Why you should tackle inflation: The case of the Roman Empire

Today, we have a doozy.

Do you know what inflation is? Broadly speaking, it represents the general rise of prices for goods and services around us. So what? You might think. Well, indeed, inflation is not inherently problematic. The problem is that prices tend to rise more than what money people can muster. This means that people have what‘s called a reduced buying power. With steady inflation, you might buy fewer and fewer things as time goes by for example. Cutting to the chase, communities tend to try to limit inflation itself. The key word here is “try“. Limiting inflation is extremely difficult, fighting it off even more so. Today, I want to present the well-researched measures made during the Roman Empire to limit inflation. While these failed with insight, I still think we might learn something from their struggle. Without further ado, let‘s begin.

Money talks

Before talking about the Roman Empire‘s inflation ever-crisis, you need to know how the Roman currency worked. From Augustus‘ reign, four denominations were used throughout the Empire: the gold aureus, the silver denarius, the brass sesterse and the copper as. One aureus was worth 25 denarii, 100 sestertii or 400 asses. The sesterse and the as were made from a mix of copper, zinc and tin, but Augustus made sure that the aureus and the denarius were made from metal as pure as possible. I can‘t explain just how important to the Roman Economy that was. This ensured that the content of Rome‘s most important coins was constant, and thus, the framework from which the Roman Economy itself was stable. Not convinced how important it is? Just look what happens when this purity isn‘t guaranteed.

Taste test: Let's see what your money is worth

Let‘s take the silver denarius (arguably the most important coinage for the Empire). Augustus required denarius to be at least 95% silver. Keep in mind that, with the technology they have, requiring more than that would have been unrealistic. Basically, we can call Augustus‘ denarii pure silver. One century later, by the time of Trajan in 117, the denarius was about 85% silver. By Marcus Aurelius just a few years later in 180, it was 75% silver. By the start of the third century, it went down to 60% with Septimius Severus. It reached 50% by Caracalla.

That was a problem.

With now a variety of coins of different varieties, some localities began to assign variable values to the denarii based on their purity. For example, you could exchange denarii from 117 for denarii from 180 in almost a 3 for 2 ratio. Furthermore, some people with dubious morals started to shave silver from their coins to stash away piles of silver. We could say they even felt secured by the variable purity of coins all around them. Most important of all, the Roman population start to lose faith in their coins themselves. This would have dramatic consequences, that we will need to explain later. But, for now, you might be dazzled by just why Emperors at that time let the debasing happen. First, one Emperor at that time does stand out for his efforts to fight against this issue: Diocletian. He raised the weight of the aureus and abandoned the denarius, which by this time was a bronze coin dipped in silver (yeah: it was that bad). He even tried to replace it with a new silver currency called argenteus. Sadly, despite his efforts inflation of prices and the debasing of currency continued.

Keep in mind that all this happened during the Crisis of the Third Century, a period where Roman society saw profound changes and, well, crisis. Now, that century greatly exerted the Empire‘s resources. Increased taxation and coinage debasement were natural responses to keep the Empire going. But that was at the cost of fueling the inflation problem. That century was so bad that falsely accusing people of treason to justify ceasing their estates became somewhat commonplace.

A good soldier is a poor negotiator

The society that would emerge after the Crisis of the Third Century was very different from Augustus‘ Empire and not just economically. Take the advice that Emperor Septimius Severus gave to his two sons: "live in harmony; enrich the troops; ignore everyone else." Augustus and his direct successors would be baffled by that, but Severus was right: the late Roman Empire was becoming more and more military-centric. That was partly due to the ever-more frequent threats to Roman hegemony and almost constant campaigns to secure the frontiers, but also because of the significant increase in the size of the military since the beginning of the millennia. The army doubled in size between Augustus and Diocletian. Moreover, one single immense territory became less and less manageable, leading late Emperors to separate it into smaller chunks… requiring more garrisons for the new frontiers created.

Needless to say, paying the military became the primary concern of Emperors. Yet, every time they paid their troops in coins, inflation immediately followed. Pairing this with losing faith in the coinage itself, Emperors started to pay their army in kind and services rather than coins.

Later, Constantine would shift that further and opt to pay his troops in gold directly. Considering the situation, that wasn‘t a bad move: this ensured that gold kept its value somewhat. Although, old coins were now largely worthless. And inflation continued.

So what? (Tune in Miles Davis)

“Ok we get it: there was inflation. What gives?“ Such dramatic inflation did not only affect the affairs of State. No, it virtually destroyed the freedom of the Roman people themselves. Think about it. An important part of our lives expresses itself by our economic freedom. You can choose what you buy and that includes your food, your home and, in a way, your work life. Economic decisions are how we decide how we live. That vision was somewhat followed by the Roman Empire, which largely opted for a laissez-faire approach to the everyday economy. Except for military service, Roman citizens were largely left to their own devices and it worked. But now, the Empire was pressured from all sides and largely burdened by enormous military costs. At that point, the liberty of the people inevitably began to fade.

