We know the phrase, “the barbarians at the gates.” It conjures up an image of imminent destruction. The armed barbarians outside are about to rape and pillage the sophisticated people inside. The imagery is based on the story of the fall of Rome.
It was never that simple in the later Roman Empire in the West. From the point of view of taxation, the real barbarians were inside the gates. We face a similar problem today.
What I am about to describe is not found in the standard textbooks on Western Civilization. They may talk of heavy taxation and inflation under Rome before Constantine (312 A.D.), but they do not describe the details of a widespread tax revolt in Western Rome in the following century. Beginning no later than the late 300’s and continuing until the fall of the city of Rome in 476, the burden of taxation was so great that the residents sometimes preferred rule by the barbarians to rule by Rome.
A FIFTH-CENTURY TAX REVOLT
In 440 A.D., Salvian, long identified in the West as “the presbyter,” wrote a book whose title is translated as “The Governance of God.” It contains an assessment of the tax burden facing Romans. Salvian lived in what was later known as Trier or Treves. His description of the tax burden deserves wider circulation. But what else can these wretched people wish for, they who suffer the incessant and even continuous destruction of public tax levies. To them there is always imminent a heavy and relentless proscription. They desert their homes, lest they be tortured in their very homes. They seek exile, lest they suffer torture. The enemy is more lenient to them than the tax collectors. This is proved by this very fact, that they flee to the enemy in order to avoid the full force of the heavy tax levy. This very tax levying, although hard and inhuman, would nevertheless be less heavy if all would bear it equally and in common. Taxation is made more shameful and burdensome because all do not bear the burden of all. They extort tribute from the poor man for the taxes of the rich, and the weaker carry the load for the stronger. There is no other reason that they cannot bear all the taxation except that the burden imposed on the wretched is greater than their resources.
As he described it, the tax system was truly regressive. The poor paid; the rich did not. This was not what modern economists describe as regressive taxation, which they define as same-percentage taxation, or flat taxation, as in the case of sales taxes. The modern economist, following the lead of the modern politician, defines “regressive” as “not progressive,” meaning not graduated. Graduated income taxes force richer people to pay a higher percentage of their income than the poor pay, when the poor pay anything, which is rare. This system gets votes.
Salvian was so incensed by this system that he dismissed as misguided the argument that Rome was innocent and therefore the barbarian invasions were unjust on the part of God. When it came to taxation, the barbarians were civilized. Rome was not. Do we think we are unworthy of the punishment of divine severity when we thus constantly punish the poor? Do we think, when we are constantly wicked, that God should not exercise His justice against all of us? Where or in whom are evils so great except our own? The Franks are ignorant of this crime of injustice. The Huns are immune to these crimes. There are no wrongs among the Vandals and none among the Goths. So far are the barbarians from tolerating these injustices among the Goths, that not even the Romans who live among them suffer them.
When the barbarians arrived in a city, there was widespread confiscation followed by tax relief. The people rejoiced after the initial pillaging was over. Therefore, in the districts taken over by the barbarians, there is one desire among all the Romans, that they should never again find it necessary to pass under Roman jurisdiction. In those regions, it is the one and general prayer of the Roman people that they be allowed to carry on the life they lead with the barbarians. And we wonder why the Goths are not conquered by our portion of the population, when the Romans prefer to live among them rather than with us. Our brothers, therefore, are not only altogether unwilling to flee to us from them, but they even cast us aside in order to flee to them.
This was a tax revolt. The tax burden had grown so great that military conquest by barbarians was seen by many residents of the Empire as economic liberation. Liberty lay beyond the lines of the barbarian hordes.
The Roman Empire had been centralizing power for five centuries by the time Salvian wrote. The Republic had long since been replaced by the Empire. The Empire’s revenues had come in the early centuries from conquest. The defeated peoples paid the bulk of the taxes. The wealthy aristocracy grew richer from the income derived from the sale of defeated peoples as slaves. The poor of the city of Rome were increasingly bought off by the famous bread and circuses, funded by taxes or the largesse of aristocrats who had grown rich by the conquests and who sought votes.
