In the 3rd century BCE, the Romans began using the silver denarius as their standard form of currency. As the Republic grew in size and stature, the denarius played an important role in the international economy, requiring more silver to mint the coins. The system continued to pay for itself until the Civil Wars and social problems of the 1st century BCE led to great change. As the political situation in Rome changed with the transformation of the Republic to the Empire, so too did the economic situation. Augustus required great funds to pay for his ambitious projects, and subsequent emperors followed suit with heavy spending on everything from construction to graft and personal vanity projects. The result was the devaluation of the denarius and extreme inflation cycles that played a role in the collapse of the Empire.
When Did the Romans Start Using Coins?
In the modern world, currency as a medium of exchange is extremely important. Currencies have become a part of national identities, and their proper utilization ensures a country’s economic vitality. Ancient economics was no different. After the Lydians invented coinage as a medium of exchange and currency in the 7th century BCE, later peoples adopted the practice. The Romans adopted coinage directly from the Greeks, but instead of using the Greek drachma coin, they created their own coinage system.
When the denarius was introduced in the 3rd century BCE, it quickly became a simple to use and valuable currency. The coins were made of silver, which made them inherently valuable and subject to hoarding (Temin 2006). Because the denarius was not practical to carry all the time, smaller denominations were made. Four bronze sesterces, which were commonly used in everyday transactions, equaled one denarius. And four copper asses equaled one sesterces. These coins were all worth their weight in their respective metal, so they were not backed by government hordes of gold or silver. With that said, the Roman government usually held large reserves of gold as a policy.
Was There Inflation in the Ancient World?
Before moving forward, it is important to understand the concepts of inflation and devaluation as they relate to the denarius. The simplest definition of inflation is a process that refers to the rising costs of commodities. Connected to inflation is devaluation, which is the lowering of the value of a specific currency. Many economists argue that purposeful devaluation often leads to inflation. Governments sometimes purposefully devalue their currency so that the goods they export are cheaper to other countries and individuals. The easiest way for a government to do this is by printing, or in the case of the ancient world, minting more currency. Extra currency was also minted to pay for building projects and social programs. Both cases usually resulted in inflation. Even when Augustus made the decision to print more currency, he had recent precedents to know what the potential results could be.
Ptolemaic Egypt was a wealthy and powerful Hellenistic kingdom in the 3rd century BCE when things started to unravel economically. Due to economic problems caused by the Fourth Syrian War (219-217 BCE), Ptolemy IV (reigned 221-204 BCE) introduced the copper and bronze drachmas as the everyday currency of Egypt. Silver has traditionally had a higher value than copper or bronze, so minting copper and bronze coins was viewed as a cheap alternative. Ptolemy IV thought that he could recover silver drachmas in circulation to pay for the war and stabilize the economy. The policy had the opposite effect.
Silver all but disappeared from the land, as it was likely hoarded, while more copper was minted and circulated, creating an inflationary cycle. The inflationary cycle finally ended when Ptolemy VI (ruled 180-145 BCE) reintroduced silver into circulation. Inflationary cycles returned to Egypt when civil war from 130-128 BCE devalued copper coins, and a four-drachma silver coin was worth 2,000 copper drachmas. A final, major cycle of inflation and devaluation took place in 53-52 BCE when the purity of silver coins dropped from 90% to 33% (Chauveau 2000). The final round of Ptolemaic inflation and devaluation was largely the result of Ptolemy XII (reigned 80-51 BCE) purposely adding impurities to the currency to pay back debts he owed to Rome. The Romans would later devalue the denarius in much the same way as the Ptolemies did to their drachma.
When Did the Romans Start Devaluing Their Currency?
The denarius was truly the backbone of the Roman Republic’s economy and was a symbol of its strength and growth. The coin, though, was not without some inherent problems. Under fiscally responsible governments, the denarius held its value, but there was always a chance that less scrupulous leaders could manipulate the currency.
Adding impurities to the coins during the minting process or shaving small amounts off the coins were the most common ways that irresponsible leaders could purposely devalue the currency. The Ptolemies were masters at this, but the Roman emperors, too, would learn these methods. Counterfeiting could also be a problem, but much less so in the ancient world because it required specific skills and technology. In the wake of the civil wars of the 1st century BCE, as Rome transitioned from a Republic into an Empire, the emperors engaged in a more standard and less nefarious method of devaluation: increasing the money supply.
After Augustus became emperor, he embarked on an ambitious social reform and building program to rejuvenate Rome. The Forum was refaced in marble, and many new structures were built, including the original Pantheon. Augustus also instituted many ambitious social and infrastructure programs to feed the poor and refurbish temples that had fallen into neglect or were burned in the civil wars. According to the 2nd-century Roman biographer Suetonius, it cost 50 million sesterces alone to refurbish the Temple of Jupiter.
