fall of the Roman Empire. It really never fell, as much as it was transformed over a 200-year period. Rome still exists today, and its influence, mostly emanating from the Vatican, is immense.

It’s just entirely different than it was when Rome was the world’s only superpower.

In its heyday, around the turn of the first century, Rome controlled much of modern day Europe, northern Africa, Syria, Iraq, Kuwait, Lebanon, Egypt, Saudi Arabia and Israel.

Rome’s decline wasn’t a military fall, although a weakening military played a significant role in the difficult defense of its northern territories in the late 100s.

By then, the Roman army was weakened by economic turmoil at home. Soldiers were mainly recruited from the ranks of the unemployed, and when enough of them didn’t volunteer, the government hired non-military mercenaries to augment its army roles.

How did such a power become so vulnerable?

To understand the weakening Roman Empire of the second century, we must look at its prosperous period 100 years earlier. Times were good. No, they were great. The upper class held lavish parties and events, sometimes lasting several days.

The economy continued to grow, spurred mostly by newly conquered lands – the first century military equivalent of annexation.

As the economy grew, so did the people’s expectation of its government. Romans willingly gave way to municipal benevolent paternalism – especially since it was financed by taxes on the newly conquered subjects of the Empire.

The Romans understood pork and politics. A famous children’s welfare program, the Alimenta, was paired with an Italian farming subsidy.

Senator Ted Stevens, R-AK., the king of the hidden earmark, would have been proud.

Cities, bloated with bureaucracy, spent themselves into debt. The cost of maintaining the public infrastructure was enormous, but manageable, as long as tax revenues continued to grow.

When Rome’s conquests peaked in 116 A.D., so did the flow of easy money into the country’s coffers. A trade deficit developed, then ballooned. Romans freely spent on goods imported from India, while its domestic manufacturing base dwindled.

Inflation soared. Officials devalued the currency by reducing the gold content in each coin.

Tax rates were raised. Eventually the mighty Roman government began to borrow money – first from its citizens, then from foreigners.

Big businesses – the farmers who had curried favor with the government –continued to receive subsidies and were allowed to use slave labor. Smaller, unsubsidized farmers, forced to pay market wages for their employees, had massive layoffs.

Roman unemployment, previously virtually nil, began to swell, placing a greater burden on government services.

When Germans attacked the Empire in 167 A.D., Rome was mired in debt. To pay for the war, Caesar Marcus Aurelius was forced to sell the crown jewels and other of the Emperor’s household furnishings.

A plague, likely smallpox or measles, eventually killed up to a quarter of the population, but the Empire was already weakened by an even deeper, yet silent, economic malady.

There is no record of a Roman peanut-butter recall.

David Moon is president of Moon Capital Management, a Knoxville-based investment management firm. This article originally appeared in the News Sentinel (Knoxville, TN).

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