Bretton Woods as Monetary Actium
Final Battles Don’t Tell the Whole Story
The Battle of Actium is one of the most consequential moments in all of history, particularly in the history of Western Civilization. This was the moment that Octavian ended a decade of infighting between himself and Mark Antony for control of the Roman state. Yet, over 2000 years later it is little discussed outside of academia. Such is the way of the ordinary world.
Another such moment happened much more recently in the area of monetary policy. This is the Bretton Woods Conference in 1944 that formalized the U.S. dollar as the global reserve currency. This completed the U.S. rise to the top of the global power structure and cemented its nonmarket economic power (built upon its military power) for the rest of the century.
Yet, in both cases the final battle was but the dramatic culmination of previous efforts and developments. The Roman Republic did not die on September 2, 31 BC any more than the U.S. republic died in July of 1944. These events simply ratified what had already occurred. In the case of Bretton Woods, they did not even wait until the war was over to divvy up the spoils. These events became memorable because of what we see happen after.
What Went Before
First we must take a look at the world as it existed before these culminating events. Prior to Octavian’s victory at Actium the Mediterranean world was far more multipolar. There were competing power centers to Rome: Egypt under the Ptolemies, as well as several smaller kingdoms that lined up with one of the two larger powers. It is true that Rome had conquered most of the Mediterranean world, as well as Gaul (modern day France, Belgium, parts of Switzerland, and the Rhineland). They were the largest power in this area, yet that power was not complete. Most importantly, there was a multiplicity of economic powers in this area that challenged Rome’s drive to be economically preeminent.
Prior to the Bretton Woods Conference there was a multi-currency monetary arrangement. This meant competing currencies within a largely gold standard environment. This was not the classical gold standard of the late 19th century, officially it was the “gold exchange standard”, yet this pseudo standard meant it allowed for a credit expansion that brought us the 1929 depression, making it the precursor to the even more rotten Bretton Woods system. This monetary regime, however, did feature a decentralized foreign exchange system. As with Rome’s rise, the U.S. was by this point already the leading power in the world, yet not quite the dominant one. Its economic rise in the last quarter of the 19th century was nothing short of astonishing and served as the basis of its ability to project power. It stepped onto the global stage in 1898 by taking over the remnants of the declining Spanish Empire (Cuba, Guam, the Philippines). From there the U.S. began to become increasingly integral to the world military, economic and diplomatic scene. U.S. participation in WWI, financed by the Federal Reserve, newly created in 1913, proved decisive to the Allied victory. U.S. economic strength carried the Allies to victory in the Second World War, which cemented U.S. global power. The Bretton Woods Conference in many ways was more a coronation than a dramatic military battle.
A Consolidation of Power
Actium and Bretton Woods both represent the consolidation of power. Most dramatic moments in history revolve around the acquisition and consolidation of power. These two are no different. Even though one was a battle and the other a board meeting, they both had enormous monetary implications. The aftermath of Actium gave Octavian sole and de facto complete power over the Roman state. Yes, there was outwardly a genuflection to the old Republic, but this was in name only. In 27 BC Augustus nominally gave back the Republic to the Roman Senate and was handed control of several seemingly ordinary magistracies, which in combination added up to total power.
In similar fashion the U.S. dollar was officially established as the only global reserve currency redeemable in gold. Outwardly this looked like the gold standard, as the dollar was backed by gold, but could only be exchanged between central banks. This was true since 1933 with FDR’s Executive Order 6102, so the public had already lost the ability to put a brake on inflation. A true gold standard allows individuals to convert paper currency to metal and therefore opt out of the state monopoly of money creation. Much of this global system would be now coordinated by the U.S. dominated International Monetary Fund (IMF) and the World Bank.
Wielding Power
Both Rome and the U.S. immediately put this power to use to benefit themselves. In the case of Rome, Octavian (now Augustus Caesar) regularized imperial taxation, used the huge inflow of Egyptian gold to fund all manner of imperial works, both civilian and military. This huge flow of money into the system lowered interest rates according to two contemporary Roman historians Suetonius and Dio Cassius. The estimate is that the interest rate went from 12% to 4%. This was an ancient example of the Cantillon Effect, which sees the first receivers of new money (Augustus and his cronies) benefit at the expense of late receivers. In fairly short order Rome began to systematically debase its currency. The denarius of Augustus’s day was 95% silver. By the time of Nero, it had been debased and sprinkled with base metals. By the reign of Gallienus (260-268 AD) the denarius had ceased to be struck and was replaced by the antoninianus, which was a copper coin with so little silver on top that it wore off on your hand. This led to long-term currency debasement, chronic, severe inflation and the Crisis of the Third Century.
