Taxation to sustain entitlement programs depleted the wealthy of Roman citizens to the point that the central government authorized that the silver and gold content of coins be reduced. This made its money less valuable and caused inflation which was a hidden tax. It was a hidden tax because the devaluing of the money caused prices to skyrocket. For example, a toga could cost 3 denarius but when inflation hit the price rose to 15 denarius.
The Emperor Diocletian attempted to stop the inflation with price controls on all goods and services. The only problem was that he did not address the devaluation of the coins nor attempt to reduce the entitlement spending. He only dealt with the symptoms of the inflation.
The Roman tax burden nearly doubled after Diocletian’s reforms. Roman emperors’ primary solution was to continue to raise taxes, not cut spending. As taxes rose, revenues declined. Small farmers and tradesmen found it impossible to make ends meet so they abandoned their farms and gave up their trades and moved to the city for the free handouts. The ranks of Rome’s welfare recipients kept growing and the ranks of the producers of the goods and services needed for Roman society kept shrinking.
One of the effects of this tax and spend policy was the reduction of the vital middle class. Small farmers and tradesmen were so crushed by the barrage of taxes and high inflation that they sought relief by giving up their farms and businesses and becoming workers or even slaves to the wealthy landowners. “The latter phenomenon was so widespread and so injurious to the state’s revenues, in fact, that in 368 A.D. Emperor Valens declared it illegal to renounce one’s liberty in order to place oneself under the protection of a great landlord. (Bernardi, A. (1970) “The Economic Problems of the Roman Empire at the Time of Its Decline.” In Cipolla, C. (ed.) The Economic Decline of Empires, 16-83. London: Methuen.)
Rome’s economic collapse came from entitlement spending, excessive taxation, inflation, and over-regulation. History demonstrated over and over again that higher and higher taxes cause a decline in government revenues. The rich may become poorer but it is the middle class that must ultimately pay the heaviest burden. As the primary producers of goods and services, the taxing of their work and profits made being on welfare more attractive than continuing to struggle against oppressive taxes. Rome’s economic catastrophe showed that spending and taxing to favor one class over another only results in all of the classes equally suffering a decline in fortune.
“America will never be destroyed from the outside. If we falter and lose our freedoms, it will be because we destroyed ourselves.” Are we on the path to destroying ourselves as Abraham Lincoln pointed out in this quote?