What Is Money? Part 16: Inflation and the Savior State

Recently by Gary North: On Sacrificing for an Idea

I have argued that the debate over monetary theory begins with a debate over sovereignty. Here is the central question: “What is sovereign in this world?”

A few economists openly begin with the state. Even fewer begin with the free market. The vast majority try to avoid the issue altogether. But, when push comes to shove, they come down on the side of those who affirm the sovereignty of the state.

This inherently theological-philosophical issue comes to the forefront in the debate over money. Most economists believe that money is inherently outside the logic of economic cause and effect: the logic of individual human action. They argue that money is different. They insist that money must not be left to the free market to regulate. The state must have the final say over money: who issues it, in what quantity, and with whose pictures on the currency and coins.

Yet, even here, economists are divided. Almost all American economists affirm that the central bank should be independent from the government. It is created by the government through a grant of monopolistic power over banking. Yet they insist that it should be independent. To the extent that they teach this, they teach the sovereignty of central banking. The central bank, not the state or the free market, should be sovereign over money.

Within the camp of the critics of central banking are defenders of the absolute sovereignty of the state. These are the greenbackers — defenders of Lincoln’s wartime issuing of unbacked paper money. There is not a trained economist among them, and there has not been for over a century. I would go so far as to say they have never had a trained economist in their camp. They are right-wing populists. I have written about them here.

The other critics are almost all Austrian School economists. They follow the logic of Ludwig von Mises in his book, The Theory of Money and Credit. They see money as governed by the laws of the free market. They see it as an outcome of the legal right of private property, which includes the right of contract.

Most people do not think about the pictures on paper money. There is a reason for this. That which is the foundation of any culture or society — thoughts, words, and deeds — are taken for granted. People assume that nothing else could be assumed and still hold together the social order. They do not question these fundamental presuppositions, attitudes, and practices.

That which is considered to be beyond any public challenge constitutes the core of a civilization.

Pieces of paper with politicians’ pictures on them are part of this unnoticed but fundamental foundation.

Most people can easily see through the unchallenged domestic assumptions of rival cultures. Naked foreign emperors have no clothes. So, let us speak of long-dead emperors.


One of the finest books ever written on the history of the decline and fall of the Roman Empire is Ethelbert Stauffer’s Christ and the Caesars. It was published in English in 1955 — in Great Britain by the Protestant SCM Press and in the United States by Westminster Press, the publishing house of The Presbyterian Church U.S.A. By 1955, both of these publishing houses had gone theologically liberal.

This book was an indirect assault on the theology of the modern world: faith in the messianic state. The editors at SCM Press and Westminster Press did not understand this, for it undermined their liberal theology. R. J. Rushdoony did see it. The book was one of his favorites. He relied on it in his chapter, “Rome: The City of Man,” in his book, The One and the Many (1971). Stauffer was a professor of theology in Germany. He had lost his position under the Nazis, but had been restored to his former job in 1946. In addition to being a theologian and a church historian, he was a numismatist.

Stauffer’s thesis was unique. He argued that it is possible to see the battle for the minds of men in the late Roman Empire by tracing the history of the coinage. The coins in each era had images of the emperor. But it was not just his image; repeatedly, it was his image as a god. The emperor’s image, the religious symbols, and the inscriptions on the coins conveyed a message of the emperor as a divine-human savior.

In contrast to the declaration was the church’s insistence that the emperor was not divine. This confession of faith had implications for church members. They would not participate in ritual acts of adoration to the divinity of the emperor. In certain periods, the state persecuted Christians to the death for their refusal to confess and then participate ritually in emperor worship.

Stauffer traced the decline of silver content in the coins. As the Empire grew weaker, its coins became progressively debased. Stauffer noted that the claims of divinity on the coins grew more explicit as the coins became more debased.

The book traces the history of the fall of the Roman Empire in terms of the decline in value of its coinage and the escalation of the claims of divinity of the emperors. As the state lost its ability to protect citizens of the Empire from barbarian invaders, its assertion of the divine authority of the emperor increased.

