‘My name is Maximus Decimus Meridius, commander of the Armies of the North, General of the Felix Legions and loyal servant to the true emperor, Marcus Aurelius.
Citizen of a failing currency, Victim of a collapsing economy’.
That’s not how the protagonist in Ridley Scott’s 2001 blockbuster Gladiator announces himself to his arch-enemy.
But, it could have been.
Allow me to give you a quick lesson in ancient history.
This puts the present-day ‘war on inflation’ that’s dominating the markets and financial newscycle into perspective.
Then, I’ll show you how misquoting Russel Crowe connects with my personal investment philosophy.
Inflation: We’ve Been Here Before
When it first entered circulation, the Roman Denarius coin contained about 4.5 grams of pure silver.
This enabled the vast empire’s citizens and organizations to do business, receive payment for goods and services, and store wealth for the future.
The coins had value because the silver in them was scarce.
So scarce, in fact, that as the years went by, Rome started to run out of silver with which to make its coins.
So they started minting more coins with less silver in them.
Over a century, the Denarius went from containing 75% pure silver to just 5%.
The government printed more and more of them with the same face value, but less and less of the precious metal that gave them value in the first place.
This created the illusion of more money in the system. But the reality was that Rome’s debasement of its currency transferred wealth away from citizens and resulted in them having to use more and more coins.
The other word for this is inflation.
Rome effectively robbed its citizens of their power to exchange and store wealth.
This drove hyperinflation, produced soaring tax rates, and created worthless money, plunging the empire towards its demise.
The Dollar’s Diminishing Power
If ancient Rome was a lesson, it appears as though civilization hasn’t taken it on board.
In the first decade of the 20th Century, the total amount of money in circulation in the U.S. was about $7 billion.
One dollar could buy you a pair of brand new patent leather shoes.
By the 1950s, there was $151 billion circulating.
A dollar couldn’t buy you a pair of patent leather shoes. It could buy a Mr. Potato Head toy.
Fast-forward to the 1980s and there were nearly $1.6 trillion dollars in the financial system.
The dollar could now get you just a single bottle of Heinz ketchup.
In the first decade of the new millennium, the money supply ballooned up to nearly $5 trillion.
Now, the dollar could only buy a Wendy’s hamburger.
By 2017, the money supply had grown to more than $13 trillion — almost five times what it was at the turn of the millennium.
And that single dollar that could buy you a brand new pair of patent leather shoes more than a century ago?
It now buys only a single song on iTunes.
See the pattern? More money does not equal more wealth.
Why We Invest
I talk to friends and family about wealth as often as I can.
(And yes, I watch Gladiator on a regular basis. Are you not entertained?!)
I believe open and frank conversations are key to building financial literacy.
And I believe financial literacy is crucial for creating financial freedom.
Historical facts like those above are central to why I invest — rather than simply leave my money in the bank.
Yes, you could argue there’s more risk associated with owning things other than cash.
But, when you consider inflation’s long history of insidious wealth destruction, I’d argue it’s wise to understand the difference between money and actual wealth.
Knowledge pays the best interest,
Navarre
The Data-Driven Investor
