Dear Themon,

I meant to add a note about the Durants. I cannot honestly claim to have read any of their rather lengthy work. However, they are correct that a natural civilization will alternate between concentration and disbursement of wealth at various times. At times of collapse, civilization tends to be at either end of these poles. However, what the Durants miss if they claim concentration of wealth causes collapse is that concentration of wealth happens frequently when societies are doing just fine. The Victorian Age saw a great deal of wealth concentration at comparative levels beyond that of today. Despite this fact, both England and the U.S. were stronger than ever and standards of living were going up in all classes.

The Victorian Age prosperity was taxed, quite literally, to sustain WWI debt levels. The U.S. also developed a nasty habit at the same time of taking gold but issuing only paper in exchange. To service debt levels, Great Britain began to suspend gold payments and issue only fiat currency. Foreseeing trouble, Winston Churchill tried to return to the gold standard shortly before WWII saying that it would only shackle England to reality. Because the British had printed so much money, though, the result was to begin a period of large scale deflation which was distinctly uncomfortable for industry. Ultimately, Churchill was right; it was no more than a return to pre war levels and a destruction of bad money and bad credit. It was uncomfortable though. He abandoned the policy on the advice of Keynes who suggested they could manage with a total fiat system if they were careful.

They were not. WWII and the following years produced even higher debt levels and greater inflation. Servicing the empire quickly became cost prohibitive and the British began to dismantle their empire to avoid the crippling expenses and astronomical debt it required. The British Empire dissolved peacefully, but the cause was not concentration of wealth, but over loose credit and inflated money supply.

Go back much further to ancient Rome. Why did the Western empire fall? There are lots of stories about plague, about barbarian invasions, et cetera. But plagues always came and went. Barbarians were always present but the legions remained supreme. So what happened? The legions did not suddenly start losing battles. Was it wealth concentration? There were huge wealth disparities in ancient Rome, far more than today. But this was true even when the empire was strongest under the Julio-Claudians. Rome, however, also had to finance its endless wars and maintain the high standards of living of its ruling class. It ended up not being able to pay fully for legions and had to hire mercenary troops. Even these, however, quickly found that their pay remained the same technically but the coins got smaller and smaller. Eventually, when the Emperor called the legions walked away and mercenaries went elsewhere. Inflation and loose credit did the job no barbarian hoard ever did–they defeated the legions.

Byzantium had similar problems. While plague and other natural disasters compounded the problem, the enormous expense and debt levels the Byzantines maintained had begun a process of massive devaluation by around the year 1000. Though the fall of Constantinople was not until 1453, the rot that led to that event was already poisoning the system so that, by 1453, Byzantium was more of a city state than any sort of empire.

The Soviet Union, which had no financial class at all, still had similar problems in being able to finance its empire. The Durants could easily look at all this and see concentrated financial wealth in France, the Weimar Republic (both already mentioned), and Rome while seeing no financial class at all in the USSR. That misses the point, though, that there are huge concentrations of wealth at other times of prosperity when the societies are actually strong. The key factor is not concentration of wealth, but the credit and monetary cycles which, almost without fail, does try to advantage certain stakeholders in the government at the expense of the rest of society–to disastrous consequences. Take your pick of a collapse situation though (as opposed to a conquered situation) and this will probably be the case.

Huge concentrations of wealth are fine provided a merchant middle class remains, the currency remains strong, and the markets function largely without interruption. If loose credit situations produce massive inflation, though, and if that inflation is severe enough to destroy the middle class, the only money left will be concentrated in the hands of a few and the very top and it will be insufficient to sustain a functioning economy or nation, resulting in collapse. Extreme wealth, however, is not itself negative. As I pointed out earlier, under a functioning market it performs important functions and those who are not up to handle it will soon lose it entirely. It is only in collusion with government that it becomes so poisonous.

Okay. Now I am really done with this letter. At last. You sent me back to Rogoff’s, de Toqueville’s, and Hayek’s books for this one, in addition to a few other minor references I had to check. Quite a lot of reading for a letter. Nonetheless, it was fun, and gave me something to read while briefly in Omaha last week. And I see I have yet another letter from you. Not fair. This one was just accomplished.

Take good care.

Julian Dunraven