Lessons from the silver debasement in Roman times

Rome, like any modern country, had its share of economic ups and downs. And unlike nowadays, they didn't have the option of printing their way out of fiscal troubles. At times like these, faced between the rock of increased labor and production costs and the hard place of needing to pay for essential services, the treasury had no recourse but to resort to the usual dirty tricks of increasing the official value of the coins while often decreasing their intrinsic worth simultaneously. It is the perfect equivalent of the Weimar years in post-World War II and, more recently, Zimbabwe when these governments resorted to printing ridiculously large numbers on paper notes in a hopeless bid to outpace inflation. An economist from the Middle Ages named Thomas Gresham famously noted that when a government issues new money whose face value is more than that which is circulating the resulting consequence is that the public will immediately hoard the old coins. This is now summed in the phrase "bad money drives out good money" and has the additional consequence of doubly undermining the government efforts by creating an acute shortage of circulating coins thus causing the treasury the added expense of ramping up production when they're least able to respond appropriately. If the crisis is overcome the exhausted public coffers will leave no choice but to consider a new devaluation which only threatens to drive the economy into a self-perpetuation cycle. Again, modern economies are able to buffer inflationary bouts more effectively than their metal-based counterparts of yore only in the sense that paper is much cheaper but, ultimately, the end phase remains invariable: if the economy can't recover by somehow acquiring wealth it implodes and becomes vulnerable to an internal or foreign takeover who do have the means. It is the underlying value of those means that then will determine the strength of the new economy and the "shares" that each of its coins or notes are worth.

Getting back to the coinage of the Romans, an emperor who had to witness the unsavory fact of a ledger sheet written in red ink was moved to quick action if he knew what was good for him. Any handy casus belli could be employed to take one's chances at warring with a rich neighbor when the odds of sitting it out on the sidelines hoping for a miracle was much worse. And in a pinch you could plunder your own people too with the wealthy but scandal-prone elites and the disempowered plebs alike making such tempting targets.

The first emperor to meet the long arm of the Gresham law was Nero who witnessed, fiddling or not, a large chunk of the empire's wealth go up in smoke when the capital so famously caught fire. Faced with the extraordinary expense of rebuilding, Nero hastily approved a measure to scale back the purity and weight of the sacrosanct denarius (and a bit off the weight of the aureus too). If he thought he'd actually get away with pulling the wool over the eyes of his citizens he really missed the mark. Word spread quickly and the old coins were yanked to be hoarded or melted down. It's important to note that it wasn't just the ordinary citizens and merchants who did this - the central exchequer would have naturally had first dibs to melt down their own stock and recoin it into an instant 10% or so profit. Except, well, now that the word was out prices shot up at least 10% (and almost assuredly more) instantly wiping out the advantage. In the end, Nero had to take it in the shorts and paid for the entire cost of the relief efforts and his building programs out of a combination of his own funds and new taxes. The important lesson learned was that the real cost of a devaluing economy can't be hidden or repaired with financial tricks.

Another lesson, this one not fully appreciated by anyone at the time, was that the slope had been greased so to speak. Once Nero had set this precedent an insidious virus was injected into the economy whereby with that first inflationary spasm that shook the once-sound system the negative momentum built into a never-ending cat-and-mouse game. The next emperor, thinking himself either clever or out of alternative resources, allowed the robbing of a little more of the silver out of the denarius only to witness the inexorable spike in prices afterwards. Done by slight degrees over the course of years, as opposed to Neronian double-digit shocks overnight, the populace at least would not rush to send yesterday's coins to the cooking pot. This policy would be a curious variant of the economic bubble we've come to experience in today's global world except the "pop" in their case happened when there was literally no more silver to take out.