There comes a day when the parasite begins to drain the strength of its host. That was what the Empire was doing by the time of Marcus Aurelius (121–180 A.D.), a figure beloved by modern historians because he was a philosopher. He was also the persecutor of Christians and the director of an empire which had reached the limits of its profitability. The centralization that followed was ruinous economically.
The standard of living of citizens in the new Gothic kingdoms actually ROSE after the collapse, as the burdens of supporting the central state disappeared and the citizens taxes went to support local rulers who did provide some protection in return for their exactions.
One of the great weaknesses of standard accounts of the Middle Ages is that they compare the poverty of the provinces with the wealth of the city of Rome in the early Empire. This is completely misleading. The comparison should be between the provinces in the first century with the provinces five centuries or more later. Here, the typical serf was better off under the manorial system of the so-called “dark ages” than the slave had been in Augustus’ day. Farming was more efficient, due to crop rotation. Metallurgy was more advanced. Road building was not, but the roads had been more for military control than trade.
Economic historian Robert Latouche as far back as 1956 argued that, in comparison to the heartland of Western Europe in the early Roman Empire, economic conditions were better during the dark ages. Another economic historian, Rondo Cameron, two decades ago wrote that “medieval Europe experienced a flowering of technological creativity and economic dynamism that contrasts strongly with the routine of the ancient Mediterranean world.”
There is no question that the city of Rome collapsed. There may have been as many as half a million residents in Rome in the days of Augustus Caesar in the days of Jesus. By the year 800, there were fewer than 20,000. The manorial system of Western Europe was not favorable to large urban areas and political centralization. Production was local. Taxation was local.
Conclusion: lower taxes increase liberty. Liberty encourages economic progress. But this story has yet to get into the history textbooks.
THE PRICE OF LIBERTY
Think of a family in the days of Salvian. The family was locked into its social position by Roman law, which mandated taxes. It could not escape these taxes. It could not legally move away from its assigned tax jurisdiction. Generation after generation was trapped in its legal status and tax status. Taxes got worse as production fell.
A family might decide to defect. The husband took his wife and children across the frontier into the camp of the barbarians. The barbarians might steal what the family possessed, but on the other side of the line, there was a degree of liberty unavailable to Roman citizens.
These were early expatriates. The United States government maintains a claim on income earned by its citizens, no matter where they live. Wage income earned outside the borders of the United States that is above about $90,000 a year is taxed as if it were earned inside the national borders. In contrast, a family that crossed the line 1600 years ago escaped the jurisdiction of Rome’s tax collectors.
The pain of taxation in modern times has been insufficient to create anything like an exodus out of the United States. The voters grumble, but they do not vote with their feet. There are still poor people trying to get into the United States and other Western nations. For those people, crossing into the West is like crossing the line into barbarism in 400 A.D. Liberty is greater here.
Nevertheless, as taxes and controls increase, voters are becoming aware that there is no escape. Economic growth will not reduce the overall burden of the modern welfare-warfare state. The politicians always have plans to spend more money than taxes produce. The government can continue to spend without raising taxes because there are lenders who will transfer wealth to the state on the basis of the government’s promise to repay the debt. This transfer increases the likelihood of monetary inflation, which lets the government roll over old debts at a below-market interest rate.
The residents of the West content themselves with the illusion of lifetime security. They believe that their governments’ promises are reliable – so reliable that they have made plans for comfortable retirements at the taxpayers’ expense.
The taxpayers in turn expect lenders to provide the resources to meet the mountain of promises.
The lenders are convinced that there is always an untapped source of wealth – future taxpayers – that will enable the government to escape default.
The price of liberty today is the suspension of disbelief. It is seen in the willingness of hundreds of millions of voters in the West to plan for the future in terms of a statistical impossibility.
Liberty is leased from the government by means of borrowed wealth from taxpayers (Social Security and Medicare), lenders (pension funds and insurance companies), and central banks (fiat money). Westerners are enjoying the liberty of the drug addict who relieves present pain by ingesting a substance that distorts his sense of reality. The more dependent he becomes on this substance – statistical illusion – the more of it he requires to persuade him that the day of reckoning will not arrive in his lifetime.
National governments ever since December 2007 have vastly increased their level of debt. Central banks have increased their extension of fiat money to these governments and their agencies. Lenders have cooperated with this massive spending by reallocating their investment portfolios. They have transferred the money under their administration to national governments on the basis of official promises that clearly cannot be kept. Why have they done this? So as to avoid the risks associated with the private capital markets.
