How Inflation and Coin Debasement Caused Rome's Economic Collapse

[00:00:00]Inflation has come roaring back into the  news lately and justifiably has a lot of   people worried. But this phenomenon has been a  feature of civilization since the dawn of our   earliest economic systems. While imprecise,  especially when dealing with the past,   a study of inflation can nonetheless often  reveal much about the history of a people. So   today let's explore the rise and fall of the  Roman Empire through the lens of inflation.

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[00:02:58]The Romans entered the monetary system  later than their Greek neighbors,   only producing their own currency in the late  4th century BC. Like other civilizations,   the Romans used their coins as both a way to  trade precious metals and as a way to set a   value to goods. Before coins were introduced,  the Roman economy was largely based on a   bartering system where folks exchanged  goods and services, such as livestock.

[00:03:20]While the early Romans did  not mint coinage of their own,   they did have a system of currency based  on bronze weights known as the aes rude.   These rather large chunks of raw bronze that were  incredibly impractical for long-term use. That's   no exaggeration either: one surviving aes rude  weighs about 324 g - almost a pound of bronze.   Despite their unwieldiness, they  continued to be produced up to 218 BC.

[00:03:47]As the Romans expanded over central Italy,  war booty meant coins could be produced   using precious metals: bronze, silver,  and - rarely - gold. From the aes rude,   four other coin types were introduced:  cast bronze ingots known as aes signatum,   coined silver and bronze, and cast heavy  bronze discs known as the aes grave.

[00:04:09]Initially, the aes signatum replaced the aes rude.   These ingots were slightly more practical and  aesthetic, and were cast with the inscription   "Romano." There was no base weight standard for  them - they were simply stamped bars of bronze,   weighing anywhere from a pound  and a half to over 10 pounds.   The first Roman silver coins, meanwhile, were  produced in Neapolis and they closely resembled   Greek coinage. These copies of the Greek didrachm  are called the quadrigatus today, a reference to   the four-horse chariot of Victory on the reverse  side. It was originally struck at 93% purity.   Over time, the silver purity increased until  it essentially became pure silver at 98%.

[00:04:51]Finally, the aes grave were heavy bronze disks  that weighed about one Roman pound. These   were a slight evolution from the aes signatum  - they were vaguely coin shaped - but just as   impractical. With each coin being about the size  of a human palm, they were still a better measure   for metal trading than for coinage. Both the aes  signatum and aes grave were cast in the city of   Rome itself, and both were mainstays of the Roman  world. While silver coins were infinitely more   practical, Rome simply did not have any silver  mines. No silver mines meant that any silver had   to come either from plundering or from outside  trade. In theory, this could work. In practice,   it was a delicately balanced system that  could not withstand any real pressure.

[00:05:33]That pressure came relatively quickly. The First  Punic War put horrific costs on the Romans,   measured both in currency and in dead citizens.  The Romans lost fleet after fleet to either   battles or storms, and they simply didn't  have enough silver to create enough money   to replace them. Rome was able to mint about  6.5 million silver coins for the war. Carthage,   on the other hand, was able to mint  coins worth 37 times that amount.   Rome was destitute, relying almost entirely  on combat loot and bronze coinage to fund its   military expeditions, and as a result they began  to debase their currency. The pure silver coins   became diluted: 98% silver became 75%, with the  other 25% being copper or another base metal.   The heavy aes grave and aes signatum were melted  down for use in both these debased coins and in   weapons, supplementing the state's metal supply.  That 75% purity quickly became more diluted as the   war continued, and by the end of the First  Punic War, very little silver was involved   in making Italian "silver" coins. Supposedly,  these retained their face value - but merchants   measured value in silver, and more coins  had to be made to pay for the same services.

