Causes of inflation in ancient Rome
- Nero and other emperors debased the currency in order to supply a demand for more coins. By debasing the currency is meant that instead of a coin having its own intrinsic value.
- It was now only representative of the silver or gold it had once contained. By the time of Claudius II Gothicus the amount of silver in a supposedly (100%) silver denarius was only .02%.
- Especially luxurious emperors like Commodus, who marked the end of the period of the five good emperors, depleted the imperial coffers. By the time of his assassination, the Empire had almost no money left.
- The Roman Empire acquired money by taxation or by finding new sources of wealth, like land. However, it had reached its furthest limits by the time of the second good emperor, Trajan, during the period of the high empire (96-180).
- So land acquisition was no longer an option. As Rome lost territory, it also lost its revenue base.
- Inflation in Rome was just like a general increase in prices and fall in the purchasing value of money.
- When Rome had inflation, it was mainly because the emperor started to make coins out of tin instead of silver.
- They did this because it was cheaper to make, and they could make more. Then prices would raise and money would flow in. Eventually they got too much money and had inflation.
- Different sides of the wage bargain try to keep up with inflation to protect real incomes. This process in turn is one cause of inflation. It can start either due to high aggregate demand or due to supply shocks, such as an oil price hike.
- In fact, the Roman empire split into two by the fourth century AD, with one emperor in the West and one in the East. The expression the “fall of the Roman empire” actually refers to the collapse of the western Roman empire: the Eastern Roman empire (or the “Byzantine” empire) continued, with its fortunes waxing and waning, until 1453 AD. The “fall of the Roman empire” describes the loss of territory the Western empire experienced from about 400 AD onwards.
- While the Roman empire was hit by severe monetary inflation from the late third century to the early fourth century AD, the economic crisis largely abated by the mid-fourth century (Whittaker 1980). The Eastern Roman empire had been hit by the same inflationary crisis, but it never fell. Moreover, while the inflation had bad social effects, the full effects are not clear to us. The majority of the population of the Roman empire were peasants, but they were largely self-sufficient. Since the vast majority of the population was rural and engaged in farming (the most important productive activity in the empire), the inflationary crisis of the late empire probably had no great effect on them.
- The Western empire persisted for nearly 50 years after the end of the inflation before it began to gradually lose its territory, and as late as 357 the Roman Caesar Julian the Apostate (emperor from 355 to 363) was able to inflict a crushing defeat on the Germans (the Alamanni and Franks) at the Battle of Argentoratum, when they were attempting to invade the empire. The devastating defeat the Romans later experienced at the battle of Adrianople (378 AD) when the eastern Roman Emperor Valens fought a Gothic army was clearly caused by strategic and tactical errors, and not because of the empire’s fiscal problems or inability to field an army.
- The West lost most of its empire owing to barbarian invasions from 400–450, and there is an obvious explanation for this: military and strategic errors by generals and emperors. The Western empire ended in 476 AD because of a simple internal rebellion when the last Roman emperor (Romulus Augustulus) was deposed by Odoacer, the barbarian leader of mercenaries in Italy who had been proclaimed king of Italy.
- The economic problems that the Roman empire faced after the third century AD were of course real, but not the result of the simple morality tale about inflation spun by apologists for free market economics. In other words, it was the super rich and propertied classes who evaded taxation and forced a highly regressive tax system on the middle classes and poor.