It had been a fortunate set of circumstances that generations of imperial families could count on the fact that a little silver can make a lot of junk metal look acceptably silvery when coined thus sparing the worst of the public outrage. But the noble metal's property of visually hiding its inferior cousins gives out at around the 20% mark. The Gordians, then the Philips and finally the flurry of short-term emperors who followed had each eked out their share and now the next stable government under Valerian and Gallienus inherited a coin that was very nearly 80% scrap. They found themselves in that uncomfortable place between the rock and hard place for debasing the coin any further - while still attempting to pass it off as a bona fide "silver" coin - would not be possible and yet inflation still pressed ever forward.

At this point some hack genius came up with the idea of saving nearly all of that remaining 20% fineness per coin and blast-wash a few microns' worth of the metal onto the surface while the structural core was allowed to be made up of an unholy witch's brew of lead, copper, tin and whatever else was handy. Dressed in its beautiful if delicate veneer, the currency remained viable for another couple of decades until even this little silvery breath became too expensive a luxury.

The denarius had been phased out after first suffering the indignity of being whacked a little harder so as to appear bigger and sporting a slightly altered design than had been the convention then forced onto the public as worth two of the old. But its successor, the so-called antoninianus, now divorced even of that minimal silver content inspired little confidence and inflation's pace quickened to a scale that was sending large swathes of the population into poverty and the whole of the Roman world flirted with complete civil breakdown. At this point, late in the third century, the king of this world was a man named Diocletian and of his character we can say that he was far more ambitious than savvy but we can also charitably add the credit that he was a man of action who was willing to enact wholesale changes and hope for the best.

Primary among his economic reforms was a naive attempt at fixing the price of goods. The reasoning was just as compelling as had been Nero's: stopping inflation by decree would stabilize the economy and stave off revolution. How exactly he hoped this would work is unclear but perhaps his ace in the hole was a clause to revive the denarius. Not with a pinch of silver mind you but an honest-to-goodness hefty and nearly pure silver coin like had been in use back in the day. In principle, this was an awesome idea had it not been for the singular flaw that Diocletian simply didn't have anywhere near the amount necessary to prop the economy back to the Julio-Claudian rates. He made a paltry trickle of them which ended up trading at some obscene multiple of the olden-day denarius. And here's the kicker: what good is this perfectly rendered coin if no one can afford it? The average family had no access to these high-value jewels and thus became irrelevant to them and the marketplace. Meanwhile, the merchants now forced to sell their goods at the fixed prices set by Diocletian could no longer make a profit so trade plummeted and the middle class atrophied to join the level of the desperate crowd. Diocletian's experiment had failed.

In retrospect, it's easy to blame Nero for the emasculation of Rome's currency but this would be scapegoating. The fact, again, is that real wealth dictates the soundness of the economy and as the Romans spent more silver than they were able to rake in the fact is that they only had themselves to blame. Without meaning to go off on a tangent, it's difficult to miss the parallels with our modern economy where the West, anchored as they are onto the Dollar and Euro, are steadily losing value for the same reasons. The difference is as skin-deep as Gallienus's silver wash because much of the real worth of these two mega-currencies is bound in the shrinking economies they underwrite. The burgeoning national debts of the leading nations of the west reflect the same working principles as the Romans spending silver faster than they could replenish the stores. As our wealth dissipates to the oil-rich countries of the Middle East and to China, the world's factory, we carry on in denial that we live in a house of cards simply because our modern money is still able to buy us the stuff we need. All because that metaphoric splash of silver lulls the buying world into the comfort of seeming permanence. Let's hope the silver doesn't run out then.

In retrospect again, we should consider that in the end civil war for Rome was inevitable and, collectively, the empire fractured into fiefdoms led by mutually hostile chieftains. The Roman people had now entered a strife-ridden era of decline that was to last hundreds of years and as it did so the wars and malnutrition that ensued decimated the population. Impoverished and depopulated, the far-flung provinces became easy targets to enemy nations and the ruling class hunched in the remaining urban corners and a new age quite unlike the one of Nero's time ushered in for the next thousand years.