[00:06:57]Victory in the war brought some relief to Rome.  Carthage paid a huge amount of silver to Rome as   part of the settlement, and Rome promptly used  this silver to return to minting pure silver.   These coins apparently circulated at the same  time as not only the pre-Punic War coins,   but also the incredibly debased ones.  When the Second Punic War broke out,   Rome's coinage system was even more fragile than  it had been before the first, with people hoarding   coins of higher value and attempting to get rid  of the junk. Rome's entire economy depended on   Carthage's supply of Spanish silver - so when that  suddenly stopped, Rome's mints immediately began   debasing the currency again. The silver coins were  instantly reduced in value. Previously sacred gold   was melted down into gold coins called aurei,  but it was still not enough. After Hannibal's   crushing victories, Rome's bronze supply was  virtually nonexistent. Desperately, Rome began   to mint the equivalent of "fiat currency." The  Roman pound was split into six, and each of these   bronze tokens - known as the as - was expected  to be traded as if it was worth a full pound.   Within a decade, almost no aes grave or  aes signatum remained in circulation.

[00:08:13]The only thing keeping Rome in the war was  the intervention of Hiero II of Syracuse,   who loaned enormous sums of silver to  Rome. While this forced an incredible   amount of debt on the Romans, it gave them a  fighting chance - and as the war stabilized,   Rome undertook a complete  overhaul of its monetary system.

[00:08:29]The old currency was replaced with the  introduction of the denarius in 213-212 BC. This   new silver coin weighed half as much as the old  quadrigatus, but was essentially pure silver. The   as was introduced as a standardized bronze coin,  ten of which were worth one denarius. While some   other coins were minted in this time period, the  denarius became the mainstay of the Roman world   for the next 500 years. With the victories  of Scipio Africanus in the Second Punic War,   the Romans gained full control of the silver mines  in Spain - and their currency was stabilized.   They exerted more pressure on the Mediterranean  world, melting down millions of other silver coins   from other states, restriking them into Roman  coins and establishing the denarius as the eminent   currency of the age. More than anything else, the  Second Punic War forced the Romans to use cash.

[00:09:24]Coins were now used for most transactions  and salaries, instead of just for tax   and governmental purposes. By 141 BCE,  the denarius was revalued to 16 asses,   and remained stable. Unfortunately, the increase  of silver supply and decreasing the bronze weight   standards pushed the economy into inflation.  In the late Republic, prices flared as Rome   was flush with silver. This, combined with  nearly a century of regular civil wars,   caused the Romans to resume minting gold coins  in bulk. As with most aspects of the Roman world,   the economy finally stabilized once again with the  ascension of Augustus and the end of civil wars.

[00:10:05]So far, we've talked a decent bit  about coins being used. Let's take   a small detour and look into how they were made.

[00:10:12]There were several different methods of making  metal with patterns in the ancient world.   Casting was well known, as was engraving. While  a skilled smith could make incredibly intricate   patterns and art pieces, coinage was its own  category. Casting was not an option for coins:   not only was it too slow, the cost of making so  many identical casts would have been astronomical.   Instead, mints followed a  relatively simple formula:   Unmarked pieces of metal were made, (creatively  known as "blanks") to the desired purity or weight   and were used as the base metal for the coins.  A bucket of these blanks would be warmed and   brought to a stamp known as a "die." The bottom  of the stamp was built into a stable surface,   and the blank would be placed on top of it. A  second person working the mint would place the   top part of the die over the blank and strike it  with a hammer. Thus, a new coin would be made.   An efficient team could make about 20,000  coins in a single day using this method.

[00:11:11]Predictably, these mints were heavily  guarded, with some legionary fortresses   being built around them. They were  centrepoints of precious metals and   so they were essential for any man  who aspired to the imperial throne.

[00:11:25]Despite the chaos engulfing the end of the  Republic, Roman currency remained relatively   stable thanks to the enormous amount of  loot that streamed in from all quarters.   Weights and values remained standardized,  a policy that Augustus encouraged.   The emperor, always a supporter of order,  fixed some of the problems that had been   inherent in the system. There was too large of a  gap between the denarius and the as - and "smaller   silver coins" had turned out to be impractical.  Therefore, Augustus introduced a new brass coin   called the sestertius. It was valued at 4 asses -  meaning that 4 sestertii would equal one denarius.