It began with Nero. After Rome burned in 64, he blamed Christians. The first Roman persecution of the church began. Prior to that, the church had been protected by the special arrangement the Empire had with the Jews.

In rebuilding the city, Nero destroyed the finances of the Empire. He got rid of his debts by inflating the currency. As Stauffer noted, “The State treasury made its payments in inferior new currency, but insisted on receiving taxes in the undepreciated currency of the Augustan epoch” (p. 141). He added the following:

The emperor’s creatures glorified their master in the court theatre as the imperial magician who conjured up the legendary treasures of the golden age.

This same outlook governs modern Keynesianism, although without any reference to a mythical age of gold — a barbarous relic, according to Keynes.

In 68, Nero was overthrown, committing suicide. A series of new emperors rose to power and were executed over the next year. General Vespasian, whom Nero had sent to Palestine to crush the Jewish rebellion that began in 66, returned to Rome to become emperor in 69, shortly before his son’s defeat of the final resistance movement at Massada. His son, Titus, became emperor at his father’s death in 79, the year of the eruption of Vesuvius.

A century later, the Empire visibly began its long decline. After the assassination of Commodus in 193, Pertinax came to power. He did so by promising the imperial guard a bribe. As soon as the guard spent the coins, they killed him. His reign lasted 87 days. The guards sold the position to the next emperor. His replacement lasted 75 days. Then came a century of inflation. By 270, the destruction of coinage was universal.

The emperor Quintillus, scarcely known today outside circles of numismatists, issued in the seventeen days of his reign, from the imperial mint alone, more than seventy-five thousand coin-types, each more boastful than the last (p. 226).

Some historians say his reign survived six months. So jumbled are the historical records, no one knows for sure. What historians know is that the currency had effectively died.

Then came Diocletian, in 284. “Diocletian called himself Jupiter, and was worshipped as Father of the gods in human form” (p. 255). It was under his term of office that universal price and wage controls destroyed the productivity of the economy. The controls produced widespread shortages (p. 256). He also began a comprehensive persecution of Christians in 303, two years after Armenia became the first officially Christian nation. He voluntarily resigned in 305.

Under Constantine, less than a decade later, the persecutions ended. There was a brief revival of discrimination under Julian “the Apostate,” 361—63, but after him the Empire remained officially Christian. Under Constantine, a new gold currency was issued. It survived intact for over a thousand years — the longest period of monetary stability ever recorded. No coins announced the divinity of the emperor.

For over two centuries, the church had served as the Roman state’s chief rival: the institution that provided social order — ethical, judicial, and economic. The church had issued no coins. It had announced as divine a God-man who was not sitting on any earthly throne. After 363, the Roman state made no further claims of divinity.


A salve is a healing ointment. The root word for “salve” is the same as the root word for “salvation.” The meaning is “deliverance.”

Men cry out for deliverance in times of distress. “There are no atheists in foxholes.” The trouble is, the state got them into foxholes. So, they believe in the state as their source of deliverance, up until the day the deliverance fails to arrive.

When Stalin was warned in 1935 by Pierre Laval that the Pope would disapprove of the Soviet Union’s persecution of Catholics, he famously replied: “The Pope! How many divisions has he got?” In 1988, the premier of the Soviet Union, Mikhail Gorbachev, journeyed to the Vatican to meet with John Paul II on the millennial anniversary of the founding of the Russian Orthodox Church. Three years later, the Soviet Union’s leaders killed it. It had many army divisions. Those divisions did not save it, any more than the Roman Empire’s legions saved it.

When men look to the state to supply them with safety nets for life’s expensive problems, they rest on a weak reed. The state must come up with the money to provide and maintain an ever-more complex web of safety nets. There is strong demand for safety nets. The first law of scarcity is this: “At zero price, there is greater demand than supply.” The state supplies the safety nets. It then must pay for them.

