It Didn't Begin with FDR: The Roman Empire's Currency Devaluation

No matter the historical era, governments have excelled at one thing: debasing their own currency. Rome was no exception, as Roman government excesses required inflation—lots of inflation.

Currency depreciation and its effects are a phenomenon that not only occurred in modern times, but has much deeper origins that date back to antiquity.

With the fall of the Roman Republic, Caesar's grandnephew Gaius Octavianus, dubbed Augustus, rose to power and quickly instituted sweeping monetary reforms for the Roman common market. The ancient republican trimetallic system of various denominations of silver, brass, and bronze was replaced by a new quadrimetallic system of gold (aureus and quinary aureus), silver (denarius and quinary), brass (sestertius and dupondius), and copper currencies (as, semis, and quadrant). With a high precious metal content of 98 percent, the denarius aureus, or nummus aureus, was the stable base of the trimetallic system. Under Augustus, this unit declined from a theoretical 8.175 grams of Caesarian aureus to a theoretical 7.785 grams.

The denarius argenteus, on the other hand, was the new imperial monetary system's mainstay. It also had a high precious metal content, ranging between 97 and 98 percent. This unit fell from a theoretical weight of 4.54 grams during the Republic to a theoretical weight of 3.892 grams under Augustus. The sestertius and as, for their part, served as common-use coinage as well as units of account. The sestertius changed from 1.13 grams of silver to 27.00 grams of brass in the Augustan period, whereas the as changed from 54.50 grams of bronze to 11.00 grams of copper in the Augustan period.

These weight reductions in gold and silver coins, as well as the switch to cheaper metals in the case of brass and copper denominations, combined with the conquest of Egypt and the pacification of the entire Roman Empire, enabled Augustus to achieve unprecedented levels of "Keynesian" public spending: administration, justice, finance, cults, and the imperial army were thoroughly reformed; costly new conquests were undertaken throughout the Roman orb; and a neo-classical The average annual budget was approximately 440 million sesterces, of which approximately 273 million went to the army and praetorians, 55 million to the imperial administration, 60 million to the free monthly wheat subsidy for the most deprived Romans (annona), and only approximately 7 million went to public works and games.

Following the same Augustan scheme of devaluation—lowering the weight of coins and subsequently pumping public expenditure into the Roman market—Augustus' successors on the imperial throne carried out repeated decreases in the denarius's silver content during the first and second centuries AD. Nero was the first emperor after Augustus to devalue the denarius, lowering it to around 3.18 grams and 93.5 percent silver. The eccentric emperor, a lover of art, travel, and concerts, required a large infusion of state cash to pay his public employment schemes, grain redistribution, new plays, and, most importantly, his pharaonic projects in Rome following the fire that devastated much of the capital's core. The Domus Aurea, a huge palatial edifice of exaggerated grandeur in the center of the Urbs, was his most ambitious endeavor.

To deal with the financial crisis that had destroyed the Roman economy following the civil war of the Year of the Four Emperors, Vespasian devalued the denarius once again, reducing it to 90% silver. And, after temporarily restoring the denarius to 98 percent silver, Domitian devalued the coin again, to 93.5 percent silver: the increase in the military stipendium, the construction of the Agri Decumates' defensive line, and, above all, the wars in Britain and on the Danube, against the Germans and Dacians, whom Domitian had to bribe, drained the imperial treasury and forced the emperor to devalue the currency

In the second century AD, the devaluations continued. Trajan devalued the denarius to 89.5 percent silver in order to fund increased armies and triumphs in Dacia and Arabia, as well as fresh campaigns in Armenia and Mesopotamia. Even the enormous booty from all of these campaigns did not alleviate the Roman state's ever-increasing costs: Trajan established public aid for the neediest (alimenta), massive debt relief, and massive new projects in the center of Rome, the most famous of which was Trajan's Forum, with its famous historiated column.