[00:12:02]The as would now be made of copper instead  of bronze. It was a low-value coin that was   essentially pocket change. The silver  denarius remained the base currency,   and could be trusted to literally be worth  its weight in silver, while the gold aureus,   worth 25 denarii each, was rare and only used for  major transactions and large, ceremonial gifts.   Not only were these values trusted  and adhered to across the Empire,   but they were equally valued even beyond  the borders: because of their purity,   these coins were used as a standard weight  measurement for trading precious metals.

[00:12:34]By now you’re probably thinking, what  does all this mean? How far did money   go in the Empire? What was the  general cost of basic items?   For the sake of ease, most of our discussion  here will be about the sestertii and denarii.   Let’s break this down and see where your  money could take you in the Roman Empire.

[00:12:51]To give you an idea of what each coin meant,  take into consideration that a farmer in Egypt   could expect to earn about 1-2 denarii a day  in the mid-2nd century AD. In Dacia, however,   a miner could expect to earn as little as 1-2  sestertii a day at about the same time period.   Compare that to a casual worker earning 3-4  sestertii a day in the first century BC in Rome. A   soldier generally earned an annual initial salary  of 900 sesterii. Food and clothes were deducted   from that, so soldiers would generally only see  about 2/3 of that - roughly 2 sestertii a day.

[00:13:23]So let's put that in perspective - what  could a person buy with their money?

[00:13:28]Since we don’t have local prices, the best  we can do is estimate based on the surviving   figures from Egypt and Dacia. Wheat prices were  generally about 2 denarii per modius. In general,   people lived on 5 modii of grain per  month, meaning that, for many people,   most of their income would go towards basic  sustenance - which is why keeping the grain   price artificially low was absolutely essential  for every emperor who wanted to stay alive.

[00:13:54]Beyond this, we have some small indications of  prices in the early Empire. While a bad glass of   wine could be had for as little as a single as, a  good glass of wine would probably cost 2 sesterii.   A good size bottle of wine went for 1 denarius.  For 1-7 denarii you could get a nice red tunic,   depending on quality. Most people would  have to save just to buy that nicer tunic.   While Indian trade exploded  in the first century AD,   some things would remain outside the ability of  most people to buy. For example cinnamon was one   of the most valuable imports, selling  at a whopping 1,500 denarii per pound.   Incidentally, when a fire burned down a warehouse  holding thousands of medical texts, notes,   and some small jars of cinnamon, the cinnamon  was considered to be the most tragic loss.

[00:14:44]The monetary system established under Augustus  continued throughout the early principate,   and the state minted high-quality  coins from Augustus to Nero.   Unfortunately for Nero, the great fire of Rome  happened alongside a grinding war in Armenia,   destroying most of the city and straining  available resources. Incredible amounts of silver   were being exported every year to distant lands,  and now the state needed an equally huge amount   of money to rebuild the capital - and a shiny  new palace. With these mounting costs in sight,   Nero dramatically debased the coinage. He believed  that, by reducing the weight and fineness of the   coins while retaining the same face value, the  state could increase the actual supply of money.   Therefore, he reduced the weight by an  eighth and the purity from 98% to 93%. Thus,   he could melt down a million pure denarii  and produce 1.2 million debased denarii.

[00:15:38]This, obviously, didn’t work. The debasement  of the denarius had severe impacts on Roman   currency that continued up until the beginning  of the third century. Not only did he cripple   confidence in the purity of the Imperial mint  at home and abroad, he created a tradition   where, when an emperor needed more cash than  he had, he would simply debase the denarius.   Initially, the Flavian emperors continued  this policy. Thanks to the crisis of 69 AD,   the imperial treasury was horrifically deep  in debt - and as a result, Vespasian cut the   purity of the denarius to 89%, with such little  oversight that it sometimes dipped as low as 80%.   Domitian attempted to return to the Augustan  standard, but a lack of silver in the economy   forced him to keep to Nero's silver standard of  about 93% pure silver. This remained the standard,   no matter the influx of silver, to the point that  Trajan purposefully gathered all currency of the   Augustan standard and recast it. While the coin  would endure further shifts in purity, its actual   value remained stable until the reign of Marcus  Aurelius - the so-called Philosopher Emperor.