In the case of the United States, Bretton Woods established the so-called “exorbitant privilege” which gave the U.S. the ability to debase its currency without suffering outflows of gold as with the classical gold standard. That is, the U.S. could export inflation to the rest of the world because by being the reserve currency there was a built in demand for dollars because that is what other nations held “in reserve” to back up their own currencies. However, this only works for a time. Other nations will only tolerate this for a while. If the monetary debasement gets too great they will demand that their central bank exchange that currency (the U.S. Dollar) for U.S. gold. This outflow of gold so alarmed the U.S. in the late 1960s and early 70s that then President Nixon took the U.S. off the gold standard altogether and untethered the U.S. dollar from a hard commodity. It was now fiat money. This ended the Bretton Woods arrangement but kept the U.S. as the reserve currency (at least for now) by dint of U.S. military and overall economic strength.
The Power Lesson In All This
Both of these events changed a multipolar environment into one of political and economic cartelization. Rome eliminated the last independent counterweight to itself. This was a forced cartelization of this market area. It destroyed any other institutional competition and replaced it with a Roman imperial monopoly.
Bretton Woods similarly forced monetary cartelization upon the non-Soviet world, based upon U.S. military strength. It was simply a monetary cartel. Instead of allowing free market competition amongst currencies anchored by a real gold standard, the 44 nations present built a top down structure that pegged their currencies to the U.S. dollar, which in turn was pegged to gold at $35 per ounce. Effectively it erected (especially via the IMF and World Bank) a central planning authority for global finance.
As indicated above both Rome and the U.S. kept the outward form of what had existed previously but in fact gathered unto themselves enormous political and economic control. As with all top down command and control arrangements it is not stable in the long run.
The Arrogance of Power
Actium was the Bretton Woods of antiquity and Bretton Woods was the Actium of modern finance. They share much in common that can teach us much about where we may be headed.
All centralized command and control entities abuse their power and sow the seeds of their own destruction. As indicated above, Rome’s debasement of its currency was one of the main drivers of the Crisis of the Third Century which saw Rome turn into an outright military dictatorship. In fact, many scholars, including Ludwig von Mises, have made the case that inflation was one of the primary drivers of the disintegration of the Roman Empire.
The U.S. abandonment of the gold standard and the implementation of a fiat currency regime has led to an explicit debasement of the U.S. dollar. The result, as anticipated by the Cantillon Effect, is that the first receivers of the money, the politically connected financial sector, as well as government contractors and employees, have done very well. The rest of society has been faced with a Great Deceleration in the key metrics of economic growth. This is especially true in the 21st century as the accumulated weight of this policy has borne down more and more heavily upon those at the bottom of the economy.
Both Rome and the U.S. thought that they were the zenith of history and the apogee of grandeur. Yet, as we have seen they both sowed the seeds of their own destruction. It is easier to speak calmly of what happened to Rome as we did not live through it (as historian Eugen Weber was fond of saying). It will not be nearly as easy to remain calm as we are likely to live through the disintegration of the U.S. empire.
Conclusions
Of course, all of this power consolidation and monetary debasement is completely at odds with a good number of passages in Scripture. Proverbs 11:1, Leviticus 19:35–36, Deuteronomy 25:13–16, Micah 6:11, Amos 8:5. And Isaiah 1:22 come immediately to mind. Also, this is a clear violation of the Golden Rule, for nobody wants to be the victim of a false measure and an unjust economic policy, therefore it is unacceptable that we should stand silent in the face of this abomination.
All of this history reveals the central thesis of Believe and Obey. That is that empires are built first by the power that a liberalized economic order produces, then maintained and expanded by an inflationary policy of monetary debasement, which creates the dynamic of that empire’s downfall, if left unchecked. This is the sine qua non of the U.S. empire as much as it was of the Roman Empire. It is also just as morally bankrupt as it was financially. The peace that Christ calls us all toward can only have a hope of being achieved if we first strip from the empire the means of its financing.
The ultimate point of this trip down history lane is not to point out an eerie similarity between Rome and the U.S., but rather to point out that humanity has been here before. As was stated in Ecclesiastes 1:9, there is nothing new under the sun. History can teach God’s people much and can help us navigate the turbulence ahead if we stop assuming that this has never happened before and learn what history has to teach us.
First the U.S. must recognize that it is closing in on the era of Gallienus and it is stumbling to its own “Crisis of the Third Century”. Unfortunately, the U.S. has nuclear weapons it may be tempted to toss around as it flails about in the same manner Rome did.
Then the U.S. must return to sound money by dismantling the Federal Reserve and drastically cutting back federal spending across the board. This elimination of the state’s ability to debase the currency can prevent the power that economic growth bestows from being used to finance imperial expansion. Liberalizing its markets with deregulation, fiscal rectitude, free trade and the free movement of peoples will right the listing ship that is the United States.
The U.S. can fix this, at a cost to be sure, but it can be fixed.
To do any of this we need to understand and learn from the historical antecedents and parallels. It helps to have enough faith in God to use the brains He gave us.
Praise Be to God