Augustus paid for these projects by having more silver coins minted, which economists cite as a potential cause of inflation. Still, if an economy is strong, inflation can be managed, and devaluation can even be beneficial if the nation in question is a major exporter of goods. Thankfully for Augustus, this was the case during his reign.
According to historian Peter Temin, the gross domestic product (GDP) of early Imperial Rome is estimated to have been similar to that of 1700 Spain. This was largely the result of an economic boom in the wake of the civil wars, as Augustus’s projects employed thousands of formerly unemployed Romans. The Pax Romana also saw Rome’s extensive road network transformed. Originally, the roads were used primarily for military purposes, but in the early Empire, they were used to link widespread markets (Boardman et al. 2000). This had the effect of keeping the currency flowing and dispersed, thereby mitigating the deleterious effects of inflation.
The denarius specifically and the Roman economy generally stayed strong under most of Augustus’s Julio-Claudian successors. Tiberius and other early Julio-Claudians followed sound fiscal policies whereby they increased the money supply proportionately as trade increased. Because the money supply was increased this way, inflation was minimal. Taxes were also generally low, which contributed to the economic Pax Romana, but the era was not without some problems. Caligula and Nero demonstrated how much damage one man with nearly unlimited power can do to a country by disregarding the systems that made it strong.
Why Was the Roman Empire Losing Money?
The sound fiscal policies of the early emperors, which considered the military and geographic expansion of the Empire, began to unfold by the late 2nd century. A combination of corruption, bloated bureaucracy, economic myopia, and unforeseen events combined to send Rome into near-constant inflation and the devaluation of the denarius. Inflation was only about 1% in the first two centuries of the common era, but the black swan event of the Antonine Plague (165-175 CE) changed things.
Brought to Rome from the east by soldiers, the Antonine Plague killed millions and played a role in transforming Imperial Rome’s economy. According to Temin, the widespread devastation led to wage increases in some parts of the Empire, which meant more money was needed for circulation. More money was also needed to pay for growing expenses.
Rebuilding projects after the Antonine Plague required plenty of currency, but by the 3rd century, most of the newly minted coins were used to pay for the military (Malchow and Thiel 2011). Rome’s economic expansion could not keep up with its military-industrial complex, so emperors made the fateful decision to devalue the denarius. The emperors of the early 3rd century went beyond merely having more coins minted. They decided to debase the coins by adding impurities to them.
Temin noted that, according to one source, the inflation rate in Rome was 15,000% between 200 and 300 CE. To put this into tangible perspective, one pound of gold was valued at 72,000 denarii in 301, which was near the end of the reign of Diocletian (ruled 284-306). Diocletian attempted to combat inflation by introducing price controls in 301 but did nothing about the debasement of the currency. The result was a massive increase in black markets, reducing the tax base and further harming the overall economic system. Diocletian’s successor, Constantine (306-337), is known for his many social and political reforms, though his greatest failure may have been following Diocletian’s failed economic policies.
Constantine was able to keep the Empire held together and revitalize it in many ways. But his successors were not nearly as successful as he was. None even remotely addressed the dire economic problems that were affecting every facet of Roman life.
When Did the Romans Start to Decline?
The immediate result of imperial Roman inflation and the devaluation of the denarius was increased taxes. Quite simply, as prices increased and the denarius was worth less, the government needed to raise taxes to keep pace. This led to Rome’s wealth being concentrated in fewer hands. Eventually, citizens in the provinces and even Italy itself began to identify less with the elites in Rome and more with their local communities.
Another result was that Rome was no longer able to pay for its large, standing army. This is somewhat ironic because a major reason for Rome’s inflation was the devaluation of the denarius to pay for the constantly growing military. By the late 4th century, Rome had come to rely on foreign auxiliaries and federate armies for defense. This proved to be another nail in Rome’s coffin.
The collapse of Rome was a complicated process with many determining factors. Often overlooked among those factors are economic processes, particularly inflation and the devaluation of the denarius. The denarius was the backbone of Rome’s economic vitality for centuries, but many of Augustus’s economic policies set a long-term process in motion. The process led to inflation and currency devaluation, which only worsened as the Empire faced many other problems.
Select Bibliography
Boardman, J., Griffin, J., and Murray, O. (2001) The Oxford History of the Roman World, Oxford University Press.
Chauveau, M. (2000) Egypt in the Age of Cleopatra, Cornell University Press.
Malchow, J. and Thiel P. (2011) “The Quantitative Easing (and Fall) of the Roman Empire,” Sovereignty, Technology, and Global Change, Winter 2011.
Temin, P. (2006) “The Economy of the Early Roman Empire,” The Journal of Economic Perspectives 20.1:133-151.
