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Updated: May 22, 2025
That time ended with the enslavement of war captives who swamped the labor market. Like any parasitic growth, slavery and forced labor destroyed the fabric of a largely self-contained economy based on peasant proprietorship. Roman economy was honey-combed with problems created by deficit spending, currency devaluation and exploitation.
We did not and could not achieve these gains through import restrictions, troop withdrawals, exchange controls, dollar devaluation or choking off domestic recovery. We acted not in panic but in perspective. But the problem is not yet solved. Persistently large deficits would endanger our economic growth and our military and defense commitments abroad.
But however precarious and over-leveraged the financing of individual American borrowers-including American banks, which intermediate such borrowing internationally-might be, they are invulnerable to dollar devaluation. In effect, America's collective current-account deficits are sustainable indefinitely."
A sudden increase in the money supply, for instance, axes interest rates and causes the currency to depreciate. The rational outcome should have been a panic sale of obligations denominated in the collapsing currency. But the devaluation is so excessive that people reasonably expect a rebound i.e., an appreciation of the currency and purchase bonds rather than dispose of them.
Prussia was the regional bully and never shied away from enforcing strict compliance on the other members of the Federation. It understood the paramount importance of a stable currency and sought to preserve it by introducing various consistent metallic standards. Politically motivated inflation and devaluation were ruled out, for the first time. Modern monetary management was born.
Massachusetts by far the dominant economy of the quartet sustained this arrangement for almost a century. The other colonies became so envious that they began to print additional notes outside the union. Massachusetts facing a threat of devaluation and inflation redeemed for silver its share of the paper money in 1751.
We did not and could not achieve these gains through import restrictions, troop withdrawals, exchange controls, dollar devaluation or choking off domestic recovery. We acted not in panic but in perspective. But the problem is not yet solved. Persistently large deficits would endanger our economic growth and our military and defense commitments abroad.
The Bank of Japan has recently resorted to unvarnished and assertive monetary expansion in line with what Paul Krugman calls "credible promise to be irresponsible". This may have led to the sharp devaluation of the yen in recent months. Inflation is exported through the domestic currency's depreciation and the lower prices of export goods and services.
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