The Rise and Fall of the Roman Empire's Currency

The Roman Empire is one of the most iconic empires in world history, known for its power, wealth, and cultural contributions. Many factors contributed to the rise and fall of this great civilization, including its monetary policy. In the 1st century BC, when Octave declared himself emperor of Rome and took the name Augustus, the main currency issued by the government was the silver denarius, which was 1/84 of a pound of silver. The empire grew rich with its expansion, and taxes were low and mostly applied to conquered provinces. Citizens were estimated to work only 2 days a year to pay their taxes.

However, in the 1st century AD, emperors realized that devaluing the currency was easier than raising taxes. They started minting new denarii by reducing its silver content. Under Nero, purity fell to 90%, then 85% under Trajan, followed by 50% under Septimius Severus. During the devaluation, the real revenues of the empire might have actually fallen. This was because of Gresham’s Law, which states that “bad money drives out good.” As the denarius was devalued, people started hoarding gold, as its value was stable.

In the 3rd century AD, Septimius Severus, on his deathbed, told his sons Caracalla and Geta to “Live in harmony, enrich the troops, ignore everyone else.” Caracalla remembered this well and raised soldier’s salaries by more than 50%. To raise more taxes, he started giving citizenship to more and more people. Basically, any adult man could now become a citizen, whereas they represented less than 10% of the male population two centuries before. As the empire grew and required more soldiers to be defended, the army had to enroll barbarians.

There was only 5% of silver left in the denarius in the middle of the 3rd century, and 20 years later, it was down to around 0.02% in new coins. This started a vicious cycle: the currency fell, hurting the economy. The government increased spending to appease the people, so it minted new denarii, etc. It was like an addiction: stopping meant having to tell the truth about what the government could afford or not.

As prices surged by more than 1000% in a few years, emperors like Diocletian tried price controls. However, it only stimulated the black market, and the law had to be repealed. As mercenaries saw that the denarii’s value was falling, they demanded to be paid in gold. To pay the dangerous army, Constantine had no choice but to demand that taxes be collected in gold only. He even refused his own currency as tax payment!

At the beginning of the 4th century, the economy finally collapsed. In 301, one pound of gold was worth 50,000 denarii. In 311, it was 120,000 denarii. In 324, it was 300,000 denarii. In 337, the year of Constantine’s death, it was worth 20,000,000 denarii. As farmers were unable to pay their taxes, many threw themselves at the mercy of large landowners, signing their freedom away. In 368 AD, Emperor Valens made it illegal to renounce one’s liberty to avoid taxes.

Less than a century later, the Roman population fell below 50,000. It was 1 million at its peak. In 476 AD, barbarian general Odoacer overthrew the last Roman emperor. Many Romans welcomed the barbarians as saviors from the crushing weight of the Empire.

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