The private bond sector can legally make comparable promises, but not by means of the trademarked phrase, “the full faith and credit of the government.” These words are to the world of investment the marketing equivalent of the words, “Of course I will still respect you in the morning,” the security bond in another highly competitive, even more short-term market.
THE BARBARIAN LINES
In the Western half of the late Roman Empire, the barbarians were the feared invaders by those who lived on the tax revenues of the enslaved citizenry. From the point of view of the taxpayers in the Empire’s heartland, the barbarians were the liberators. They offered a barrier between ex-Romans and the tax collectors sent by the central government.
Crossing the line of barbarians was a risky proposition. No one knew how he would be treated as he crossed through the line. No one knew what kind of living he could make on the far side of that line. But everyone knew that the tax burden would be reduced, permanently.
Today, the empire of the West has lost control of the frontiers. There are foreign jurisdictions beyond the borders that offer the same sort of liberty that the barbarians offered in the fifth century. But taxpayers are content with their lot today. And why not? They are living their lives in an atmosphere of debt. Like the opium dens of China in the nineteenth century, which the British promoted profitably as a way to reduce the resistance of the Chinese masses, so is the den of government debt. Governments extend their control over the lives of their citizens, and they meet little resistance.
The system has worked magnificently in every nation in which a central bank has been licensed by the government. The debt expands, the monetary base expands, the list of promises expands, and the purchasing power of the currencies decline. The taxpayers are content with the arrangement, for the bills never seem to come due. The supply of debt is always available to the users at low cost.
The most addicted users of all are members of Congress. They extend the reach of the government without significant resistance. In the name of the people, and on behalf of the people, as the representatives of the people, Congress votes for ever-more wealth redistribution. It finances these expenditures by means of promises and a slogan: “the full faith and credit of the United States.”
Karl Marx was wrong. Religion is not the opium of the people. Government debt is. The true faith of the West is not faith in God. It is faith in faithfulness of governments – the United States government above all.
The voters will not flee across the line of the barbarians on the frontier. They will continue to dream the dreams of the lotus-eaters.
The empire will expand until, one fine day, the price of obtaining fresh supplies of debt increases. As interest rates rise across the board, in nation after nation, central bankers will have to decide whether to increase the source of the illusion: fiat money. The central banks are the lenders of last resort.
This is a threat: the addition of fiat money. Like powdered sugar in the heroin stash, so is fiat money. The kick wears off. The ability of the substance to reduce the pain of reality is reduced. The rush is less than before.
Then reality intrudes with a vengeance. If the central banks continue to extend the illusion of wealth, meaning the illusion of cheap capital, the debt addicts remain in a partial stupor. But the pain does not go away. The withdrawal has begun, and all the newly added powdered sugar in the heroin supply cannot defer it much longer.
The withdrawal symptoms became painful in 2008 and 2009, when the hard stuff became unobtainable at the older price. The central banks added new supplies of powdered sugar. The pushers went to work. Congress voted two massive bailouts: in late 2008 and early 2009. Lenders cooperated, supplying the hard stuff, but the Federal Reserve poured in powdered sugar as never before. The addicts went back to their dreams.
The users who at long last do see their predicament are the unemployed. They are getting their monthly methadone fix from Congress, but the illusion of safety is gone. They are on pain-maintenance doses, not the sleep of the lotus-eaters.
The citizens of Rome in the West saw their predicament in the fifth century. The escape route was clear: the barbarian frontier. Some mustered the courage to cross it. Those who remained in place saw the frontier move closer. City by city, the citizens of Rome became residents of pagan lands. The Roman tax collectors ceased to arrive.
The frontier regions today are themselves becoming addicted to debt. Asian nations have their central banks, which are working hard to transfer wealth to those sectors favored by politicians. The addiction to fiat money grows. Price inflation follows close behind.
The lotus eaters will at last discover that the supply of dreams is no longer available.
If you decide to remain where you are, it would be wise to stop inhaling the smoke of the dens of debt and to prepare for the withdrawal pains of your neighbors and colleagues. The withdrawal will come.