The Roman state supplied safety nets, the famous bread of bread and circuses. This was a mark of its asserted power to save. As the highest court of appeal, the state was the agency of healing.

The church supplied bread in the sacramental ritual of spiritual healing: the Lord’s Supper. This is a mark of God’s power to heal. The church also has a ritual of healing. “Is any sick among you? let him call for the elders of the church; and let them pray over him, anointing him with oil in the name of the Lord” (James 5:14).

The state is a coercive institution, asserting sovereignty over those within its geographical jurisdiction. The church is a voluntary institution, asserting sovereignty within its confessional jurisdiction.

The church in the Roman Empire did not claim sovereignty over the money supply. The state did. The result was the destruction of money. There was no higher agency of healing in the theology of Roman politics. The city-state of Rome was the final jurisdiction.

The institutional means of healing in history is control over economic resources. The greater the degree and extension of the promised healing, the greater the level of resource allocation. The state consumes resources and distributes resources. It does not create resources. The savior state is a messianic state. It requires an ever-increasing percentage of its citizens’ output in order to fulfill its promises of universal healing.

When citizens resist paying higher taxes, the state must find lenders outside its jurisdiction. When these lenders refuse to lend without payment of higher rates of interest, the state turns to the central bank.

The messianic state of the Roman Empire funded its claims with taxes first, then debased coins. So has every empire in history, save one: Byzantium. The memory of Christians of what the messianic state had cost them was retained, generation after generation. The Christians of Byzantium recognized the connections: a messianic savior state, persecution, taxation, and inflation.


Every regime has court prophets. These are paid hirelings who praise the state as the source of deliverance in history.

The difference between court prophets in the ancient world and those of today is simple to understand. The older court prophets ritually sanctioned the state and its rulers in the name of god, who stood above the state, yet was somehow incarnate in the state. Today’s court prophets are more like a Greek chorus than a school of the prophets. They affirm the autonomy of the state from anything outside the creation. They deny that any higher court of appeal exists. Four centuries ago, this was called the divine right of kings. Today, it is the right of the state to divinity by default.

Napoleon crowned himself emperor in 1804, thereby avoiding Charlemagne’s perceived error eight centuries earlier: allowing the Pope to crown him. But his emperorship ended at Waterloo in 1815. He did not have enough divisions.

The modern court has many prophets. They come from every academic discipline. They are employed by tax-funded universities. They are also hired directly through government grants. The state buys its prophets, as it always has. Ahab had lots of them. He wanted them to persuade the king of Judah of the success of his recommended war against his enemies.

Then the king of Israel gathered the prophets together, about four hundred men, and said unto them, Shall I go against Ramoth-gilead to battle, or shall I forbear? And they said, Go up; for the Lord shall deliver it into the hand of the king. And Jehoshaphat said, Is there not here a prophet of the LORD besides, that we might enquire of him? And the king of Israel said unto Jehoshaphat, There is yet one man, Micaiah the son of Imlah, by whom we may enquire of the LORD: but I hate him; for he doth not prophesy good concerning me, but evil. And Jehoshaphat said, Let not the king say so. Then the king of Israel called an officer, and said, Hasten hither Micaiah the son of Imlah (1 Kings 22:6—9).

Micaiah told them that the war would end in their defeat. Ahab would be killed. The two rulers paid no attention. They went to war, which turned out as prophesied.

The world needs more Micaiahs. Sadly, they are always in short supply. The problem is, the Micaiahs of the world are not for sale.

Most economists are.


The savior state always becomes the inflating state. It promises more healing than it can deliver. It taxes. Then it inflates. Then it defaults. Its default creates hard times for court prophets.

November 19, 2009

Gary North [send him mail] is the author of Mises on Money. Visit http://www.garynorth.com. He is also the author of a free 20-volume series, An Economic Commentary on the Bible.

Copyright © 2009 Gary North