As the early Roman Empire’s economy flourished, sound fiscal policies implemented by Tiberius (AD 14-37) and other early emperors served to keep inflation in line. With the expansion in trade, the money supply grew in lockstep. Taxes were kept modest as well: each province paid a 1% wealth tax and a flat tax on all people. All of this helped keep costs low and the government running smoothly, but things began to shift towards the end of the second century AD.
The Roman economy took a sharp turn around AD 200, from which it never recovered. There was a recession at the time that destroyed much of the Roman Empire in ways that current researchers are just now beginning to comprehend. The “Antonine disease,” which was brought back from the eastern provinces by Roman soldiers, exacerbated the slump. Since the plague decimated the Roman population, wages climbed at a breakneck pace – far too quickly. The upshot was a massive increase in the price of products that had never been seen in Rome before: inflation was barely 1% in the first two centuries AD, but after the epidemic, prices doubled. The plague’s immediate aftermath should have served as a wake-up call to Roman leaders, but instead, the problems grew worse.
The move to a more cash-based economy was another element that contributed to inflation under the Roman Empire. Prior to AD 200, real estate was a more common form of currency among affluent Romans than coinage, but due to rising government expenses, Rome quickly moved to a more cash-based economy after the epidemic. More people were added to the empire as the empire expanded, and constructions like bridges and aqueducts were needed to keep up with the rising population, which necessitated more money. The Roman military industrial complex grew at an exponential rate, necessitating the use of more coinage to pay the soldiers. Finally, cash was increasingly used for everything from huge commercial transactions by the wealthy to everyday transactions by regular people. With so many coins already in circulation, Roman commanders rapidly discovered that paying for public works projects, much alone their soldiers, was proving problematic. They tried to fix the problem by depreciating their currency.
Despite the fact that the Romans preserved few records directly connected to the devaluation of the denarius, the records they did keep, together with investigations of coins from the time period, tell the narrative of a purposeful attempt to stretch the silver they possessed as far as they could. The Romans began adding impurities to their silver coinage, similar to the situation in Ptolemaic Egypt, in order to increase the number of coins in circulation. The procedure resulted in two outcomes: there were too many coins in circulation, and the new coins were made up of metals other than silver. Between AD 200 and 300, inflation was supposed to have reached an astronomical rate of 15,000 percent! In terms of a concrete example, in AD 301, one Roman pound of gold was worth 72,000 denarii, making it practically impossible for any Roman to carry so many coins on his person. Finally, Emperor Diocletian (r. AD 284-306) realized that harsh measures were required if the Roman economy and possibly Rome itself were to be saved.
By AD 250, the Roman economy had been ravaged by inflation, which threatened to bring the empire down. In 301, Diocletian decided to institute price controls instead than treating the problem at its source by fixing the money crisis. The directive exacerbated the problem by driving buyers to the illegal market, where prices continued to rise. Diocletian’s successors were unable to halt the flood of inflation due to myopia and a lack of understanding of economics, and in fact continued many of Diocletian’s policies, including price controls.
When did the Roman Empire’s inflation begin?
Throughout reality, in the third century, this was a regular issue in Rome, with all types of people attempting to avoid the extra taxes that the military required. The army had risen in size from Augustus’ time, when it numbered around 250,000 warriors, to Diocletian’s period, when it numbered around 600,000. So, during this inflationary spiral, the army had doubled in strength, and this undoubtedly contributed considerably to the inflation.
Furthermore, the state’s administration had developed significantly. Under Augustus, the imperial administration was based in Rome, the governors of various provinces were the secondary level of administration, and the cities were the principal administrative units in the Roman Empire at the time.
This pattern had disintegrated by the time of Diocletian. You had four emperors, which meant four imperial courts, four Praetorian Guards, four palaces, and four staffs, among other things.
Four Praetorian prefectures, regional administrative divisions with their own staffs and budgets, were placed under them. There were 12 dioceses under these four prefectures at the time, each with its own administrative personnel and so forth.
The provinces are under the diocesan rulers, the vicars of the dioceses. There were roughly 20 provinces under Augustus’ reign. There were almost a hundred provinces three hundred years later, despite no significant gain in territory. The Romans simply split and subdivided provinces to maintain internal military control of the various regions. To put it another way, the cost of policing and administering the Roman state grew exponentially.
All of these costs, then, are some of the reasons for inflation; I’ll get to the rest later. To give you an understanding of the situation after Constantine’s gold reform, let me simply give you some statistics for how much a pound of gold cost in terms of the denarius, the silver coinage, or token coinage now.
In Diocletian’s period, in the year 301, he set the price for one pound of gold at 50,000 denarii. It had swelled to 120,000 people ten years later. It was now 300,000 in 324, 23 years after it was 50,000. A pound of gold was worth 20,000,000 denarii in 337, the year of Constantine’s death.
By the way, just as we are all familiar with the larger stamp on German currency from the 1920s, the Roman coinage includes stamps above stamps on the metal, denoting multiples of value.
One of the Roman emperors had a brilliant idea at one point: instead of creating coins, he created a mechanism to deal with inflation. People began passing these pouches back and forth as currency after he inserted brass slugs in a leather pouch and called it a follis. I suppose that was the Roman counterpart of the paper baskets seen in photos of Germany in the 1920s.
