Hyperinflation in the Roman Empire and its Influence on the Collapse of Rome
Today, we will be analyzing the economic phenomena of hyperinflation and how it was involved in the collapse of the Roman Empire. This article will cover the economic data of Rome in the time frame of 0 C.E. to 395 C.E. All works cited can be found below at the bottom. This article was made for a Latin course but was made publicly accessible on Medium.
1 | Background Information and Context
Lasting for more than 100 years and classified as the world’s longest-lasting empire, the Roman Empire was a political, economic, and technological powerhouse. According to legend, the famous Empire was founded in 753 BC by the two twin sons, Romulus and Remus, of Mars (the god of war). The Roman Empire persisted for well over a thousand years, although it had its ups and downs.
The Pax Romana (which translates to “Roman Peace”) was a period spanning two centuries, starting from 27 B.C.E all the way to 180 C.E. The Pax Romana was essentially the Roman version of the American “Era of Good Feelings.” The two-hundred-year epoch in Roman history was a period of relative peace, minimal war, technological progression, and economic prosperity, under the governance of famous Roman emperors like Augustus (63 B.C.E. — 14 C.E.), and the stoic Marcus Aurelius (121 C.E. — 180 C.E.)
However, despite the Pax Romana era of prosperity and peace in the Roman empire, the following centuries leading up to the collapse of the Roman Empire would be plagued with disaster. One aspect we will be exploring and analyzing in this article is the role of hyperinflation in Rome and how it exacerbated the collapse of the Roman Empire.
2 | Rome’s Currency, the Silver Denarius
Rome’s economic struggles began with problems of its regional currency, the Roman Denarius. The silver Denarius was implemented and produced as the national currency of Rome starting as early as 211 B.C.E., minted all the way until the middle of the third century C.E. until it was replaced by the Antoninianus, a temporary currency instated by Roman Emperor Caracalla (188 C.E. — 217 C.E.) to help curb the hyperinflation of the silver Denarius.
Around the size of a nickel, the Roman Denarius was approximately worth a day’s wages for a craftsman in Rome. The coins were initially minted with 4.5 grams of pure silver (this is considered high purity.) Initially, the value of the Denarius was not based on consumers’ confidence in the Roman government or some gold reserves located who knows where. The currency was backed by itself — meaning that the value of the Denarius was based on the value of the silver used to mint that coin.
3 | Low Supply and Circulation of the Denarius
Because of a finite supply of silver and precious metals entering the Empire, Roman economic activity was limited to the number of denarii in circulation. Because there was a small circulation of denarii in the beginning decades of its conception, the Denarius could not successfully be used as a medium of exchange or currency, because there just wasn’t enough of the currency to go around. This problem was an especially hard pill for the Roman Emperors to swallow, as they could not finance their “pet projects” (wars, newly constructed amphitheaters, circuses, etc.) with the small circulation of denarii in the Empire.
4 | Initial Dilution of the Denarius
However, Roman officials found an early workaround to this problem: if they could decrease the purity of the Denarius by partially making them with cheaper, less expensive metals, they could afford to mint more of the coins at the same price and value as the original 100% silver coins.
The Romans believed they had discovered the key to all of their problems. By decreasing the initial purity of the Denarius from 4.5 grams of pure silver (100% silver) to a lower purity, the Romans could mint much more coins and increase the supply and circulation of their prized currency. This allowed the emperors and government to finance their projects, as well as improve the circulation and supply of the coin, making it ample and available enough for economic activity in Rome.
5 | Further Dilution of the Denarius
The study of economics as a science can be dated back to the publishment of “The Wealth of Nations” by Adam Smith. The Romans had no idea of economics or its core tenets (like supply and demand, or inflation.) The ideals of monetary policies and fiscal regulation of currencies would not be developed until the beginning of the 20th century, more than 1500 years past the fall of Rome.
The decline of the Roman Denarius’s value was not short and violent, as some believe, but rather a prolonged period of steady decline encompassing several decades in the second and third centuries C.E.
By the time Marcus Aurelius (161 AD) had gotten power, Denarius’s purity was at 75%. By the time of Phillip the Arab (244 AD), the purity of the Denarius was only at 45%. By the time of Gallienus (255 AD), the purity of the Denarius had fallen all the way down to 5%. By 265 AD, the silver purity of the Roman Denarius was only 0.5% (not a typo), and prices skyrocketed over 1000%! Each coin was basically made of bronze, with only a thin coating of silver covering it.
6 | Hyperinflation and Economic Instability in Rome
Hyperinflation was crippling the economy. In 284 AD, Emperor Diocletian attained power and tried to curb the freefall by introducing price controls in 301 AD. He also presented a new silver coin called the argenteus, with one coin equal to 50 of the old denarii. But within a decade, one argenteus would be worth 100 denarii. Although there is no definitive number, economists and historians believe that Rome’s inflation rate reached an all-time high of 15,000% between AD 200 and 300. To illustrate this with an example, one Roman pound of gold was valued at 72,000 denarii coins in AD 301.
This hyperinflation, coupled with the debasement of the Roman Denarius, caused the Roman Empire to start losing money, and to counter that, they instituted more taxes on the people. People started bartering with goods and commodities instead of a centralized medium of exchange like the Roman Denarius.
The deterioration of the Roman Denarius, among other factors, significantly contributed to the decline of the Roman Empire, which would eventually draw its last breath in 476 AD.