Buried beneath the sands of time, lies a painful economic lesson
Civilisations rise and fall like the crest and trough of a wave – and the Ancient Roman Empire was no exception. The social scientist Luke Kemp posited that the average age of a civilisation is 340 years, but the Ancient Roman Civilisation survived a mind-boggling 1,200 years, beating all odds.
From great rulers like Marcus Aurelius who authored the timeless Stoic classic ‘Meditations’ and marked the golden days of the empire, and the famed military general Julius Caesar who conquered faraway lands, to eccentric leaders like Caligula who joked about appointing his horse as a minister, to the famed Colosseum where battle-hardened gladiators fought wild beasts and men, few civilisations have managed to embellish the pages of history like the Ancient Roman Empire.
While the complex reasons like wars, drought, and plagues that lead to the downfall of a civilisation are discussed at length, only a few delve into the economic factors that underlie such catastrophes. Therefore, in this piece, we will unveil the economic policies of Ancient Rome that tolled its bells.
There are two types of inflation viz. monetary inflation, and price inflation. In this blog, we will examine monetary inflation – the total amount of money in a given economy – since it determines price inflation.
What is Inflation?
“Prices are going up because there is an additional quantity of money, asking, searching for a not-increased quantity of commodities. And the newspaper or the theorists call the higher prices, inflation. But the inflation is not the higher prices; the inflation is the new money pumped into the market. It is this new money that then inflates the prices” – Ludwig Von Mises, 20th Century Economist
To put it simply, money is required to circulate goods and services in a given market. However, if the production doesn’t keep up with the total amount of money in an economy, inflation ensues.
Background
Like every other civilisation, Rome was expansionist and one of the reasons for its sustenance was the plundered wealth from conquered lands. Therefore, it is safe to say that Ancient Rome -like every other ancient and medieval society – was in a state of constant warfare.
After suffering defeat at the hands of Germanic tribes in 9 AD, Emperor Augustus quashed the expansionist policy of the Roman Empire. This measure, nonetheless, proved to be a double-edged sword as it stopped the flow of wealth from vanquished territories, thereby reducing revenue. Thus, Augustus and the succeeding emperors faced a money crunch.
Increasing taxes to combat the dwindling finances would mean whipping up the sands of revolt. And on the other hand, there wasn’t enough coinage to finance state expenditures. To combat this, the Roman leadership decided to debase their currency.
Currency Debasement: Papering the Cracks
“When extraordinary expenses arose, the supply of coinage was frequently insufficient. To counter this problem, Nero began in 64 AD a policy that subsequent emperors found increasingly irresistible.” – Joseph Tainter, The Collapse of Complex Societies
The policy that Joseph Tainter is alluding to is currency debasement, which eventually proved to be a harbinger of doom for Rome.
Currency debasement is essentially the reduction in the value of a currency achieved by the injection of excess money into a market. In the context of Ancient Rome, we can refer to it as the debasement of the Denarius – the then Roman currency – achieved by mixing precious metals like gold and silver with base metals like copper, and a reduction in the sizes of coins.
Imagine coins made from precious metals being melded with cheaper metals to increase the total coinage. This is exactly what Nero and the subsequent Roman emperors resorted to for addressing the ever-increasing expenses.
The purpose of this move was to mint more coins and increase the supply of the Denarius. This heralded the gradual decline of the Roman economy and its eventual collapse.
The Scourge of Hyperinflation
Whenever Rome faced a money crunch, the emperors, starting from Nero, would simply debase the coinage to pay debts, acquire resources, finance projects, and last but not least – enrich political insiders. As time marched on, more and more coins were pumped into the market, which progressively catapulted inflation to unsustainable levels.
Moreover, the impact of the inflation burned a hole in the pockets of the Roman commoners, in contrast to the political elite who had foremost access to the newly clipped coins which they utilised to purchase valuable assets and commodities before inflation hit the market. This essentially meant that the elites had first access to resources, and as inflation surged, the monetary value of their assets grew exponentially, leading to unequal wealth distribution and the impoverishment of the masses.
The following quote explains the phenomenon succinctly:
“The process (of monetary inflation) gives rise to a redistribution of income in favour of those who first received the new injections or doses of monetary units, to the detriment of the rest of the society, who find that with the same monetary income, the prices of goods and services begin to go up.” – Jesus Huerta de Soto; Money, Bank Credit, and Economic Cycles
The year was 284 AD and Emperor Diocletian had ascended the throne. He tried to restrain the burgeoning inflation by instituting price controls in 301 AD, achieved through the introduction of a new silver coin called the Argenteus. Initially, the value of one of these newly minted coins was 50 Denarii, which later catapulted to 100 Denarii within a decade.
Historians and economists state that Rome’s inflation reached its peak between AD 200-300, with the rate of inflation being an overwhelming 15000%! Expounding on this, the author of The Collapse of Complex Societies, Joseph Tainter, wrote:
“In the second century, a modius of wheat (approximately nine liters), during normal times, had sold for ½ Denarius…. the same modius of wheat sold in 335 AD for over 6000 denarii, and in 338 AD for over 10,000.”
Conclusion
The unbridled freefall in the value of the Denarius was one of the crucial factors that led to the downfall of this once-mighty civilisation characterised by societal complexity, technological innovations, the flourishing of complex philosophies that left an indelible mark on the trajectory of human thought evolution, and aesthetic architectural marvels whose ruins still survive to this day.
Governments and policymakers around the globe should take a leaf out of history books and avoid implementing short-term policies that lead to long-term ruin. Stringent measures should be taken to curb inflation and central banks should avoid printing excess money and injecting it into the markets. The United States printed vast amounts of dollars during the Covid pandemic and increased the dollar supply by 40%, the results of which can be visibly seen in the form of price inflation.
Thomas Jefferson, one of the founding fathers of the US and its erstwhile president, warns:
“If the American people ever allow central banks to control the issue of their currency, first by inflation, then by deflation, the banks and corporations that will grow up around them will deprive the people of all property until their children wake up homeless on the continent their fathers conquered.”