Surprisingly, within ten years or so of that beginning, the word follis which had previously signified a sack of coins had come to mean merely one of those metal slugs. The follis was now one of those snails. They couldn’t even keep the bags in place because they were inflated as well.
Now, despite all of this inflation or perhaps we should say, because of all of this inflation historians of prices in the Roman Empire have arrived to the conclusion that the price of gold, in terms of its purchasing power, remained consistent from the first to the fourth centuries. In other words, gold’s purchasing power stayed unchanged, and all other forms of currency just became progressively worthless.
What were the factors that led to this inflation? First and foremost, there is conflict. The soldiers’ salary increased from 225 denarii during Augustus’ reign to 300 denarii during Domitian’s reign, a hundred years later. It went from 300 to 500 denarii a century after Domitian, during the reign of Septimius, and then to 750 denarii during the reign of Caracalla, around 10 years later. In other words, the army’s cost was rising in terms of coinage, and as the coinage became less valuable, the army’s cost had to rise as well.
We don’t know how much soldiers’ pay increased in the rest of the 3rd century and into the 4th century; we don’t have any numbers. One reason for this is that soldiers were increasingly paid in terms of supply requisitions and in-kind products. In place of payment, they were provided food, clothing, shelter, and other necessities. This was also true in the civil service.
When a Roman emperor declined to pay a donative on his accession a bonus granted to soldiers upon the emperor’s accession his troops just murdered him. Even in the days of the Republic, the Romans faced this problem: if the troops are not paid, they become enraged.
From the reign of Augustus forward, the donatives had been given on the accession of a new emperor. They were first distributed every five years in the third century. Donatives were granted every year by the time of Diocletian, and the soldiers’ donatives had effectively constituted part of their basic pay.
As I previously stated, the army’s size has grown as well. From Augustus to Diocletian, it had more than doubled. In addition, the civil service grew in size. All of these events pushed the state’s monetary resources beyond its ability to support itself, and the ship of state was kept afloat by debasing, taxing, and, finally, accusing people of treason and taking their properties.
Quizlet: What Caused Inflation in the Roman Empire?
Why did Rome have inflation? People paid less in taxes as a result of the weak economy. Because the Roman government had the same expenses, it began to put less gold in its coins in order to pay the soldiers. When individuals discovered that the coins had less gold, their value plummeted.
What were the empire’s two main causes of inflation?
Inflation can be caused by two factors: fiscal expansion and monetary expansion, which can be caused by the depreciation of the local currency (Ake).
What causes price increases?
- Inflation is the rate at which the price of goods and services in a given economy rises.
- Inflation occurs when prices rise as manufacturing expenses, such as raw materials and wages, rise.
- Inflation can result from an increase in demand for products and services, as people are ready to pay more for them.
- Some businesses benefit from inflation if they are able to charge higher prices for their products as a result of increased demand.
What was Diocletian’s strategy for combating inflation?
Diocletian finished Aurelian’s monetary reforms, which had begun in 274. With the production of argentium (90 percent minimum silver content) and three bronze coins, a three-metal system of gold, silver, and bronze was reinstated. The issuance of gold coins (aureus) was resumed, as it had been under Aurelian. However, this measure failed to slow price inflation, which instead surged. Diocletian attempted to control inflation in 301 by issuing a maximum price edict as well as worker pay. Meanwhile, it overhauls the tax system, primarily by modifying the property tax base and bolstering the perception system.
Is hyperinflation to blame for the collapse of Rome?
Rome’s economy was based on trade. Beef, cereals, glassware, iron, lead, leather, marble, olive oil, perfumes, purple dye, silk, silver, spices, timber, tin, and wine were all introduced into the country thanks to trade.
The residents of Rome benefited greatly from trade. The city of Rome, on the other hand, had a population of only 1 million people, and costs continued to rise as the empire grew.
The Empire had to come up with new means to pay for administrative, logistical, and military costs as they grew.
This resulted in hyperinflation, a divided economy, trade localization, high taxes, and a financial catastrophe that paralyzed Rome, among other things.
What happened to the Roman economy?
Government and economic corruption were at the root of many of the issues that led to Rome’s collapse. Slave labor was the backbone of Rome’s economy. There was a significant disparity between the rich and the poor due to the use of slave labor. The wealthy became wealthy as a result of owning slaves, while the poor struggled to find work. As Rome’s conquests came to an end, so did the inflow of slaves, and the country’s agriculture production suffered as a result. This added to the economy’s already fragile state.
What happened to Rome’s economy? What impact did inflation have on Rome?
While Rome was being attacked from the outside, it was also collapsing from within due to a terrible financial crisis. Constant wars and extravagance had drained imperial coffers, and punitive taxation and inflation had increased the wealth gap between the rich and the poor. Many members of the wealthier classes had gone to the countryside and established autonomous fiefdoms in order to avoid paying taxes. A labor shortage rocked the empire at the same time. Slaves were used to plow the fields and labor as craftsmen, and Rome’s military strength had historically brought in new conquered peoples to put to work. When Rome’s expansion came to an end in the second century, the supply of slaves and other war trophies began to dwindle. In the fifth century, the Vandals conquered North Africa and began undermining the empire’s trade by plundering the Mediterranean as pirates. The Empire began to lose its grip on Europe as its economy faltered and its commerce and agricultural production declined.