What inflation taught us in ancient Rome

Rome was one of the greatest empires known to mankind. The corruption or the attacks of the barbarians were dangers that stalked the Roman civilization. However, inflation also ended up being a key factor in the fall of Rome.

The Roman monetary circuit did not use paper money as a means of payment. To do this, the Romans used coins called denarii. These denarii contained around 95% silver.

Other coins from the Roman Empire also contained noble metals such as gold. This is the case of the gold aureus, which had a value of 25 denarii or the gold pound, which was equivalent to 960 denarii and 40 aureus. Like the denarius, the sestertius also contained silver, in fact, 4 sesterces added up to the value of a denarius.

Maintaining an empire like Rome required a great economic effort. Roads, aqueducts, amphitheaters, temples, bridges had to be built, and a large army had to be paid to keep the empire secure. Faced with such expenses, the emperors did not hesitate to resort to currency devaluation.

Many will wonder: What did the Romans do to devalue the currency if they did not use banknotes? Very simple, it was enough to reduce the amount of noble metal that the coins incorporated. In this way, less silver was used when minting a denarius and it was replaced by metals such as bronze. The decrease in the noble metal incorporated in a currency (with which the State obtained a benefit) was called seigniorage.

As we previously explained, the denarius incorporated 95% silver, something that happened in the time of Emperor Augustus. However, over the years, the currency was devalued in such a way that, with Emperor Marcus Aurelius, the denarius only incorporated 75% silver.

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The origin of an economic disaster

Upon the death of Emperor Septimius Severus, his son Caracalla seized power after assassinating his brother Geta. Well, Caracalla had given his word to his father that he would raise the wages of the legionnaires. For this reason, he increased the soldiers’ pay by up to 50%. Not only that, but Caracalla also spent vast sums of money on large constructions.

To defray such exorbitant expenses, Caracalla raised the taxes levied on inheritances and resorted to currency devaluation. With Caracalla guiding the destinies of Rome, the denarius came to contain only 50% silver. Thus, in just one year the denarius went from having 75% silver to containing only 50%. We are talking about a colossal devaluation of the currency of up to 25% of its value.

All this also affected the gold, which lost value. Even the gold pound suffered the consequences.

Such an exaggerated devaluation had a terrible effect on the Roman economy, as prices skyrocketed. However, Caracalla did not suffer the consequences of his disastrous economic measure. In the year 217, Caracalla was assassinated by one of his men in Asia, when he was leading a war campaign against the Parthians.

The disaster continues

In the following years the denarius continued to lose value. The amount of silver in Roman coins was less and less, to such an extent that the denarius became a circular piece of silver-plated bronze. All this was reflected in a hyperinflation that came to exceed 1000%.

With Diocletian, emperor in the year 284, devaluation was no longer possible. Thus, Diocletian opted for strong tax increases and issued an edict of maximum prices. The price limitation had no impact and the Romans, impoverished by the ineffective measures of the emperors, no longer carried silver denarii, but rather pieces of bronze known as follis.

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Constantine, the first Christian emperor of Rome, found himself with an empire in desperate need of financial resources. Again, the devaluation measures continued. Therefore, the gold was eliminated and a new devalued gold coin was introduced that was baptized with the name of solid. Thus, two solids equaled one golden.

On the other hand, the emperor Constantine would hoard the necessary gold thanks to the looting of the pagan temples, while demanding the payment of new tributes in gold. It would not be long before gold became a refuge value, although it was a precious metal only within the reach of the Roman military and elites.

In this way, the merchants and a good part of what would become the Roman middle class ended up becoming poorer due to inflation. Meanwhile, the most powerful monopolized the gold and the land, while the ordinary Romans had to use the bronze follis in order to survive.

What role did inflation play in the fall of Rome?

As the fourth and fifth centuries wore on, decadence was mounting in Rome. Corruption, barbarian attacks, and inflation had greatly weakened an Empire that desperately needed funds.

A great military machine had to be supported in order to contain the barbarians. The great works supposed exorbitant costs for the Roman treasury and the State apparatus was oversized. Faced with such lavish spending, the Empire reached a point where it was no longer possible to squeeze the taxpayers any further.

The greatness of Rome vanished forever with its final fall (from the Western Roman Empire) in the year 476. Thus, the end of Rome marked the beginning of a new era, a time of darkness, the Middle Ages.

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However, from the historical experience of Rome, important lessons can be drawn for the present. Among these conclusions we can highlight that, for a stable economy and solid trade, a strong and reliable currency is necessary and that massive devaluations are not the solution to economic problems.

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