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The rise and fall of the Roman Empire is a classic example of Return On Investment (ROI). Rome essentially funded conquest through pillage, bringing rich treasures of gold and silver back to Rome. During the early years of the Empire, the ROI on conquest was very good and Rome prospered. It had plenty of coin to fund its Legions. As the years went by, however, it became more difficult to find lands worth conquering and the travel costs to send a Legion to remote lands increased. The ROI of conquest began to falter, and Roman Emperors finally concluded additional conquests were not worth the cost. Years of wealth creation came to an end. The Roman Empire shifted its attention to wealth preservation.
Whenever a nation slips from wealth creation to wealth preservation, it becomes increasingly difficult to sustain the prior level of wealth. As the cost of maintaining the Legions went up, the ROI on having them declined. In order to pay the cost of preservation, Rome debased its currency multiple times. Debasement is a way to pay today's bills with tomorrows worthless coins. That led to incredibly high rates of inflation. Payment in kind often substituted for worthless currency. This debasement continued until mercenary legions refused to take Roman coins, sacked Rome, and established their own government.
Sound Familiar?
There is a lesson here. If economic circumstances yield a positive ROI on labor, capital and material, then a nation is able to create wealth. When a nation lapses into wealth preservation, the ROI on invested capital declines. It becomes very difficult to sustain transfer payments because the creation of wealth declines to a point where there is no more wealth to transfer.
Wealth, in this sense, has little to do with how much money the rich can command. We are talking about the wealth of a nation's workers, and more specifically the wealth of its middle class. Rome's declining ability to maintain the wealth of its workers led to unsustainable welfare costs. The cohesive energy of Roman culture collapsed.
This is precisely the situation in America and the European Union.