[00:16:41]The economy took a severe hit under Marcus  Aurelius’s reign due to a deadly plague that   wiped out approximately 10% of the population.  The plague was followed by repeated and costly   military campaigns to fend off both Parthia  in the East and Germanic invaders along the   Danube. Marcus Aurelius desperately debased  the coinage below 80% for the first time,   but the worst was yet to come. Cassius Dio darkly  writes that, upon his death, "[this history] now   descends from a kingdom of gold to one of iron and  rust, as affairs did for the Romans of that day."   While Roman prices and coinage had remained  relatively stable from 30 BC, the reign - and   death - of Marcus Aurelius collapsed all  faith and responsibility around the denarius.   Each successive emperor was forced to offer  massive bribes to the army, and to afford that,   they would debase the denarius. Debasement gave  the emperor an initial jolt of income until people   caught on, but these debased coins coincided with  a corresponding rise in prices. The face value   of the denarius no longer had any respect:  all that mattered was the weight in silver.

[00:17:48]Eventually in 200 AD, Caracalla tried more  financial trickery. The denarius was replaced   with the introduction of the double-denarius  - the Antoninianus. This coin type had the   face value of two denarii, but was really  worth one and a half as much in silver.   This move essentially collapsed the economy.  People hoarded denarii with as much silver   content as possible, causing prices to  skyrocket. Military expenditure also   rose dramatically under Septimius Severus and  Caracalla, with estimates of 70% of the state’s   budget being for the military under Caracalla,  with just 5% allocated to civic officials.   The Severan dynasty was able to pause the  spiraling effects of the currency for a short   time, abandoning the antoninianus and actually  increasing the purity of their coins by a small   degree, but the crisis of the Third Century  caused Rome's coinage to descend into mayhem.

[00:18:41]The Crisis was noted by a few constant factors:  constant warfare, immense debts, and an entirely   unstable Imperial government. The Sassanid  Empire, glorying in their golden age, carried   out constant wars against Rome's East. European  tribes flooded over Rome's borders in the north.   These raids had a costly side effect, with  the invaders carrying off enormous amounts   of pure gold and silver, further depleting the  Roman supply. To prevent raids and wars, Roman   emperors gave enormous amounts of precious metals  as tribute in a vain effort to pause the attacks.   Not only that, pretenders to the throne grew  up like weeds, and each one needed to pay their   soldiers with lavish bonuses. With no gold  or silver to pay off debts, the only thing   that potential emperors could do to "make"  money was to continue debasing the currency.

[00:19:30]Third century coins were manipulated to appear  more valuable than they were actually worth,   with lower-content denarii given finer silver  surfaces. Essentially, the Roman administration   was issuing high quality "fakes." By about 238,  the antoninianus was resurrected and the denarius   was almost entirely abandoned. Unfortunately, it  suffered the exact same problem as the now-defunct   denarius. Emperors looking to make a quick  buck promptly began debasing the antoninianus,   and the coin became essentially worthless  within 30 years. The general population   noticed these changes and retaliated by paying  taxes with the newer - more worthless - coins   of the same face value, and either hoarding or  melting down the older, more valuable coins.   Because the Imperial coins were so debased,  it became nearly impossible to detect actual   forgeries, to the point that the money changers  - known as nummularii - could not keep up.

[00:20:24]In short, the economy of the Roman empire  was almost completely defunct. As a result,   the Empire itself was actively collapsing, with  minor empires splitting off from the aged Roman   state. Only a miracle could stabilize things.  That miracle took the form of a humble soldier   who rose through the ranks, eventually  being proclaimed as the Emperor Aurelian.

[00:20:45]Once Aurelian assumed power, his first goal  was to restore the Empire by reclaiming the   Gallic territories and achieving victory over the  Palmyrenes. Once this task was done, the emperor   took on a far greater task: restoring the economy.  Aurelian inherited a completely bankrupt state and   sought to restore trust in the currency. He began  these reforms in 274, going after the workers at   the imperial mint for minting debased coinage, in  what is referred to as the “war of the moneyers."   This was seen as a double-edged sword. On the one  hand, the Emperor was arresting people for minting   coins as they had been instructed. On the other  hand, the mints were well known as hotbeds of   corruption, often benefiting the moneyers far more  than they did the Roman people themselves - and   there's evidence to suggest that they actively  debased the currency more than was requested.

