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It Didn’t Begin with FDR: Currency Devaluation in the Roman Empire

The phenomenon of currency devaluation and its consequences is a process that not only occurred in modern times, but has much deeper roots, going back to antiquity.

With the collapse of the Roman Republic, Caesar’s grandnephew Gaius Octavianus, renamed Augustus, rose to power and soon implemented a far-reaching monetary reform for the Roman common market. The old republican trimetallic system of different denominations of silver, brass, and bronze became a new quadrimetallic system of denominations of gold (aureus and quinary aureus), silver (denarius and quinary), brass (sestertius and dupondius), and copper (as, semis, and quadrant). The denarius aureus, or nummus aureus, was the stable base of the trimetallic system, with a high precious metal content of 98 percent. This unit fell from a theoretical 8.175 grams of the Caesarian aureus to a theoretical 7.785 grams under Augustus.

The denarius argenteus, on the other hand, was the mainstay of the new imperial monetary system. Its precious metal content was also high, between 97 and 98 percent. This unit fell from a theoretical 4.54 grams during the Republic to a theoretical 3.892 grams under Augustus. The sestertius and the as, for their part, functioned as coins in common use and as units of account. The sestertius went from 1.13 grams of silver in the Republican period to 27.00 grams of brass in the Augustan period, while the as changed from 54.50 grams of bronze during the Republic to 11.00 grams of copper in the Augustan period.

These reductions in the weight of the gold and silver coins and the change to cheaper metals, in the case of the brass and copper denominations, together with the conquest of Egypt and the pacification of the entire Roman Empire, allowed Augustus to achieve unprecedented levels of “Keynesian” public spending: the administration, justice, finance, cults, and the imperial army were thoroughly reformed; costly new conquests were undertaken throughout the Roman orb; and a never-before-seen program of public works was completed throughout the empire, a program so ambitious that Suetonius recalls that “he could justly boast of leaving Rome in marble, having received it in brick” (Suetonius, Aug. 28.3.2–4). The average annual budget amounted to ca. 440 million sesterces, of which ca. 273 million financed the army and praetorians, 55 million went to the imperial administration, 60 million to the free monthly wheat subsidy for the most deprived Romans (annona), and only ca. 7 million went to public works and games.

Following the same Augustan scheme of devaluation—lowering the weight of the coinage and subsequently injecting public expenditure into the Roman market—Augustus’s successors on the imperial throne during the first and second centuries AD carried out several reductions the denarius’s silver content. The first emperor to devalue the denarius after Augustus was Nero, who lowered it to ca. 3.18 grams and 93.5 percent silver. The eccentric emperor, a lover of art, travel, and concerts, needed a considerable injection of state currency to fund his public employment policies, grain redistribution, new shows, and, above all, for his pharaonic projects in Rome after the fire that destroyed much of the center of the capital. His grandest project was the Domus Aurea, an enormous palatial complex of exaggerated luxury in the heart of the Urbs.

Vespasian again devalued the denarius, reducing it to 90 percent silver to deal with the financial crisis that had devastated the Roman economy after the civil war of the Year of the Four Emperors. And Domitian, after temporarily restoring the denarius to 98 percent silver, devalued the coin again, to 93.5 percent silver: the increase in the military stipendium, the construction of the defensive line of the Agri Decumates and, above all, the wars in Britain and on the Danube, against the Germans and Dacians, whom Domitian had to bribe, drained the imperial treasury and forced the emperor to devalue the currency again.

The devaluations continued in the second century AD. Trajan reduced the denarius to 89.5 percent silver to pay for the increase in legions and victories in Dacia and Arabia, and to finance new campaigns in Armenia and Mesopotamia. Even the immense booty from all these campaigns failed to alleviate the ever-increasing costs of the Roman state: Trajan established public aid for the neediest (alimenta), massive debt relief, and massive new projects in the center of Rome, the most famous of which was Trajan’s Forum, with its famous historiated column.

