December 3, 2024
By Jeffrey E. Schulman
More than anything else, anger over inflation put Donald Trump back in the White House. Many blame president Joe Biden and, by proxy, his party’s nominee, Kamala Harris, for failing to anticipate that prices would rise in the aftermath of the Coronavirus. Biden and federal reserve chairman Jerome Powell, who took the established view that expansion of the money supply causes inflation, watched as mass monetary stimulus during the lockdowns left prices largely unaffected. At the time, they concluded that inflation posed little threat, even labeling its initial appearance “transitory,” and claimed that the subsequent surge could not have been foreseen.
But it could have been foreseen. In fact, it’s happened before. Had Biden and Powell been briefed on the history and economy of ancient Rome, the spike in inflation would have come as no surprise.
Perhaps the most famous experiment with devaluation happened in the third century A.D., when Roman emperors addressed invasions and plagues by devaluing the currency to a fraction of its former worth. Initially, historians thought this caused hyperinflation, but data uncovered by Dominic Rathbone in the 1990s suggest that prices did not rise proportionally with the currency’s devaluation; the most serious inflation only began after the emperor Aurelian (A.D. 270-275) began to restore the coinage’s silver content.
Then and now, prices surged after the end of a crisis because its swift resolution stimulated an outpouring of demand.
Biden and Powell probably failed to anticipate this because most of their economic advisers study only modern history, when central banks have guaranteed money either by a promise to convert it to precious metal or by a vow to practice sound policy—making it ‘fiat money’. But historically, states have minted coins out of precious metal itself, leaving the potential for “devaluation,” a reduction in the precious metal content of coins. Had Biden and Powell’s advisers understood the ancient monetary system, they would have encountered a cautionary—and necessary—example.
Of course, this would not have been an easy task. The ancient economy was surprisingly complicated: When Rome came to be ruled by emperors, money consisted of a trimetallic system of coins tariffed at standard rates: four of the small bronze “as” would buy the slightly larger bronze “sestertius,” four sesterces a silver “denarius,” and 25 denarii a golden “aureus” or “solidus.” The silver coins, the denarius and later antoninianus, formed the foundation of the currency and would undergo the most severe devaluation over the centuries. Despite the dwindling number of cities with the right to mint their own coins, as well as the separate closed monetary system employed in Egypt, the empire maintained a remarkably stable and uniform system throughout its existence.
Stability in the currency initially accompanied similar stability in the imperial government. Aside from the infamous “year at the four emperors” (A.D. 69), the empire remained largely peaceful for the two centuries preceding the reign of Marcus Aurelius (161-180) when frequent civil wars, more dangerous adversaries, and a recurring series of plagues threatened. From 235 the situation spiraled, with emperors often reigning for mere months. Around 260, the Persian king Shapur even captured the emperor Valerian and caused the empire to break in three, with the kingdom of Palmyra defying both Romans and Persians to seize control of the middle east; the Roman remains then broke into separate Gallic and central empires.
After barbarians nearly sacked Rome in 271, the emperor Aurelian defeated the subsequent revolt by workers at the city mint who had been skimming silver off the already highly adulterated coinage. It would take until 274, when Aurelian had reconquered the Gallic and Palmyrene empires, for him to launch a major reform of the currency, when he minted a new silver coin marked with the ratio “20 to 1,” either referring to his doubling of the silver content to 5% (1/20)–metallurgically detectable–or claiming that the new coin was worth 20 of its adulterated predecessors. Aurelian did not permanently stabilize the silver currency; its value would vary until after the western empire’s collapse 200 years later. But the struggles of Aurelian and other emperors provide important context for modern debates over inflation.
Even early historians easily noticed the third century devaluation by glancing at the early emperors’ shiny silver coins and their third century successors’ dark brown issues which contained mostly bronze.
Scholars long assumed that inflation closely followed currency devaluation, and at times it did. The denarius contained 97.5% silver under the first emperor Augustus (31 B.C.-A.D. 14) and only slipped to about 75% some two hundred years later under Marcus Aurelius; its weight also only decreased slightly. Readily accessible information like military pay show that prices remained mostly stable over these centuries, rising slightly in line with devaluation. As the empire slipped into the third century chaos, reliable historical sources dwindle, leaving the rapidly deteriorating coinage, including the denarius and its initially more valuable replacement, the antoninianus, as almost the only economic record.