[00:21:37]Aurelian standardized the antoninianus, calling  it the aurelianus - which bore a distinctive mark:   XXI in Latin or KA in Greek. The mark  indicated that this series of coins was now   standardized - though it's a bit unclear exactly  what it's referring to. Some speculate that it's   indicative of the exchange rate to one of the  old denarii, while some others think that it's an   exchange rate to the sestertius. Either way, the  coin - which could not with any honesty be called   "silver" anymore - finally plateaued at 5% purity.  The coinage also appears in much better shape,   thanks to the reforms of improving the appearance  and compositions of the new coins. This,   in addition to new price controls and food  availability, was very popular with the people.

[00:22:19]These coins were inscribed with Aurelian's title  "restitutor orbis," “restorer of the world."   Despite the grand reform program, Aurelian's  ambitions struggled to survive his death.   Successive emperors began to be tempted  by the trap of debasement once again,   and the coins lost any semblance of silver,  reverting to simple bronze or other base metals.   These coins were essentially worthless, and by  the end of the third century, Rome experienced   a period of hyperinflation, with prices rising  weekly at a completely unsustainable rate. Another   reform was necessary. This would culminate with  one of Rome's most famous emperors: Diocletian.

[00:22:58]Diocletian had a number of problems to fix - and  one of the most pressing was the Roman economy. In   the first years of his reign, he organized one of  the largest and most successful financial reforms   in human history. Diocletian's major monetary  reform attempted to emulate the Augustan system   that relied on gold, silver, and billon [BIL-uhn]  (5% silver). Coins were minted exclusively by the   Imperial mints, coinage was minted in Latin,  and the denominations of the currency were now   exclusively based in the Roman system.  Because the army had doubled in size,   imperial mints were established along the  frontiers to accommodate the military.

[00:23:31]The problem with this initial reform was  that the Empire was minting coins at a loss.   Prices had risen so high that the new coins -  minted at a far higher purity than anything in   the last two centuries - were too valuable  for the current climate. So new coins were   hoarded rather than being spent, and people  would just take advantage of fixed prices   to accept valuable coins in exchange for cheap  ones. By 305, inflation had once again set in.

[00:23:57]To combat rising inflation, Diocletian  issued the Currency Edict which attempted   to reform the currency and taxation system.  Following this, Diocletian passed the Edict   of Maximum Prices which attempted to set  fixed prices on goods throughout the Empire.   Anyone caught selling goods for more than the  amount stated by law faced severe punishment   and repercussions. Unfortunately, this was  a blundered approach to resolving the crisis   and just created more problems. If we believe  Lactantius’ account, this Edict was a disaster: “He also, when by various extortions he  had made all things exceedingly expensive,   attempted by an ordinance to limit their prices.  Then much blood was shed for the veriest trifles;   men were afraid to expose aught to sale,  and the scarcity became more excessive   and grievous than ever, until, in the end, the  ordinance, after having proved destructive to   multitudes, was from mere necessity abrogated.”  (Lactantius, On the Death of the Persecutors, 7) Despite Diocletian’s attempts at fixing the  economy, ultimately these reforms failed.   Diocletian’s Edict of Maximum Prices  did not account for the law of supply   and demand and that prices fluctuated  from various regions across the empire.   Bartering became more widespread in this period,  but the exact numbers on how prevalent it was   remains a mystery. Like Aurelian, his reforms  were generally abandoned almost as soon as he   abdicated the throne, and the finances of the  Roman Empire once again fell into disorder.   At this point, silver clearly could not handle  the current system. Constantine was the final   emperor to reform the Roman currency system in  the west, replacing the aureus with the solidus.   Unlike silver coins, gold coins had never been  truly debased: only reduced in size. They, then,   became the new basis of currency for a new age of  Rome - which we now know as the Byzantine Empire.