Antoninus Pius too devalued the denarius, to 83.5 percent silver, followed by Lucius Verus, who brought it down to 79 percent silver. The gradual slowdown and disintegration of the Roman economy during the second century, especially in the provinces, and the increasingly chronic increase in public expenditure only aggravated the situation of the empire’s finances: the annual budget of the Roman state had risen from 440 million sesterces in the Augustan period to 830–900 million by the middle of the second century.

The last quarter of the century saw the denarius argenteus fall to almost half its original value. First, Commodus further devalued it to 76 percent silver and then again to 74 percent; falling revenues due to bouts of pestilence were compounded by continued public subsidies, rising army costs, and the profligate public festivities and games of the outlandish emperor, who identified himself as the new Hercules. These continual devaluations were not enough, as the emperor also engaged in constant private confiscations and sales of political offices. His assassination fleetingly improved matters. Pertinax, Marcus Aurelius’s confidant, tried to bring order to Roman coinage by revaluing the denarius at 87 percent silver, but his refusal to increase the Praetorians’ salary led to his assassination just three months after his appointment as emperor. His position was auctioned between Flavius Sulpicianus and Didius Julianus, who eventually won the auction and devalued the denarius to 81.5 percent silver.

The civil war that followed Didius Julianus’s very short reign of two months saw Septimius Severus, who was in command of the Danubian legions, rise to power. This emperor began the Roman army’s almost absolute domination of the finances of the empire; the African emperor increased the number of legions for his campaigns in Mesopotamia and Britain, increased soldiers’ pay  from 1,200 to 1,600–2,000 sesterces a year, and, above all, instituted the annona militaris, a special and “temporary” tax for the needs of the army.

In addition, in the social field, he established a kind of welfare state, with new free distributions of grain and olive oil in Rome, as well as new forms of aid worth 880 million sesterces, including free medicines for the neediest (a kind of Roman Medicaid). Septimus Severus also organized new and extravagant public games and undertook new urban planning programs in Rome and the provinces. He built a new imperial palace in the capital on the Palatine, adorned the western end of the Roman Forum with an arch, and began constructing a vast complex of thermal baths.

In the provinces, meanwhile, he executed a huge program of public works in his home town of Leptis Magna and spent vast sums on road repairs, also taking on the costs of the postal service. To cope with this exorbitant public expenditure, he devalued the denarius three times in succession: first to 78.5 percent silver as soon as he came to power, then to 64.5 percent a year later, and finally to 56.5 percent.

The aureus withstood the devaluations throughout the first two centuries of the empire better than the denarius: from 7.8 grams in the Augustan period, the aureus fell to 7.2 grams under Septimius Severus, with its gold content reduced from 98 percent to 88–90 percent at the end of the second century.

Thus, we see that in the Roman Empire, all devaluations occurred in contexts of high public expenditure for reasons of war, increases in social aid, cash handouts to specific pressure groups during imperial accessions or anniversaries, new public projects, and various types of extravagances, all according to the whims of the ruler in question. Devaluations tended to be accompanied by considerable increases in mint activity when there was pressure to produce more coins and finance various public projects. This excess liquidity produced an immediate Cantillon effect. Like “Hayek’s honey,” the new devalued currency reached the political class first—the emperor’s friends and colleagues, senators, high officials, and even high-ranking generals or praetorians—benefitting them at the expense of the rest of the population.

The increase in the total money supply led to inflation, which was moderate during the first two centuries of the empire, averaging 0.7 percent per annum. Several factors undoubtedly contributed to the absence of uncontrolled inflation during the early centuries of the empire, in particular the continuous expansion of Roman society and the Roman common market, which reached its zenith only in the second century, and the incessant demand for denarii by Roman economic agents, as is the case today with the US dollar and the euro.

One might add that certain sclerotization or “Japanization” of the Roman economy, together with other factors, cushioned it from the harmful effects of the devaluation of the denarius and allowed for the socialization of these effects among all Roman companies and individuals. Even so, such practices as increased payments in kind and led to a slowdown and chronic deterioration of trade networks, which would eventually disintegrate completely, leading to the disaster of hyperinflation and price controls in the third and fourth centuries.