People no longer had the economic means to decide what they ate. Fewer and fewer citizens had land. Small estate owners virtually disappeared. You had to work for large estate owners and for their benefit. Faced with the distress of the Roman population, the government could only respond with more taxation, land expropriation… and worthless pieces of metal. Roman Emperors could do nothing else. Well, except one apparently.

Enter the anomaly: Domitian

Indeed, in that very bleak scenario, one Emperor stands out. Of dozens of Emperors, Domitian was the only one to successfully halt inflation during his reign - the ONLY ONE. How? First, his temperament was up to the task. In a word: Domitian was an obsessive micromanager. Many governmental affairs left previously to officials were ordained directly by Domitian at his request. This included the minting of coins, in which he showed great interest. Domitian also compulsively wrote edicts, rules and regulations. In a way, it worked since his reign showed signs of limited corruption and, well, halted inflation (for a while).

So, what did he do exactly? Here are a few things he did:

Dramaticly increased the expenditure of the State. This gave him the means to do the work.
Cancelled the State debt (on multiple occasions).
Refused the devaluation of the coinage (after an initial debasement in 85).
Overhauled the mint (by ceasing bronze coin production and improving silver and gold coin purity).
Merged the Empire‘s wealth with the Emperor‘s. Ok: that technically began with Vespasian, but Domitian would be the one to make it a norm.

Yes, inflation was generally devaluing his wealth, but Domitian‘s approach was sound if not a bit brutish. The more you have, the more you can do. As simple as that. Other Emperors did try to increase the State‘s treasury, but that was most often by taxation on the already pressured population. Yes, Domitian did increase taxation, but he went far beyond his piers to increase his means without squeezing it out of citizens. Cancelling State debt for example might seem extreme, but history shows that it is a very effective measure (I should write another post on that). Seems like it worked in Domitian‘s case too.

So now we know that Domitian gave himself the means to spend for his Empire. In my mind, the most crucial aspect of Domitian‘s approach is HOW he chose to spend that wealth. Here are the key ways he did:

Rose the pay for the army. Remember Severus‘ advice? In a militarist society like Rome, keeping the military happy will keep the Empire together.
Refused inheritances that would leave children without money. That was a very clever way to avoid the disappearance of small landowners and the accumulation of lands in the hands of a few large landowners. Remember again that this would be one of the most important consequences of inflation in the late Roman empire.
Started many (MANY) grand building programs. This was a very clever way to keep the economy running and make sure that jobs were opened. Building new facilities also guarantees that citizens have more options to spend money on what they need. Again, this avoids another problem in the late Roman Empire. Offer citizens job opportunities, give them the means to live, keep them busy and they will be happy.

In a word, he spent for the long-term well-being of his community. Joseph Peden once said that “monetary policy therefore always serves, even if it serves badly, the perceived needs of the rulers of the state. Not necessarily the ruled.“ Domitian showed that serving the needs of the people should be the needs of the ruler.

Most of all, Domitian wasn‘t scared to get his hands in the mud. The Roman Emperor is built around a central figure with unlimited power. Domitian used it. It worked. Even in a democracy, I think we can learn much from Domitian‘s measures.

Some healthy skepticism

Ok, now leaving things at that wouldn‘t be very fair. Scholars still are divided on whether Domitian‘s measures were effective or not. Yes, Domitian was an assiduous and efficient administrator and ensured the robust health of the state finances. But he also left the Treasury empty at his death. Inflation also began anew almost immediately after him, so his measures were sadly not long-lasting. Furthermore, his heavy hand and obsessive approach led to hatred from the Senate. This is considered a decisive factor in his death and even to damnatio memoriae (he was mostly struck out of Roman records). No wonder later Emperors didn‘t follow in his footsteps. Lastly, we have to remember that Domitian was a relatively early Emperor. The inflation problem before him was drastically less imposing than what Emperors encountered during the Crisis of the Third Century. Maybe Domitian was simply lucky. Either way, such measures were still made with large personal consequences.

But that is enough for one day. I never considered myself an economist, but I have to admit that this whole mess fascinates me still. I hope I have sparked your interest too.

Either way, have a nice day and see you next time.

References

Joseph Peden’s lecture “Inflation and the Fall of the Roman Empire” delivered on October 27, 1984.
Roman Currency of the Principate, archived at https://web.archive.org/web/20081101003844/http://www.tulane.edu/~august/handouts/601cprin.htm
Domitian: Tragic Tyrant, Pat Southern, 1987.
Coinage and Finances in the Reign of Domitian, Ian Carradice, 1983.