Antoninus Pius depreciated the denarius as well, reducing it to 83.5 percent silver, followed by Lucius Verus, who reduced it to 79 percent silver. The gradual slowing and disintegration of the Roman economy during the second century, particularly in the provinces, and the increasingly chronic increase in public expenditure only exacerbated the empire's financial situation: by the middle of the second century, the annual budget of the Roman state had risen from 440 million sesterces in the Augustan period to 830–900 million.

The denarius argenteus fell to about half its former value in the last quarter of the century. First, Commodus devalued it further, to 76 percent silver and then to 74 percent silver; falling revenues due to pestilence were compounded by continued public subsidies, rising army costs, and the extravagant public festivities and games of the outlandish emperor, who identified himself as the new Hercules. These frequent devaluations were not enough, as the emperor also engaged in private confiscations and the sale of political offices on a regular basis. His assassination temporarily improved things. Marcus Aurelius' confidant, Pertinax, attempted to restore order to Roman currency by revaluing the denarius at 87 percent silver, but his refusal to raise the Praetorians' salaries led to his assassination only three months after his appointment as emperor. His position was auctioned off between Flavius Sulpicianus and Didius Julianus, who eventually won and depreciated the denarius to 81.5 percent silver.

Septimius Severus, commander of the Danubian legions, rose to power during the civil war that followed Didius Julianus' two-month reign. This emperor established the Roman army's almost absolute dominance over the empire's finances; the African emperor increased the number of legions for his campaigns in Mesopotamia and Britain, increased soldiers' pay from 1,200 to 1,600–2,000 sesterces a year, and, most importantly, instituted the annona militaris, a special and "temporary" tax for army needs.

In addition, he built a kind of welfare state in Rome, with additional free distributions of grain and olive oil, as well as new forms of aid costing 880 million sesterces, including free medications for the neediest (a kind of Roman Medicaid). Septimus Severus also initiated new and costly public games, as well as new urban development schemes in Rome and the provinces. He erected a new imperial house on the Palatine in the capital, added an arch to the western end of the Roman Forum, and began work on a massive complex of thermal baths.

Meanwhile, in the provinces, he carried out a massive public works program in his hometown of Leptis Magna, spending great sums on road maintenance while also shouldering the costs of the postal service. To cover this massive public spending, he depreciated the denarius three times in a row, first to 78.5 percent silver when he took control, then to 64.5 percent a year later, and finally to 56.5 percent.

The aureus fared better than the denarius over the first two centuries of the empire, falling from 7.8 grams in the Augustan period to 7.2 grams under Septimius Severus, with its gold content falling from 98 percent to 88–90 percent by the end of the second century.

As a result, all devaluations in the Roman Empire occurred in contexts of high public expenditure for reasons of war, increases in social aid, cash handouts to specific pressure groups during imperial accession or anniversaries, new public projects, and various types of extravagances, all according to the whims of the ruler in question. When there was demand to manufacture more coins and finance various public projects, devaluations were often accompanied by significant increases in mint output. This additional liquidity resulted in an instant Cantillon effect. The new depreciated money, like "Hayek's honey," first reached the political class—the emperor's friends and associates, senators, high officials, and even high-ranking generals or praetorians—benefiting them at the expense of the rest of the populace.

The expansion of the total money supply resulted in inflation, which was low during the empire's first two centuries, averaging 0.7 percent each year. Several factors, including the continuous expansion of Roman society and the Roman common market, which reached its zenith only in the second century, and the incessant demand for denarii by Roman economic agents, as is the case today with the US dollar and the euro, undoubtedly contributed to the absence of uncontrolled inflation during the early centuries of the empire.

One could argue that sclerotization or "Japanization" of the Roman economy, together with other variables, protected it from the negative impacts of the denarius depreciation and allowed for the socializing of these effects among all Roman firms and individuals. Nonetheless, such practices as increasing payments in kind resulted in a slowness and chronic deterioration of trade networks, which eventually disintegrated altogether, leading to the calamity of hyperinflation and price restrictions in the third and fourth century.


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