With the empire’s recovery, more abundant sources show emperors like Diocletian (284-305) decrying high prices but struggling to increase the coins’ silver content. Diocletian’s infamous Prices Edict listed a maximum price for all the goods and services legislators could imagine; though it failed, it provides valuable data about approximate prices around the time of its issue in 301, perhaps about 7,000 times higher than under the first emperor Augustus. It seemed logical that prices would have risen in line with the decreasing silver content; third century emperors almost certainly devalued the currency to cover budget deficits since the empire’s decay led to ballooning military expenses and falling tax revenues. Experts expected that the mass expansion of the money supply caused hyperinflation.
Fortuitously, the dry Egyptian desert preserved papyrus fragments that allowed for a reassessment. By collating letters, contracts, and receipts on these, scholars painstakingly built a rough dataset of third century prices. The data, alarmingly sparse even by the standards of ancient historians, also all originate from Egypt, but they do suggest that prices largely remained steady over the peak devaluation before abruptly jumping in the year of Aurelian’s great monetary reform (274) and continuing to rise rapidly over the following century.
Economic historians largely explain this by emphasizing the distinction between a confidence based monetary system—”fiat money”—and a system that was tied to a precious metal. They argue that, although Roman coins contained gold and silver, Romans actually treated it as a fiat currency until Aurelian’s reform and simply accepted its nominal value. By marking his new issues with ‘20 to 1’ as guarantee of their purity, Aurelian would have brought public attention to the currency’s low silver content, prompting Romans to begin valuing coins on a precious metal basis. The year 274 would have marked a shift from a fiat money system to a silver standard which aligned prices with the currency’s devaluation.
The argument is appealing: Romans do seem to have treated their currency as fiat money, always accepting bronze sesterces, silver denarii, and golden aurei at their standard ratio of 100:25:1, despite the obvious differences in the metal’s relative worth. Likewise, emperors kept Egypt on its closed monetary system until 296, forcing visitors to convert their currency at the border to the Egyptian tetradrachm that carried a lower silver ratio for its nominal value. Aurelian would have made a disastrous mistake by turning public attention to the purity of the money supply.
Nevertheless, this view seems somewhat politically biased: A fiat money system would be inherently good, and efforts to emphasize money’s value in precious metal terms liable to disaster. But more importantly, it fails to explain how emperors could vastly increase the money supply over the course of the third century without sparking inflation.
The cause of inflation may lie more in the geopolitical than the monetary circumstances: Even ancient historians tend to forget just how serious threats grew in the late third century and how quickly the empire was saved.
In 267 invading barbarians sacked Athens, and in 270 the Palmyrene queen Zenobia, already ruling the Roman near east, invaded Egypt and Asia Minor (modern Turkey); meanwhile the Gallic empire grew increasingly independent as its leaders began organizing transitions of power in their own domain. Amid a series of other invasions, the Iuthungi nearly sacked Rome in 271, prompting the mint workers’ revolt. Yet, only three years later, Aurelian had reconquered both the Palmyrene and Gallic empires. His successors like Diocletian, also now professionals drawn from the general staff, reinforced the frontiers, subdued the Persians, and decreased the frequency of civil wars.
The empire’s swift restoration must have given Romans confidence to spend money they’d saved. After all, far more coins survive from mintings in the worst years of the crisis than from any other period; Romans presumably saved many of them until after the empire’s reunification in 274. The economic effects would have resembled modern America’s recovery from the Coronavirus when massive government deficits left Americans flush with cash we initially didn’t spend because of economic fears and limited buying opportunities. The sudden rejection of lockdowns in spring 2022 sparked an outflow which a now low personal savings rates now continue supporting. Likewise, government spending hikes to fund a Roman army expansion and an American green infrastructure plan may have helped maintain elevated inflation.
In both cases, consumers’ initial fear delayed inflation caused by expanding the money supply. Third century emperors probably couldn’t have avoided provoking inflation because they otherwise could not otherwise have gleaned the money to save the empire. However, Biden and Powell continued to endorse loose monetary policy even after the US bounced back from the lockdowns. Biden and Powell may be outraged to see their archnemesis retake the presidency, but they only can blame themselves for failing to heed this lesson from ancient history.
Jeffrey E. Schulman is a Young Voices Contributor and a PhD student at Groningen University, working on the administrative history of the Roman empire.