Category: Economics, Finance, and Political Economy

INFLATION IS THE FUEL OF CORRUPTION OF THE STATE

By Francesco Principi

(read and learn)

This is the reason why the northeastern border of the Roman empire stopped at the Rhine river. The Germans were poor populations and therefore of no interest to the Romans

The goal of the rulers who so badly governed was to coin and spend more. Caracalla thought that if he had removed some silver from the coins, nobody would have noticed and that he would have multiplied the money in circulation. It was ultimately a good thing for everyone.

The Roman coin was the denarius, and from him comes the word money, it was initially pure silver. At the time of Augustus, the first emperor, each denarius was made up of 95% silver and 5% other metals, such as bronze. A century later, with Trajan, the percentage of silver was 85%. Eighty years later, Marcus Aurelius once again depreciated the denarius, bringing it to only 75% of silver. The denarius, therefore, had devalued by 20% in two centuries. A fairly tolerable thing. Caracalla, who was in great need of capital for his expenses, devalued the coin to leave us only 50 percent of silver; that is, he devalued it by 25 percent in one year.

The aureus also lost value due to a legal provision. During the reign of Augustus, about forty coins came out of every pound of gold. Caracalla extended the pound until he also got out fifty coins which, of course, maintained the face value, but not the purchasing power.

With such a monetary experiment and without the emperor predicting it, prices shot up. Caracalla missed the party: living in the countryside in Asia, he was stabbed by one of his guards while pissing on the edge of a road. A worthy end for one of the most impudent people in history.

Those who came after him did nothing but make things worse. Almost all the emperors of the third century were military and almost all came to power following violent coups. There is a figure that says a lot: only one of them, Ostiliano, who reigned for six months in 251, died of natural causes; the rest fell at the hands of the guards or on the battlefield, generally against their successors. This period is defined by historians as “the crisis of the third century”. To tell the truth, they should speak of the end of Roman civilization, because from this moment on the Roman world became much more similar to the medieval period than to the classical one.

Over the course of this century, the denarius never stopped devaluing, until it was converted into a piece of silver-plated bronze that quickly passed from hand to hand. But bad money, as the saying goes, passes from hand to hand and nobody keeps it. As for the aureus, it practically disappeared from circulation, and when it appeared it was thinned and adulterated. Inflation exceeded 1,000%, and this only with the fragmented data we have available: probably, in certain periods and in certain places it was even greater.

After the political and economic chaos of the third century, Diocletian’s adjustment came and, without being able to resort to devaluation anymore, he crushed the inhabitants of the Empire with taxes and attempted a monetary reform. The reform failed and its edict sanctioning a price cap was completely ignored by people who, in less than a century, had gone from having silver money in their pockets to handling the so-called “follis”, small pieces of bronze of low value . The Romans had been staggeringly depleted in just a few decades because of the government; and with them the commerce, industry and agriculture of the Empire declined.

The seed of the almighty state, always in need of funds to survive, had now taken root. Emperor Constantine suppressed the aureus and put into circulation a new gold coin, the solid, much depreciated compared to the previous one. An aureus of the ancients was worth, for the quantity of precious metal contained, two solids. The silver coin, adulterated to the point of nausea, disappeared from circulation.

Constantine obtained the amount of gold necessary for the reform by confiscating it from the rich eastern cities and pagan temples, already in retreat behind the conversion of the Emperor to Christianity. To finance the functioning of the state, new taxes were invented that could only be paid in gold, the only form of payment accepted by foreign mercenaries who militated in the army. They were called barbarians, although, to tell the truth, even though they were barbarians, they were certainly not fools, since they were willing to gamble their lives only for real money.

Gold turned into a refuge for those who could get it, that is, the military and high imperial officials. The rest of the population had to settle for the bronze in the bags and the copper of the informal money, illegally coined, which served as a small coin. The rich class of small owners and merchants, the ancient base of Roman greatness, was ruined without the possibility of recovery. There was therefore a concentration of land in the hands of a few large owners

So we can conclude that inflation (beyond high taxation) is the fuel of any corrupt state.

Having no large quantities of gold or precious metals, the Romans drew human capital from the Germanic populations and used them in their army.