Roman Empire and Inflation

Joseph R. Peden’s article Inflation and the Fall of the Roman Empire is a fascinating read as it recounts the inflationary policies of Roman emperors over a series of centuries.1 He started this lecture by stating:

Map of Roman Empire I’ve been asked to speak on the theme of Roman history, particularly the problem of inflation and its impact. My analysis is based on the premise that monetary policy cannot be studied, or understood, in isolation from the overall policies of the state. Monetary, fiscal, military, political and economic issues are all very much intertwined. And the reason they are all so intertwined is, in part, due to the fact that the state, any state, normally seeks to monopolize the supply of money within its own territory.

Monetary policy therefore 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. And this point is central, I believe, to an understanding of the course of monetary policy in the late Roman Empire.

He then went on to explain some of the various causes of inflation:

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 the terms of the coinage; so, as the coinage became more worthless, the cost of the army had to be increased. The advance in the soldier’s pay in the rest of the 3rd century and into the 4th century is not known, we don’t have figures. And 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 – and this applied also to the civil service.

When one Roman emperor refused to pay a donative on his accession – this was a bonus given to the soldiers on the accession of the emperor – he was simply murdered by his troops. The Romans had had this kind of problem even in the days of the Republic: if the soldiers don’t get paid they rather resent it. What we find is that the donatives had been given on the accession of a new emperor from the time of Augustus on; then they began to be given in the 3rd century every five years. By the time of Diocletian, donatives were given every year, so that the soldiers’ donatives had in fact become part of their basic salary.

The size of the army, I think I indicated already, had increased. Doubled from the time of Augustus to Diocletian, and the size of the civil service I indicated also. Now, all these events strained the fiscal resources of the state beyond its ability to sustain itself, and the debasement and the taxation were both used to keep the ship of state going; frequently by debasing, then by taxation, and then often simply by accusing people of treason and confiscating their estates.

As to the causes of inflation,

Inflation One of the Christian fathers, Saint Gregory Nazianzus, commented that war is the mother of taxes and I think that’s a wonderful thing to keep in mind: war is the mother of taxes. And it’s also, of course, the mother of inflation.

Now, what were the consequences of inflation? One of the odd things about inflation is, in the Roman Empire, that while the Roman state survived – the Roman state was not destroyed by inflation – what was destroyed by inflation was the freedom of the Roman people, and particularly the first victim was their economic freedom. Rome had basically a laissez-faire concept of state/economy relations. 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.

Then, this ominous conclusion:

Now, we may wish to 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 the problems become solvable when a ruler decides that something can be done and must be done. Diocletian and Constantine clearly were willing to act to protect their own ruling-class interest, the military and the civil service. Monetary reforms were necessary to win the support of the troops and the bureaucrats that composed the only real constituency of the Roman state, and the two-tier system was designed to this end. It brought about a stable monetary standard for the ruling group who did not hesitate to secure it at the expense of the mass of the population.

The Roman state survived. The liberty of the Roman people did not. When freedom became possible in the west in the 5th century, with the barbarian invasions, people took advantage of the possibility of change. The tax burden remained burdensome even after the gold standard was re-established. The peasantry had become totally alienated from the Roman state because it was no longer free. The business community likewise was no longer free, and the middle class of the urban cities was no longer free.

The economy of the west was perhaps more fatally weakened than that of the east, and when we read in the writings of the early 5th century Christian priest Salvian of Marseille his account of why the Roman state was collapsing in the west – he was writing from France, Gaul – Salvian says that the Roman state is collapsing because it deserved collapse; because it had denied the first premise of good government which was justice to the people. And by justice he meant a just system of taxation. Salvian tells us, and I don’t think he’s exaggerating, that one of the reasons why the Roman state collapsed in the 5th century was that the Roman people, the mass of the population, had but one wish after being captured by the barbarians: that they would never again fall under the rule of the Roman bureaucracy. In other words, the Roman state was the enemy, the barbarians were the liberators. And this undoubtedly was due to the inflation of the 3rd century. While the state had solved the monetary problem for its own constituents, it had failed to solve that monetary problem for the masses and continued to use an oppressive system of taxation in order to fill the coffers of the ruling bureaucrats and military. Thank you.


  1. Mr. Peden was one of the founding figures of the modern libertarian movement. A close confidant of Murray Rothbard and member of his inner circle (the Circle Bastiat), Peden went on to publish the Libertarian Forum from 1969-1982. His writing has appeared in the Libertarian Forum the Journal of Libertarian Studies, and he served on the editorial staff of Literature of Liberty. A Ph. D. in Roman/Christian and Medieval History, Peden studied medieval money and medieval institutions, as well as opposition to government education in US and Europe. He taught European history at Baruch College (City University of New York) for almost 30 years. He died on February 12, 1996.

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  1. rick@rickety’s avatar

    Mr. Peden’s article was an interesting read. I wonder if we can infer that the wars in Afghanistan and Iraq are contributing to inflation with the cost reaching $1 trillion this year.

  2. Greg’s avatar

    Also, while the Federal Reserve has expanded the monetary base 142%, from about $800 billion in 2008 to $2 trillion in just two years… See Richard G. Anderson’s research paper on the Monetary Base in which he states:

    Many empirical studies have examined linkages among growth of the monetary base, growth of broader monetary aggregates, and an economy’s inflation rate. Over long periods of time, there is a clear positive relationship: absent significant structural or regulatory changes, prolonged inflation (and, especially hyperinflation) cannot continue without increases in the monetary base. In most historical cases, excessive growth of the monetary base has reflected lack of fiscal discipline, not failure of monetary policy (Fisher, Sahay,and Vegh, 2002). Sharp reductions in inflation such as occurred in the United States during 1979-1980 typically are accompanied by, and likely require, sharp reductions in the monetary base.

  3. Ted Striker’s avatar

    Roman Empire analogies are to government and fiscal analysis as Warren Buffett is to stock strategizing – everyone uses the name and conforms it to whatever viewpoint they subscribe to.

  4. Greg’s avatar

    Care to elaborate Ted?

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