The more things change, the more they stay the same. The Mises Institute recently released Rome’s Runaway Inflation: Currency Devaluation in the Fourth and Fifth Centuries. Excerpts, with my comments, follow.
By the beginning of the fourth century, the Roman Empire had become a completely different economic reality from what it had been at the beginning of the first century. The denariusargenteus, the empire’s monetary unit during the first two centuries, had virtually disappeared since the middle of the third century, having been replaced by the argenteusantoninianus and the argenteusaurelianianus, numerals of greater theoretical value, but of less and less real value.
The public excesses in the civil and military budgets, the incessant bribes and gifts, the repeated tax increases, the growth of the state bureaucracy, and the continuous requisitions of goods and precious metals had exhausted the Roman economy to incredible levels. To cap this disastrous reality, inflation had risen from 0.7 percent per year in the first and second centuries to 35.0 percent per year in the late third and early fourth centuries, impoverishing all social strata of the empire by leaps and bounds.
Holy crap! Does any of that seem familiar to you? There’s an old truism that states that ‘history may not always repeat, but it frequently rhymes.’ This is one of those cases. Almost every one of those issues in fourth-century Rome are also issues of twenty-first century America: Excessive government spending, corruption, the runaway growth of the Deep State, and inflation. And, as happened in Rome, none of these things are going away.
In 301, Diocletian sought to put an end to this out-of-control situation by promulgating the Edictum de pretiis rerum venalium (Edict Concerning the Prices of Goods for Sale), which prohibited, on pain of death, the raising of prices above a certain level for almost thirteen hundred essential products and services. In the preamble to the edict, economic agents were blamed for inflation, labeled as speculators and thieves, and compared to the barbarians who threatened the empire.
Most producers and intermediaries, therefore, opted to stop trading the goods they produced, to sell them on the black market, or even to use barter for commercial transactions. This weakening of supply drove real prices even higher, in an upward spiral that further deteriorated the complex Roman economic system. Just four years later, in 305, Diocletian himself, overwhelmed by his political and economic failures, abdicated in Nicomedia and retired to his palace in what is today Split, Croatia.
The Nixon Administration flirted with price and wage controls in the Seventies. A number of people on the political Left are advocating for the idea today. And, in some ways, wage controls are already here; what is a state-mandated minimum wage if not a wage control? As Diocletian did in 301, so the United States does today, moving increasingly towards central control.
During the fourth and fifth centuries, the Roman economy finally deteriorated completely, taking with it society and, consequently, the ambitions of the politicians of the time. The Roman Empire was now a failed and outdated project. The persistent excess of public spending between the first and third centuries forced Roman rulers to devalue the currency continuously. This chronic devaluation, together with the decline in population and economic activity throughout the third century, triggered price inflation throughout the empire, a phenomenon that the Romans did not know how to handle.
Roman rulers attempted to use harmful price controls in order to mitigate the decline in the effective purchasing power of the middle and lower classes. For instance, the Edictum de pretiis rerum venalium of 301 ended up withdrawing what little supply of products remained on the white market, making them more expensive on the black market. It is truly shocking to note how many politicians and populist parties of all ideological stripes continue to propose these same “remedies” even today.
The response to attempted market control is always the rise of black markets. The Soviet Union was notorious for goods and services being sold Nalevo, or “on the left,” in the thriving black markets that sprang up almost on the inception of the Soviet system. America has a thriving black market in recreational drugs. Market demands will always be met by supplies.
And that, True Believers, is the rub; currency, like any other commodity, is subject to the rules of supply and demand. When the currency supply is increased, the value decreases. When the currency is degraded, the (relative) price of every other commodity increases. Black markets will spring up, and barter will increasingly replace currency. That was the case in the Roman Empire, and it’s the case now.
Taken together, the aggregate effects of public overspending and inflation on the Roman economy in between the first and third centuries ultimately led to an unprecedented structural weakening of the economic capacity of fourth- and fifth-century society, reflected in the incompetence of its rulers and elites to hold the empire together in the face of external threats, which, to quote Ludwig von Mises himself, “were not more formidable than the armies which the legions had easily defeated in earlier times. But the Empire had changed. Its economic and social structure was already medieval.”