Last week I posted about the history of the Drachma and Greece.
Thought it would be interesting to share the history of the Roman empire and its currency. The following is based on a speech by Joseph R. Peden given in 2009.

Scholars have devoted a great deal of energy to examining the problem of how the Roman Empire lasted so long? And did it decline, or was it simply transformed into something else?

Monetary policy always serves, even if it serves badly, the perceived needs of the rulers of the state. If it also happens to enhance the prosperity and progress of the masses of the people, that is a secondary benefit; but its first aim is to serve the needs of the rulers, not the ruled.

To look at the mentality of the Roman emperors, we can look just at the advice that the Emperor Septimius Severus gave to his two sons, Caracalla and Geta. This is supposed to be his final words to his heirs. He said, "live in harmony; enrich the troops; ignore everyone else."

Carcalla He took that so seriously to heart that his mother remonstrated with him and urged him to be more moderate and to restrain his increasing military expenditures and burdensome new taxes. He responded by saying there was no longer any revenue, just or unjust, to be found. But not to worry, "for as long as we have this," he insisted, pointing to his sword, "we shall not run short of money."

His sense of priorities was made more explicit when he remarked, "nobody should have any money but I, so that I may bestow it upon the soldiers." And he was as good as his word. He raised the pay of the soldiers by 50 percent, and to achieve this he doubled the inheritance taxes paid by Roman citizens.

He then went further by proceeding to debase the coinage. The basic coinage of the Roman Empire to this time -- we're speaking now about 211 AD -- was the silver denarius introduced by Augustus at about 95 percent silver at the end of the 1st century BC. The denarius continued for the better part of two centuries as the basic medium of exchange in the empire.

But the real crisis came after Caracalla, between 258 and 275, in a period of intense civil war and foreign invasions. The emperors simply abandoned, for all practical purposes, a silver coinage. By 268 there was only 0.5 percent silver in the denarius.

The next emperor who interfered with the coinage in a meaningful way was Constantine, the first Christian emperor of Rome. In the year 312, which is also the year he issued the Edict of Toleration for Christianity, Constantine issued a new gold piece, which he called by a new name, the solidus -- solid gold. This was struck at 72 to the pound, so it was in fact debased more than Diocletian's.

Now, one of the things that had happened in the course of this 3rd-century inflation was that the government found that when it paid its troops in token coinage, or even in debased silver coins, prices immediately rose. Every time the silver value of the denarius dropped, prices naturally rose.

The result was that the government, in order to try to protect its civil servants and its soldiers from the effects of inflation, began to demand payment of taxes in kind and in services rather than in coin. They wound up, in effect, repudiating their own issued coins, not accepting them for tax collection purposes.

What were the causes of this inflation? First of all, war. The soldiers' pay rose from 225 denarii during the time of Augustus to 300 denarii in the time of Domitian, about a hundred years later. A century after Domitian, in the time of Septimius, it had gone from 300 to 500 denarii; and in the time of Caracalla, about 10 years later, it had gone to 750 denarii. In other words, the cost of the army was also rising in terms of the coinage; so, as the coinage became more worthless, the cost of the army had to be increased.

The advance in the soldiers' pay in the rest of the 3rd century and into the 4th century is not known; we don't have figures. One reason is that the soldiers were increasingly paid in terms of requisitions of supplies and goods in kind. They were literally given food, clothing, shelter, and other commodities in lieu of pay. This applied also to the civil service.

Except in emergencies, which were usually related to war, the Roman government generally followed a policy of free trade and minimal restriction on the economic activities of its population. But now under the pressure of this need to pay the troops and under the pressure of inflation, the liberty of the people began to be seriously eroded -- and very rapidly.

So the government solved that problem by simply passing a law that any taxes that decurions[tax collectors] could not collect from others, they would have to pay out of their own pockets. That's known as the incentive method for the tax collector.

As you can well imagine, as the crises became greater and the economy was disrupted by civil conflicts and invasions and the effects of inflation, the decurions, strangely enough, no longer wanted to be decurions.

What we have here is a kind of nationalization of private enterprises, and this nationalization means that the people who use their money and their talent are now compelled to serve the state whether they like it or not.

When people tried to get out of this they were then, by law, compelled to remain in the occupation that they were in. In other words, you couldn't change your job or your business.

This was not sufficient because, after all, death is a relief from taxes. So the occupations were now made hereditary. When you died, your son had to take up your profession. If your father was a shoemaker, you had to be a shoemaker.

For years, the well-disciplined Roman army held the barbarians of Germany back. Then in the third century A. D. the Roman soldiers were pulled back from the Rhine-Danube frontier to fight civil war in Italy. This left the Roman border open to attack. Gradually Germanic hunters and herders from the north began to overtake Roman lands in Greece and Gaul (later France). Then in 476 A. D. the Germanic general Odacer or Odovacar overthrew the last of the Roman Emperors, Augustulus Romulus. From then on the western part of the Empire was ruled by Germanic chieftain. Roads and bridges were left in disrepair and fields left untilled. Pirates and bandits made travel unsafe. Cities could not be maintained without goods from the farms, trade and business began to disappear.

Now, perhaps we should try and find some lessons in this tale of the monetary policies of the late Roman Empire. The first lesson, I think, must be that if war is the health of the state, as Randolph Bourne said, it is poison to a stable and sound money. The Roman monetary crisis therefore was closely connected with the Roman military problem.

Another lesson is that problems become solvable when a ruler decides that something can be done and must be done.

In the light of the above lesson in history, its worth nothing that perhaps if European leaders can solve their identity crisis and come to a conclusion on their debt issues, their problems can become solvable as well. But then again, the following statements will tell you that they still have a long way to go:

"Spain is not Greece" - Elena Salgado, Spanish Finance Minister, February 2010
"Portugal is not Greece" - The Economist, April 2010
"Greece is not Ireland" - George Papaconstantinou, Greek Finance Minister, November 2010
"Spain is neither Ireland nor Portugal" - Elena Salgado, Spanish Finance Minister, Nov. 2010
"Ireland is not in 'Greek Territory'" - Irish Finance Minister Brian Lenihan, November 2010
"Neither Spain nor Portugal is Ireland" - Angel Gurria, Secretary-General OECD, Nov. 2010
"Italy is not Spain" - Ed Parker, Fitch MD, June 12, 2012
"Spain is not Uganda" - Spanish PM Mariano Rajoy, June 2012
"Uganda does not want to be Spain" - Ugandan foreign minister, June 13, 2012

Sources/further reading:
Ludwig von Mises
Counterargument to above
John Mauldin

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Comments (4)


I hate to be a depressing cynic, but it sounds like the real lesson is to learn how to be a valuable soldier.


I think copy and pasting requires quotes or rephrasing. Good post, but this is plagiarism... even if it's a blog.


A for effort. Appreciate the research.


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